Lawyers for FTX Trading disclosed Tuesday that a “substantial amount” of assets has been stolen from accounts on the collapsed cryptocurrency exchange, diminishing the odds that its millions of users will get their money back.
The admission came Tuesday during FTX’s first court appearance since the company declared bankruptcy. Such hearings typically happen days after a filing, but this one was delayed because FTX’s collapse came suddenly and management kept few if any records.
“This company was run by inexperienced, unsophisticated and potentially personally compromised individuals,” said James Bromley, a partner at Sullivan & Cromwell, the law firm hired by FTX’s debt holders to navigate the company through bankruptcy. “It is one of the most abrupt and difficult company collapses in the history of corporate America.”
FTX, short billions of dollars, sought bankruptcy protection after the exchange experienced crypto’s equivalent of a bank run. The company estimates there are more than 100,000 claims against it so far, and that number is likely to rise to above 1 million once the case settles.
FTX was once the darling of the crypto world, garnering almost $2 billion in venture capital in three years. The company crashed in spectacular fashion this month, declaring Chapter 11 bankruptcy and sending shockwaves throughout the crypto industry. Former CEO Sam Bankman-Fried resigned from the company and is now under investigation in the U.S. and abroad for possible securities violations.
Court documents filed earlier this month show detailed financial statements, some of which reveal that FTX had $1.3 billion in assets and owed $102 million to customers the day the company filed for bankruptcy. FTX owes its creditors at least $3.1 billion, according to court documents.
In the days after FTX’s collapse, hundreds of millions of dollars in cryptocurrencies were moved out of FTX’s accounts and into other wallets. While there had been some reports that a portion of those funds may have been seized by the government of the Bahamas— where FTX is headquartered — as part of its own investigation, the bulk of those cryptocurrencies have been moving through various different wallets, in what appears to be the crypto equivalent of money laundering.
Return of funds unlikely
Some experts believe FTX users won’t get their funds returned anytime soon — if at all.
“We understand the concern and outrage, and we are working day and night to bring order to disorder,” Bromley said.
FTX’s bankruptcy has generated substantial interest beyond just crypto investors. The company had major sports sponsorships with Formula One racing and Major League Baseball. FTX had the naming rights to a sports arena in Miami, and several celebrities were either invested in FTX or did sponsorship deals with the company.
FTX’s case marks the third crypto company to seek bankruptcy protection this year, following Voyager Digital and Celsius Network.