On 11th November, FTX Group, Comprising 134 firms, including Alameda Research and FTX US, finally filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code in the District of Delaware. However, the FTX saga is far from over, and a lot has happened since the company filed for bankruptcy. Here is what has unfolded since then:
FTX Hack of over $600M
The bankrupt crypto exchange was hacked hours after filing for bankruptcy with the hacker draining more than $600 million from FTX’s crypto wallets. This hack was confirmed by an admin on FTX’s telegram channel who announced that the exchange was the victim of a hack attempt and advised customers from using the exchange’s app and sites as they contained malware that could help the hacker gain access to users’ systems.
Hours later, FTX US General Counsel Ryne Miller confirmed the hack in a tweet and stated that they had taken “precautionary steps” by moving assets to a cold storage following a series of “unauthorized transactions.” Following the hack, many FTX users also reported that their wallet balance on the crypto exchange was reading $0.
Furthermore, on-chain data revealed various tokens being transferred out of FTX’s official wallets and moved to decentralized exchanges following the supposed hack. The timing of the hack and these transfers aroused suspicions with many believing it was an inside job rather than a hack which we are made to believe. On Twitter, members of the crypto community were quick to point out that the hack and outflows were too coordinated, suggesting that it was almost impossible for the hacker to attack FTX and FTX US simultaneously without having insider information.
Bahamas Securities Regulator denies authorizing withdrawals
On November 10th, FTX stated in a tweet that it had begun to facilitate withdrawals of Bahamian funds per directive from the Bahamian regulators. However, on November 12th, the Securities Commission of the Bahamas (SCB) released a statement on Twitter where it denied directing or authorizing FTX to prioritize withdrawal for Bahamian clients.
Although FTX had halted withdrawals days before, some users (most likely Bahamian users) withdrew nearly $7 million worth of crypto during the period in which the crypto exchange supposedly facilitated withdrawals for Bahamian clients, according to on-chain data provided by Nansen.
Bahamas Securities Regulators and Law Enforcement Investigations
FTX has its headquarters in the Bahamas, which necessitated the involvement of the Securities Commission of the Bahamas (SCB) and other Law enforcement agencies. Following the news that FTX has mishandled clients’ assets, the SCB sprung into action by freezing the exchange’s assets and applied to the Supreme Court of the Bahamas for the appointment of a provisional liquidator. On 14th November, the Supreme Court of the Bahamas approved the appointment of partners from PricewaterhouseCoopers (PwC) as provisional liquidators to oversee the assets of FTX.
The Royal Bahamas Police Force also released a statement saying that it was working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred. Bloomberg also reported that FTX’s former CEO Sam Bankman-Fried (SBF) was interviewed by the Bahamian police and regulators on Saturday.
Bloomberg also reported that the American and Bahamian authorities have been discussing the possibility of bringing SBF to the US for questioning. Both countries have intensified conversations in recent days as they continue to probe SBF’s role in the collapse of the crypto exchange FTX.
SBF’s interview sheds more light on how FTX went bankrupt
The New York Times got to interview SBF, and there are some key takeaways from the article they released. According to the article, Almeda’s CEO, Caroline Ellison, revealed what led to its collapse and that of its sister company FTX at a meeting with employees. She told employees the company had taken out loans to fund its venture capital investments, among other expenditures. She further explained that lenders had moved to recall those loans following the crypto winter, which began earlier this year. However, Almeda didn’t have the funds to pay up, so SBF turned to his other company FTX and used customer funds to repay those loans. Caroline stated that only two other people besides her and SBF knew about this arrangement.
In the interview, SBF also stated that he had wished “we’d bitten off a lot less” in reference to his investments in other companies. According to him, the venture stuff was probably not worth it. He also agreed that his attack on Binance’s CEO Changpeng Zhao (CZ) was “not a good strategic move.”
Is SBF on the run?
There was a rumor circulating on Twitter that SBF was on the run and that he flew to Argentina after FTX filed for bankruptcy. However, he told Reuters on 12th November that he was still in the Bahamas. Dubai is another location in which many have touted as a possible location for SBF to flee to because the United Arab Emirates does not have an extradition treaty with the United States.
What has SBF been up to?
SBF revealed in his interview with the New York Times that he is playing Storybook Brawl, a video game that FTX acquired earlier this year. SBF has also been busy on Twitter with recent tweets suggesting that the CEO could be suffering from selective amnesia. He tweeted “What happened” on 14th November. He further tweeted “not legal advice, not financial advice, this is all as I remember it, but my memory might be faulty in parts” As expected, members of the crypto Twitter community were left angry and confused following his recent tweets.
In more recent tweets, SBF clarified that his “one goal” is to do right by customers. He stated that he was meeting with regulators and working with the teams to see what they can for customers. These tweets may not be far from the truth as the Wall Street Journal on Tuesday reported that SBF spent the whole weekend reaching out to potential investors to raise some of the company’s $8 billion shortfall and repay customers.
More and More Contagion
The FTX contagion is also far from over. On Monday, Liquid Global, a crypto exchange FTX bought earlier this year, announced that it was halting withdrawals for both fiat and cryptocurrency after FTX filed for bankruptcy. Crypto lending platform BlockFi paused withdrawals and limited activity on its platform last week, and on 14th November, the company confirmed that it had significant exposure to FTX. Furthermore, recent reports by the Wall Street Journal suggest that BlockFi is preparing to file for chapter 11 bankruptcy. Before now, BlockFi had experienced severe financial difficulties at the start of the crypto winter as it was exposed to the failure of Three Arrows Capital (3AC). Interestingly, FTX US was the company that bailed out the crypto lending platform in a $680 million deal that could have eventually led to FTX US acquiring the company.
Another company exposed to the failure of 3AC, Genesis Global Trading, announced on 16th November that its lending arm, Genesis Global Capital, is temporarily suspending redemptions and new loan originations in the wake of FTX’s collapse. According to the company, FTX’s dramatic fall had spurred withdrawal requests that exceeded Genesis’ current liquidity. Interestingly, Genesis had stated last week that they have no material net credit exposure to FTX. Genesis isn’t the first crypto firm to initially deny any exposure to FTX before making a turnaround and citing the FTX collapse as the reason for their liquidity crunch.
Crypto exchange and Custodian Gemini also released a statement confirming its partnership with Genesis Global Capital, with the latter being a lending partner of the Earn program run by Gemini. Gemini stated that it was working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible. Gemini’s affiliation with Genesis could spell trouble for the crypto exchange as there are already reports that Gemini’s main sites were down at some point with users unable to withdraw their funds.
Crypto exchanges are also feeling the heat during this period. On 13th November, Hong Kong-based crypto exchange AAX announced that it had suspended withdrawals because of a scheduled system upgrade necessitated by a third-party partner’s failure. The company denied having exposure to FTX, but it wouldn’t be surprising if they did. Crypto.com is another exchange that has been in the spotlight following FTX’s collapse. The company has raised suspicions following the news that it had “accidentally” sent 320,000 ETH to a fellow rival Gate.io. The CEO, Kris Marszalek, also revealed in an interview that the exchange has a $10 million exposure to FTX. The company has, however, continued to assure users that there was no need to panic, and it has continued to process withdrawals as usual.
Crypto exchanges Huobi and Gate.io have also come under fire as it is alleged that both companies used loaned funds while sharing their proof of reserve. Gate.io allegedly released its proof of reserves snapshot using the funds which crypto.com had accidentally sent to them in October. Gate.io CEO Lin Han, however, clarified in a tweet that the image was taken two days before Crypto.com’s accidental transfer of 320,000 ETH.
Blockchain investigator Colin Wu also discovered that crypto exchange Huobi had sent 10,000 ETH to Binance and OKX deposit wallets moments after releasing its proof of reserve snapshot. Huobi, which had 14,858 ETH at the time of the snapshot, only had 4,044 ETH left after these outflows. This figure has further dropped to around 2,000 ETH at the time of writing. Anomalies like this have only increased the mistrust crypto users have in centralized exchanges, which has recently led many users to move their funds to cold wallets.
More Revelations From Court Filings
FTX’s sister company Almeda Research loaned $4.1 billion to related parties, including a $1 billion loan to former FTX CEO Sam Bankman-Fried, as revealed in the bankruptcy filings on 17th November. The paperwork filed with the U.S Bankruptcy Court for the District of Delaware also revealed that Almeda loaned money to top FTX executives like FTX Director of Engineering Nishad Singh and FTX Digital Markets head Ryan Salame. FTX’s newly appointed CEO John J. Ray III, who also oversaw Enron’s bankruptcy, stated in the filings that FTX’s collapse was “unprecedented.” He also admitted that he had never seen such a “complete failure of corporate controls” throughout his forty years in the corporate world.