FTX Group said Friday it has filed for bankruptcy in the United States and that its CEO has resigned, marking a stunning downfall for one of the biggest and most powerful players in the crypto industry.
FTX said Sam Bankman-Fried, the 30-year-old founder of the exchange, will remain to assist in an orderly transition. Taking the helm in his place is John J. Ray III, the lawyer who oversaw the liquidation of Enron.
Several employees are expected to stay on to run the company in Chapter 11.
“I’m really sorry, again, that we ended up here,” Bankman-Fried wrote in a Twitter thread Friday. “Hopefully things can find a way to recover.”
The bankruptcy proceedings include FTX US, FTX’s crypto hedge fund Alameda and about 130 other sister companies.
Ray said bankruptcy protection will give FTX the chance to “assess its situation and develop a process to maximize recoveries for stakeholders.”
In its bankruptcy filing, FTX says it has between $10 billion and $50 billion of estimated liabilities and assets.
The bankruptcy serves two immediate functions, says Eric Snyder, a bankruptcy attorney with Wilk Auslander. It stops any further withdrawals from the exchange and creates a central place to examine all the claims.
“One of the unknowns is where they’re going to get the funds to operate bankruptcy,” he said. “We don’t have an answer to that right now.”
The implosion of FTX, unthinkable just days ago, is shaking the crypto industry to its core. It was triggered by a run-on-the-bank-like crisis after serious questions were raised last week about the health of the FTX balance sheet.
Regulators are now swirling to investigate what went wrong, and some lawmakers are demanding a crackdown.
Securities regulators in the Bahamas, where FTX.com is based, froze some of the embattled exchange’s assets on Thursday. FTX’s Japanese business was put into “close-only mode,” meaning users can only close out their positions, after regulators in that country ordered it to suspend operations.
Both the Justice Department and Securities and Exchange Commission are investigating FTX, The Wall Street Journal reported. The DOJ declined to comment, and the SEC said it does not comment on the existence or nonexistence of investigations.
Bankman-Fried has been one of the faces of the crypto industry, amassing a fortune once totaling $25 billion that has since vanished. He was viewed as the crypto world’s white knight, stepping in to rescue struggling companies. FTX, backed by elite investors like BlackRock and Sequoia Capital, rapidly became one of the biggest crypto exchanges in the world.
FTX spent lavishly to reach endorsement deals with the likes of Gisele, Tom Brady and Steph Curry. The company’s logo and name are splashed on the home of the NBA’s Miami Heat and even on the logos of MLB umpires.
The implosion of FTX was preceded by the decision to lend billions of dollars’ worth of customer assets to fund risky bets by Alameda, the Journal reported on Thursday. Alameda now owes FTX a staggering $10 billion that the exchange had serious trouble raising, the paper said.
It’s not clear what comes next for Bankman-Fried, who has hired Paul Weiss attorney Martin Flumenbaum, a white-collar defense lawyer known for representing junk-bond trader Michael Milken.
“FTX’s bankruptcy underscores crypto’s structural challenges around transparency and poor risk management that, time and again, have led to losses for investors,” said Monsur Hussain, senior director at Fitch Ratings.