The struggling cryptocurrency exchange FTX has filed for bankruptcy.
The announcement came at the end of a shocking week that shook the cryptocurrency industry.
The CEO of the cryptocurrency exchange FTX, Sam Bankman-Fried, took to Twitter on Monday to reassure his customers: “FTX is fine.” “The assets are good.”
On Friday, FTX announced that it was filing for bankruptcy. This was the end of an unusually dramatic week for the company, which shook up crypto markets, sent shock waves through an industry that is still trying to gain credibility with the general public, and sparked government investigations that could lead to more damaging information or even criminal charges.
In a tweet, the company said that Mr. Bankman-Fried had quit and that John J. Ray III, an expert in turning around companies, would take over as CEO.
Insiders in the cryptocurrency world are shocked by how quickly FTX fell. Just a few days ago, Mr. Bankman-Fried was thought to be one of the smartest leaders in the crypto industry. He was a powerful figure in Washington who pushed for new rules through lobbying. And many people thought that FTX was one of the most stable and responsible companies in the crypto industry, which had few rules.
A bankruptcy professor at Harvard Law School, Jared Ellias, said, “Here we are, with one of the richest people in the world seeing his net worth and business go to zero.” “I can’t believe how fast this failure is happening.”
Now that FTX has gone bankrupt, investors and customers are in a rush to save money from what’s left of the company. This week, a lot of people tried to take money out of the platform, but the company couldn’t keep up with the demand. People who know about its finances say that the exchange owes as much as $8 billion.
The crypto industry was already in a bad place after a crash in the spring that took $1 trillion off the market. FTX’s failure has made things even worse. The prices of Bitcoin and Ether, the two most popular cryptocurrencies, have dropped by a lot. BlockFi, a cryptocurrency lender that worked closely with FTX, said on Thursday that it would stop doing business because of FTX’s failure.
Some of the most well-known venture capital investors in Silicon Valley, like Sequoia Capital and Lightspeed Venture Partners, helped Mr. Bankman-Fried. Some of these investors, who have been asked how closely they looked at FTX before putting money into it, have said that their nine-figure investments in the crypto exchange are now basically worthless.
The end of the company has also led to a reckoning over the widespread use of risky practices in crypto, an industry that was started in part to fix the kind of risky financial engineering that caused the 2008 financial crisis.
Mr. Bankman-Fried said on Twitter on Friday, “I’m really sorry that we’re here again.” “I hope this will bring some level of openness, trust, and good government.”
The bankruptcy filing is the start of a legal process that could take months or even years, as lawyers try to figure out if the exchange can ever keep running in some way and customers try to get their money back. The Securities and Exchange Commission and the Justice Department are already looking into FTX. Their main question is whether or not the company used customer money in an illegal way to help Alameda Research, another trading firm that Mr. Bankman-Fried also started.
FTX, its U.S. branch, and Alameda all filed for bankruptcy at the same time. A simple legal filing in the U.S. Bankruptcy Court in Delaware says that FTX’s assets are worth between $10 billion and $50 billion and that its debts are also in that range. The filing said that the company owes money to more than 100,000 people.
Mr. Bankman-Fried, who is 30 years old, used to be known as a boy genius with a lot of cute habits, like sleeping on a beanbag at the office. His bankruptcy is a shocking fall from grace. At one point, he was one of the richest people in the industry, with an estimated fortune of $24 billion. He hobnobbed with actors, professional athletes and former world leaders.
Mr. Bankman-Fried’s crypto empire had an elaborate structure. In the bankruptcy filing, there is a list of more than 130 businesses that are connected to FTX and Alameda. But as of June, FTX only had about 300 employees, which Mr. Bankman-Fried said was a point of pride. He said he had resisted calls from venture investors to hire more people.
Mr. Bankman-Fried said on Twitter in June, “We told them that adding too many people too quickly was a net negative.” “They could choose to take it or not.”
None of FTX’s investors had seats on the board, which was unusual for a big start-up. Instead, the board was made up of Mr. Bankman-Fried, another FTX executive, and a lawyer from Antigua and Barbuda.
FTX was based in the Bahamas, where Mr. Bankman-Fried and a small group of top executives made most of the decisions and lived together in a luxury resort. People who know about the situation say that lower-level employees were surprised and confused when the company went under this week.
As a cryptocurrency exchange, FTX gave its customers a place to buy, sell, and store a wide variety of digital currencies. Most of its income came from a risky type of trade that is still illegal in the United States. Crypto investors borrowed money to make huge bets on the future prices of cryptocurrencies. But Mr. Bankman-Fried also ran a smaller company in the U.S. that let people trade in more basic ways.
Mr. Bankman-problems Fried’s began over the weekend, when the head of the biggest cryptocurrency exchange, Binance, said in public that FTX might not be doing well financially. Customers tried to get their crypto out of the platform all at once, and FTX couldn’t keep up with the demand.
On Tuesday, Mr. Bankman-Fried said he had struck a deal to sell FTX to Binance. Changpeng Zhao, the CEO of Binance, pulled out of the deal after looking at the company’s financial documents. This left Mr. Bankman-Fried with few choices.
In calls with investors and messages to employees this week, he apologized repeatedly and stressed that he was working hard to raise money and resolve the situation. But the hole was too big to fill in the end.
This year, a number of crypto companies have gone out of business, but FTX’s is the latest and by far the biggest. After a market crash in the spring, two crypto lending companies, Celsius Network and Voyager Digital, filed for bankruptcy, kicking off months of legal maneuvering over how their remaining assets should be divided. In a funny turn of events, FTX had just won an auction to buy the rest of Voyager’s assets.
As FTX goes through its own bankruptcy process, Mr. Ray, who has a lot of experience handling tough situations, will be in charge. He helped run Enron after its business fell apart in 2001 because of an accounting fraud scandal. And after the subprime mortgage company ResCap went bankrupt in 2012, he helped to sell off the trust it had set up.
It’s possible that Mr. Bankman-legal Fried’s problems won’t end with the bankruptcy proceedings. The relationship between FTX and Alameda is being looked into by federal investigators, and customers are likely to sue.
Old friends of Mr. Bankman-Fried have quickly left him. Mr. Bankman-Fried gave money to a charity called the FTX Future Fund. On Thursday night, the people who ran the charity said they were leaving.
In a statement, they said, “We were shocked and very saddened to hear about the recent events at FTX.” “We have serious doubts about the legality and honesty of the businesses that were paying for the FTX Foundation and the Future Fund.”
Not too long ago, Mr. Bankman-Fried was on stage at a conference doing a comedy act with Anthony Scaramucci, who used to be the White House communications director and now works with FTX.
In an interview on CNBC on Friday, Mr. Scaramucci said, “I’m disappointed.” “I guess hoodwinked is the right word.”