FTX Commences Bankruptcy Proceedings as CEO Steps Down

FTX.com has commenced Chapter 11 Bankruptcy proceedings after unsuccessfully attempting to raise $8 billion in liquidity.

According to the notice, FTX US, Alameda Research and 130 other connected entities will join bankruptcy proceedings. 

FTX CEO Sam Bankman-Fried has stepped down, with John J. Ray III appointed the FTX Group’s chief executive.

“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” Ray said in the bankruptcy notice.

SBF will help with the transition

FTX CEO Sam Bankman-Fried has stepped down, with John J. Ray III appointed the FTX Group’s chief executive.

“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” Ray said in the bankruptcy notice.

SBF will remain a part of the business to help the transition to its new phase.

A Chapter 11 filing allows a company to remain in business and protects its assets from creditors. The company can use the filing to propose a reorganization of its debt obligations. If it doesn’t, the court will. The company needs permission from the courts to sell its assets to repay its debts.

“I want to ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder that we are going to conduct this effort with diligence, thoroughness, and transparency,” Ray concluded.

FTX faced a liquidity crisis on Nov. 6, 2022, when it held only $400 million of the $5 billion customers were trying to withdraw. The spate of withdrawals was linked to a damning report that revealed much of the assets held by sister trading firm Alameda were made up of FTX’s relatively illiquid FTT token.

FTX’s scramble for a bailout

Early talks with rival exchange Binance on a possible FTX bailout fell through on Nov. 9, 2022, after the exchange said that the FTX’s books and company structure were “beyond” their ability to remedy.

Things were looking up after FTX announced a Tron token facility that would enable holders of TRX, BTT, JST, SUN, and HT on FTX to receive their frozen FTX funds in an external wallet.

On Nov. 10, 2022, SBF took to Twitter to tell customers whose funds on FTX had been frozen that he was actively looking to raise $8 billion in additional liquidity to allow customers to liquidate their assets safely. 

Notably, the bankruptcy notice says that FTX US, an entity that SBF previously said had sufficient liquidity, will also join bankruptcy proceedings.

Cryptos down after FTX filing

FTX filing for bankruptcy could be a massive blow to investor confidence in the crypto industry since SBF was hailed as the industry’s John Pierpont Morgan only a few months ago. This label came after he bailed out several crypto firms, including lender BlockFi Inc and crypto brokerage Voyager Digital, lending the latter $75 million. Bankman-Fried also bought Voyager’s assets after it filed for Chapter 11 Bankruptcy in July 2022 and later paid out the brokerage’s customers.

After the FTX press release, Bitcoin crashed 5% to trade at around $16,394, erasing gains accrued on Nov. 11, 2022, after favorable U.S. CPI numbers in Oct. 2022.

FTX’s native token, FTT, has lost almost 90% of its value since Nov. 7, 2022, and is now trading at $2.34.

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