Crypto exchange giant FTX collapses, files for bankruptcy

NEW YORK It took FTX less than a week to go from being the third-largest in the world to bankruptcy court. The bankruptcy protection sought by the embattled cryptocurrency exchange after it suffered the crypto equivalent to a bank run. Friday morning saw FTX, Alameda Research’s hedge fund, and dozens more affiliated companies file a bankruptcy petition in Delaware. FTX US, originally not expected to be included as part of any financial rescue, was also included in the bankruptcy filing. The company announced that

CEO Sam Bankman-Fried, founder, has resigned. Bankman-Fried was recently estimated to be worth $23 billion and has been a prominent political donor to Democrats. According to Bloomberg and Forbes, his net worth has almost disappeared.

“I was shocked to see things unravel the way they did earlier in the week,” Bankman-Fried wrote in a series of posts on Twitter. The unraveling of

FTX is having ripple effects. Already, companies that backed FTX have begun to write down their investments. Both regulators and politicians are urging for tighter oversight of the cryptocurrency industry. This latest crisis has increased pressure on bitcoin and other digital currencies’ prices. According to CoinMarketCap.com, the total market value for all digital currencies fell by around $150 trillion in the past week.

FTX’s financial failure goes beyond finance. The company also had major sponsorship deals with Major League Baseball and Formula One Racing. Miami-Dade County voted Friday to end its relationship with FTX. This means that the venue where the Miami Heat play won’t be known as FTX Arena. Mercedes announced that it would begin removing FTX from its race cars this weekend.

FTX, Bankman-Fried and his brother were also early investors at Semafor. Semafor is a high-profile news startup that Ben Smith, former BuzzFeed editor in chief and New York Times columnist, was involved in.

Bankman-Fried has other problems as well. A person familiar with the matter stated that the Department of Justice and Securities and Exchange Commission were investigating FTX to determine if any criminal activity or securities offenses had been committed. The subject could not speak publicly about the investigations and spoke to The Associated Press under anonymity.

The investigation focuses on the possibility that FTX could have used customer deposits to fund bets at Alameda Research. Brokers are expected to seperate client funds from other company assets in traditional markets. Regulators can punish violations. Financial company MF Global was convicted of similar conduct a decade ago. It had intermingled client assets and its own bets.

FTX filed a bankruptcy filing that listed more than 130 affiliate companies from around the world. The company valued its assets between $10 billion to $50 billion, with a similar estimate for its liabilities. John Ray III, a veteran bankruptcy litigator best known for his efforts to clean up the Enron mess, was appointed the company’s new CEO.

FTX’s bankruptcy will be one of the most complex bankruptcy cases in recent years. The company listed more than 100,000 creditors on its filing, and with all of its customers effectively being creditors because they deposited their funds with FTX, it will take months to sort out who is owed what, bankruptcy lawyers said. Cryptocurrencies do not have legal protections. Both sides of the aisle made statements opposing any Lehman Brothers-like bailout to crypto investors.

” These customers are completely exposed in a case where there is (securities insurance in a brokerage’s failure) or where the FDIC intervenes with a bank failure,” said Daniel Besikof a Loeb & Loeb LLP partner who specializes in bankruptcy law. After experiencing the cryptocurrency equivalent to a bank run,

FTX agreed to sell itself to Binance earlier this week. Customers fled the exchange because they were concerned about whether FTX had enough capital. The crypto world had hoped Binance, the largest crypto exchange in the world, would be able to save FTX and its depositors. Binance looked at FTX’s books and concluded that the smaller exchange’s problems weren’t too big to solve. Binance subsequently walked away from the deal.

FTX is just one of a series a number of disasters that have rocked the crypto sector. Now, the sector is under severe pressure from falling prices and circling regulators. Its impact is already felt across the crypto world.

On Thursday Sequoia Capital announced that it will reduce its investment of almost $215 millions in FTX. BlockFi, a cryptocurrency lender, announced late Thursday on Twitter that it was “not able do business as usual” and would be suspending client withdrawals due to FTX’s implosion.

In a letter posted to its Twitter profile late Thursday, BlockFi — which was bailed out by Bankman-Fried’s FTX early last summer — said it was “shocked and dismayed by the news regarding FTX and Alameda.”

The company ended by saying any future communications about its status “will be less frequent that what our clients and other stakeholders are used to.”

Bitcoin tumbled immediately after the letter was posted and is trading below $17,000. The original cryptocurrency, bitcoin had been hovering around $20,000 for months before FTX’s problems became public this week, sending it down briefly to around $15,500.

Shares of the publicly traded cryptocurrency exchange Coinbase and the online trading platform Robinhood each rose nearly 12%.

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Reporters Matt Ott and Michael Balsamo in Washington contributed.