A few weeks ago, FTX was a $32 billion cryptocurrency darling. Now he is in bankruptcy.
Larry David, Tom Brady and Stephen Curry are among the celebrities who have supported the cryptocurrency exchange. Now they are all facing litigation for their involvement.
Concerns about the financial instability of FTX — the leading platform where users buy and sell cryptocurrencies — have sparked a wave of customer withdrawals totaling billions of dollars. But FTX did not have enough funds to pay the sellers and instead stopped withdrawing funds altogether.
Some crypto traders who have placed their savings on the platform may never get their money back.
The focus was on Sam Bankman-Fried, CEO of FTX, a 30-year-old crypto wunderkind who has been favored for years as a philanthropist and a leading proponent of industry regulation.
Lately, however, he has been facing vexing questions about the mismanagement of billions of client funds.
The fall of FTX is one of the most sudden and massive in recent corporate history.
Below is a timeline of a series of events that explains exactly why FTX fell so far and so quickly.
How FTX fell: timeline
November 2 The collapse of FTX is partly due to the cryptocurrency exchange’s close relationship with Alameda Research, a cryptocurrency hedge fund also founded by Bankman-Freed.
Serious concerns about FTX began when the news outlet CoinDesk published an article saying that a significant portion of Alameda Research’s assets consisted of FTT, a token created by FTX that allows users of the exchange to receive discounts on trading fees.
Since FTT cannot be easily exchanged for cash, the report raised concerns about capital reserves at Alameda Research and therefore at FTX.
November 6 – In response to the article, Changpeng Zhao, CEO of rival crypto exchange Binance, often referred to as “CZ,” said he would sell all of the company’s assets in FTT, whose token value is $580 million.
The major exit from the crypto heavyweight triggered a wider sell-off similar to a bank run, which put huge pressure on FTX to meet the sudden demand for customer withdrawals. Due to a lack of funds, FTX has completely stopped withdrawing funds from customers.
November 8 FTX has reached an agreement to sell itself to Binance, the crypto exchange whose chief executive helped spark the selloff.
“This is a user-centric development that benefits the entire industry,” Bankman-Fried. said. “CZ has done and will continue to do an incredible job of creating a global crypto ecosystem and creating a freer economic world.”
“It is important that customers are protected,” he said. added.
November 9 – Binance pulled out of FTX acquisition deal.
“As a result of corporate due diligence, as well as the latest news about the misuse of customer funds and the alleged investigations of the US agency, we have decided that we will not proceed with the potential acquisition of FTX.com,” Binance. said.
Binance’s Zhao summed up the decision in a tweet:
Meanwhile, the Securities and Exchange Commission and the Department of Justice launched an investigation into the collapse of FTX, according to the Wall Street Journal.
Sequoia Capital, a leading venture capital firm, has written down its stake in FTX by about $210 million to zero.
“We take risks”, Sequoia Capital said in a public letter. “Some investments will surprise for the better, and some for the negative.”
10th of November – The financial regulator of the Bahamas froze the assets of FTX.
Bahamas Securities Commission said he was aware of public allegations that FTX customer funds were potentially “misused” and “mismanaged”.
11th of November FTX has filed for Chapter 11 bankruptcy protection as it assesses the value of its remaining assets, the company said in a statement.
Bankman-Fried stepped down as CEO and was replaced by John J. Ray III, who led the disgraced energy company Enron through bankruptcy proceedings in the 2000s.
“Immediate Chapter 11 relief is appropriate to give the FTX Group an opportunity to assess their situation and develop a process for maximizing stakeholder reimbursement,” Ray said.
November 12 – The Wall Street Journal reported that FTX loaned client deposits to Alameda Research to help it meet its obligations, and Alameda Research’s senior management was aware of this, which brought additional attention to the relationship between Alameda Research and FTX.
November 14 The collapse of the FTX cryptocurrency exchange has been the subject of an investigation by New York federal prosecutors, sources familiar with the matter told ABC News.
The question is whether FTX violated securities laws when it reportedly transferred client funds to Alameda Research, the sources said.
November 16 — Members of the House of Representatives called on Bankman-Fried, as well as Alameda and Binance executives, to testify at a hearing on Capitol Hill in December.
“The fall of FTX caused huge damage to more than a million users, many of whom were ordinary people who invested their hard-earned savings in the FTX cryptocurrency exchange, only to see it all disappear within seconds,” representative Maxine. Waters, Calif., the statement said.
“Unfortunately, this event is just one of many examples of cryptocurrency platforms that collapsed just last year.”
Meanwhile, celebrities supporting FTX, including Naomi Osaka, Shaquille O’Neal and Kevin O’Leary, filed a class action lawsuit in federal court alleging that false representations of a fraudulent product were used to defraud vulnerable investors.
“I didn’t know, like other celebrities, about what happened here,” O’Leary, an entrepreneur and participant in the TV show Shark Tank, said in an interview with ABC’s Nightline.
Later that day, Vox published an interview in which Bankman-Fried humiliates regulators using expletives, admits that his previous calls for tighter cryptocurrency regulation were due to public relations concerns, and says he regrets the company’s announcement about bankruptcy.
Bankman-Fried, a prolific philanthropist, in an interview called his public commitment to ethics “a stupid game we’ve woken up Westerners to.”
November 17 – John Ray, the new CEO who was appointed to lead the company during the bankruptcy proceedings, said in court that he had never seen such a “complete failure” of corporate control in his career, including during the Enron scandal.
“From compromised systems integrity and misguided regulatory oversight across borders to the concentration of control in the hands of a very small group of inexperienced, inexperienced and potentially compromised individuals,” Ray said.
“This situation is unprecedented,” he added.