The FTX group has entered Voluntary Chapter 11 Bankruptcy in the United States District of Delaware. Sam Bankman-Fried has stepped down as CEO. The new CEO is John J Ray III, who had the same role at Enron.
The entities involved in the bankruptcy include FTX.com, FTX.US (Wests Realm Shires), Alameda Research and 130 other entities. It does not include the US derivatives business (LedgerX), FTX Digital Markets (Bahamas subsidiary with assets frozen), FTX Express Pay and the Australian subsidiary.
The news comes as Bankman-Fried has been scrambling to find rescuers as an alternative to Binance, which pulled out of a deal earlier this week.
“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess the situation and develop a process to maximize recoveries for stakeholders,” said Mr. Ray in a statement. “The FTX Group has valuable assets that can only be effectively administered in an organized, joint process.”
On Crypto Twitter, the former FTX head of institutional sales, Zan Tackett, suggested clients take a haircut to their holdings and a new token rather than years-long bankruptcy proceedings, which would enrich consultants. This is an approach taken by crypto exchange Bitfinex a few years ago after a hack.
The cost and delay of bankruptcy are very valid points. However, the reason for using third parties is to address trust issues. For example, hypothetically a bankrupt company could present a truncated list of clients who take a haircut, and ‘mislay’ other clients who get nothing. Some – but by no means all – of the delay is involved in allowing people to put in claims.
A $700m or $2.7 billion balance sheet hole?
Tackett also shared some numbers with the caveat that they are not concrete and have not been verified. Given he worked for the company until yesterday, one has to assume they are internal figures.
He described the liabilities as $8.8 billion.
Liquid assets: $900m (USD/JPY/DAI)
Less liquid: $2 billion (GBTC/ETH/SOL)
Illiquid: $3.2billion (equity investments)
Giving a capital hole of $2.7 billion
However, he also mentioned another $2 billion in assets not included for ‘liquidity/correlation’ reasons – it needs to be clarified what these are.