[Asia Economy New York=Special Correspondent Josel Gina] "It was operated not as an international organization, but like Sam Bankman-Fried's personal fiefdom."
The shocking operational realities of FTX, one of the world's top three cryptocurrency exchanges that triggered the 'Lehman Brothers crisis of the crypto world,' are gradually coming to light. Not only were significant corporate assets taken out without authorization or disappeared, but it was also revealed that the amount spent by senior executives on villas and other expenses exceeded $300 million.
The legal team from Sullivan & Cromwell, the law firm handling FTX's bankruptcy proceedings, attended the first bankruptcy hearing on the 22nd (local time) at the Delaware court and stated, "This is one of the most sudden and difficult bankruptcy cases in the history of American and global corporations." FTX, which faced a liquidity crisis, filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code on the 11th.
James Bromley, the partner leading the legal team, harshly criticized the poor management of FTX founder Bankman-Fried during the approximately two-hour hearing. Despite investigating FTX and more than 130 affiliated companies, he pointed out that due to sloppy accounting and management, even basic financial information about the company was unreliable and limited. Bromley said, "FTX was operated by inexperienced and unprofessional individuals. Some or all of them were individuals who bent principles," and raised his voice, saying, "A significant amount of assets were stolen or disappeared."
In particular, he pointed out that the reality of FTX, which was globally recognized as a leading cryptocurrency exchange, was in fact not an 'international organization' but Bankman-Fried's personal fiefdom. He further defined the current state of FTX by saying, "Everyone realized for the first time that the emperor had no clothes." After closely examining FTX's expenditures just before the bankruptcy filing, it was confirmed that a business unit involved in the bankruptcy purchased real estate worth about $300 million in the Bahamas for personal vacation purposes. Additionally, reports have been continuously emerging that Bankman-Fried, his parents, and senior executives misappropriated customer funds, including purchasing at least 19 properties in the Bahamas over the past two years.
According to the legal team, FTX is currently also facing cyberattacks. Shortly after filing for bankruptcy, it was confirmed that hundreds of millions of dollars in unauthorized transactions were executed, sparking hacking controversies. However, Bromley did not disclose the exact scale of the stolen or missing assets. He emphasized, "I understand the concerns and anger regarding (asset theft and loss)" and added, "We are working day and night to manage the chaos."
The legal team's remarks on FTX's reality align with the criticisms poured out last week by the new CEO, John J. Ray III. Ray, a leading restructuring expert who successfully led Enron's bankruptcy proceedings, lamented, "In my 40 years of restructuring experience, I have never seen such a complete failure of corporate control."
Currently, CEO Ray is exploring options to sell or restructure the FTX group. However, founder Bankman-Fried expressed regret and apologized in a letter sent to employees on the same day for filing for bankruptcy. He is reportedly negotiating deals worth billions of dollars with investors to rescue FTX.
Consulting firm Alvarez & Marsal, advising on FTX's restructuring, announced as of the 20th that FTX's cash balance totaled $1.24 billion (1.6826 trillion KRW). This amount is larger than the balance estimated last week. The affiliate holding the most cash was Alameda Research, the epicenter of the FTX collapse, with $393.1 million. This was followed by LedgerX with $303.4 million and FTX Japan K.K. with $171.7 million in cash. However, this does not even cover the minimum debts owed to creditors. FTX owes $3.1 billion to the top 50 unsecured creditors.
One of the key issues before the hearing was whether FTX would disclose the creditor list. Judge John Dorsey confirmed a policy of non-disclosure for the time being, citing "potential risks." The New York Times (NYT) reported that the hearing attracted unusually high attention for a bankruptcy proceeding, with over 500 people accessing the Zoom broadcast live. On the same day, Sequoia Capital in the U.S. apologized to its fund investors for a $150 million loss from its investment in the cryptocurrency exchange FTX.
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