FTX was Sam Bankman-Fried's personal fiefdom, company lawyers say

FTX operated as Sam Bankman-Fried’s ‘personal fiefdom’ company lawyers admit – as they say hackers looted ‘substantial’ assets after the $32B crypto exchange filed for bankruptcy

  • First bankruptcy hearing for FTX was held in Delaware court on Tuesday
  • Attorneys say the company operated as founder’s ‘personal fiefdom’
  • Company suffered ‘substantial’ losses in cyberattacks following its collapse 
  • Court filings show FTX spent $300 million on Bahamas real estate
  • FTX has $1.24 billion cash on hand, but owes creditors more than $3 billion

Stricken crypto exchange FTX was run as a ‘personal fiefdom’ of founder Sam Bankman-Fried, attorneys for the firm said on Tuesday, as they confirmed ‘substantial’ losses in cyberattacks following the firm’s collapse.

The revelations came at FTX’s first bankruptcy hearing in Delaware court, where one FTX lawyer, James Bromley, said, ‘What we are dealing with is a different sort of animal.’ 

‘Unfortunately, the FTX debtors were not particularly well run, and that is an understatement,’ he added. 

The collapse of FTX, once one of the world’s largest cryptocurrency exchanges, has left an estimated one million creditors facing losses totaling billions of dollars. 

At the hearing, an FTX attorney also said the company spent $300 million on real estate in the Bahamas, largely homes and vacation properties for senior staff. The company intends to sell off healthy business units, an attorney said.

Reuters earlier reported that Bankman-Fried’s FTX, his parents and senior executives of the failed cryptocurrency exchange bought at least 19 properties worth nearly $121 million in the Bahamas over the past two years, official property records show.

Stricken crypto exchange FTX was run as a ‘personal fiefdom’ of founder Sam Bankman-Fried, attorneys for the firm said on Tuesday

In other recent developments in the collapse of FTX:

  • Texas regulators probed A-list celebrities over their endorsements of FTX 
  • Sam Bankman-Fried was spotted for the first time since FTX went under
  • Records revealed FTX bought $121 million worth of property in the Bahamas
  • US prosecutors reportedly opened a probe into FTX months ago
  • Legal experts warned Bankman-Fried’s interviews pose risks to his defense  

At the hearing, an attorney for FTX also said the company continues to suffer cyberattacks as bankruptcy begins, and that ‘substantial’ assets are missing.

It appeared to confirm earlier reports that hundreds of millions worth of cryptocurrency had apparently been stolen by hackers in the chaos as the company collapsed. 

FTX’s cash balance of $1.24 billion as of Sunday was ‘substantially higher’ than previously thought, a filing Monday night by Edgar Mosley of Alvarez & Marshal, a consultancy firm advising FTX, said.

It includes around $400 million in accounts related to Alameda Research, the crypto trading firm owned by FTX founder Sam Bankman-Fried, and $172 million at FTX’s Japan arm.

FTX, which said on Saturday it has launched a strategic review of its global assets and is preparing for the sale or reorganization of some businesses, had previously said that it owes its 50 biggest creditors nearly $3.1 billion.

$30 million: The former penthouse residence of Sam Bankman-Fried in the luxurious Albany development, which was ‘meticulously designed with Venetian plaster walls matching Italian marble accents throughout,’ its listing says

$2 million: View of the beachfront condominium complex ONE Cable Beach, where FTX reportedly bought three homes between $950,000 and $2 million each

$16 million: The entrance to Old Fort Bay, the exclusive gated community where the $16.4 million vacation home reportedly bought by FTX for Bankman-Fried’s parents is located

$72 million: The Albany Bahamas Resort community where FTX reportedly bought seven apartments for its employees, described in a listing as ‘the ultimate in luxury waterfront living in the Caribbean’

In the highest-profile crypto blowup to date, FTX filed for protection in the United States after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

An attorney for FTX said at a bankruptcy hearing on Tuesday that an investigation must take place into Binance’s sale of FTX in July 2021. Binance bought a stake in FTX in 2019 and sold it in 2021.

How FTX has just $1.24billion cash balance 

FTX has a total cash balance of $1.24 billion but owes over $3 billion, with a bankruptcy hearing describing its leadership as inexperienced, unsophisticated and potentially compromised.

At the center of questions about the company’s financial history are likely to be its portfolio of Bahamas properties acquired over the last two years, mostly made up of high-end residences.

They include $72 million spent on apartments at a luxury Bahamas resorts, a $30 million penthouse in the same complex, a $16.4 million vacation home, and three apartments ranging between $950,000 and $2 million each.

The collapse of FTX, once one of the world’s largest cryptocurrency exchanges, has left an estimated 1 million creditors facing losses totaling billions of dollars.

Reuters has reported Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business, and that at least $1 billion of those deposits had vanished.

 

Reuters has reported Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business, and that at least $1 billion of those deposits had vanished.

The details of FTX’s cash balances came ahead of a hearing in Delaware on FTX’s so-called first-day motions, which kicked off on Tuesday.

FTX has asked Judge John Dorsey to sign off on initial steps in its bankruptcy, including paying employees and critical vendors, which will allow it to continue operating during Chapter 11 bankruptcy proceedings.

The firm had also asked Dorsey to take over a separate Chapter 15 case filed last week in New York on behalf of FTX’s Bahamas unit by liquidators appointed by a Bahamas court. 

Such proceedings are used by foreign companies to seek U.S. courts’ cooperation in cross-border bankruptcy cases.

Lawyers representing the Bahamian liquidators, who have previously questioned the validity of the U.S. Chapter 11 proceedings and clashed with the team leading it over which case should take precedence, agreed to that demand before Tuesday’s hearing.

FTX, led since the bankruptcy filing by new CEO John Ray, has accused Bankman-Fried of working with Bahamian regulators to ‘undermine’ the U.S. bankruptcy case and shift assets overseas.

Bankman-Fried, FTX and the Bahamas liquidators did not immediately respond to requests for comment.

FTX is also seeking to indemnify unidentified individuals for actions they took and continue to take in connection with assets that represent a significant share of the company’s estate, according to a Tuesday court filing.

Sealed indemnification requests are unusual at the start of a bankruptcy case. FTX said that it was communicating with U.S. regulators and bankruptcy court officials, but did not mention Bahamas regulators.

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