FTX Files for Bankruptcy, CEO Sam Bankman-Fried Resigns

Just a week ago, FTX was an industry titan, and Mr. Bankman-Fried its smiling public face. In January, FTX raised money from Silicon Valley’s most sophisticated investors, at a valuation of $32 billion. A few weeks ago, Mr. Bankman-Fried was publicly musing about raising more, to get even bigger.

That is all gone. The bankruptcy will likely wipe out billions of equity value, leaving investors including Sequoia Capital and Thoma Bravo with stiff losses. It will maroon the crypto and cash deposits belonging to a legion of customers. FTX faces investigations or asset freezes from regulators and prosecutors around the world.

It has also rattled the crypto world. Crypto lender BlockFi, which had obtained a financial lifeline from FTX in July—one of several companies FTX had rescued earlier in the year—paused withdrawals Thursday evening.

Among the affiliates filing for bankruptcy protection is FTX US, a smaller unit that operated in the U.S. Most of FTX’s business was offshore. FTX and its affiliates filed in federal bankruptcy court in Delaware, where the U.S. unit is registered.

Thursday morning, Mr. Bankman-Fried said the troubles at FTX were confined to its international operations. He tweeted that FTX US “was not financially impacted” and that “every user could fully withdraw.” Later that day, FTX US said it might stop trading. On Friday, FTX US filed for bankruptcy along with the rest of FTX.

Bitcoin slipped after the announcement to trade near $16,500.

At issue in the bankruptcy proceedings and the investigations is to determine what happened to the billions that FTX raised, that its customers deposited, and that it earned from operating what appeared—for a time—to be a successful cryptocurrency exchange.

FTX in 2021 also paid $250 million—a quarter of its revenue that year—to a “related party” for software royalties, according to documents viewed by The Wall Street Journal.

Mr. Bankman-Fried wrote on Twitter roughly an hour after the bankruptcy announcement that he was “shocked to see things unravel the way they did earlier this week.”

FTX’s troubles began last weekend, after rival exchange Binance said it would sell its holdings of an FTX equity-like token—spooked by a CoinDesk report showed the depth of the relationship between FTX and Alameda.

John J. Ray

III has been named the new CEO of FTX Group, the company said. The bankruptcy filing includes FTX Trading Ltd., the company presiding over the global trading website FTX.com, and Alameda Research, a trading firm founded by Mr. Bankman-Fried, in addition to FTX US.

Mr. Ray was chairman of Enron Corp.’s successor company, Enron Creditors Recovery Corp., and oversaw the energy-trading company’s liquidation after it filed for bankruptcy in late 2001. The recovery rate for Enron creditors as of 2008 was about 52 cents on the dollar, the company said at the time. Mr. Ray’s successes included securing a $1.7 billion settlement with

Citigroup

in 2008. He had accused the bank of helping Enron mislead investors.

Other noteworthy bankruptcy cases in which Mr. Ray served in similar roles include Nortel Networks Inc., Fruit of the Loom and

Overseas Shipholding Group Inc.

In the petition, Mr. Bankman-Fried said that

Stephen Neal

would be appointed as the chairman of the board of FTX Group if he is willing to serve. He also said that he is being advised by the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP.

Bankruptcy means that it could be a long time before retail traders and others owed their funds are able to potentially recover any of them, if ever. Creditors to Mt. Gox, the Japanese crypto exchange that failed following a 2014 hack, are still waiting for their funds almost a decade later.

The collapse in digital-currency prices earlier this year triggered a rash of crypto-related bankruptcy filings, including Celsius Network LLC,

Voyager Digital Ltd.

and Three Arrows Capital.

Crypto investors may be confronted with an uphill battle to get their crypto deposits back in bankruptcy proceedings because their investments are likely to be treated as unsecured claims without collateral rights.

FTX’s bankruptcy also calls into question the fate of Voyager Digital. In September, the firm won the auction to buy the bankrupt lender’s assets with a purchase price of about $50 million, The Wall Street Journal has reported.

Voyager said Friday that the firm has reopened the bidding process for the company and is in active discussions with potential buyers. Voyager said it didn’t transfer any assets to FTX US, which previously submitted a $5 million good-faith deposit as part of the auction process. The funds are held in escrow, according to Voyager.

Voyager also recalled loans from Alameda Research for 6,500 bitcoin and 50,000 ether. The company currently has no loans outstanding with any borrower, it said. However, Voyager had about $3 million worth of cryptocurrencies stuck on FTX at the time of its bankruptcy filing.

—Jonathan Weil

contributed to this article.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Alexander Gladstone at alexander.gladstone@wsj.com

Corrections & Amplifications
Sam Bankman-Fried said he is being advised by the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP. An earlier version of this article incorrectly said FTX was being advised by the law firm. (Corrected on Nov. 11)