Bahamas securities regulators said they seized digital assets valued at $3.5 billion from FTX’s local operation in mid-November as the cryptocurrency exchange spiraled toward collapse, a figure that FTX’s U.S. managers cast doubt on Friday.
Christina Rolle, executive director of the Securities Commission of the Bahamas, said in an affidavit made public Thursday that the commission sought control of the crypto assets held by FTX Digital Markets Ltd. last month after FTX co-founder Sam Bankman-Fried told local authorities under oath about a hacking attempt. Her affidavit, filed with the Supreme Court of the Bahamas, also confirmed that the Securities Commission relied on Mr. Bankman-Fried and another FTX co-founder, Gary Wang, to make the transfers happen.
Avaya Holdings Corp. is nearing a chapter 11 bankruptcy filing to restructure its balance sheet as it looks to turn around its business and move past problems surrounding the company’s accounting, people familiar with the matter said.
Avaya disclosed earlier this week it has reviewed various restructuring proposals from competing creditor groups. One plan, supported by a senior lender group including Apollo Global Management , would significantly reduce Avaya’s debt load through chapter 11, wipe out shareholders and, pending the completion of an internal investigation into controls over financial reporting, provide directors and executives with releases from potential litigation.
A research paper published at Harvard University is advocating that central banks should buy bitcoin
BTCUSD,
+2.41%
as a hedge against sanctions by other countries.
The paper, titled “Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves,” was authored by Ph.D. candidate Matthew Ferranti from Harvard’s economics department, and likens central banks’ gold reserves to potential bitcoin holdings.
Ferranti points out that central banks in countries across the globe should look into holding bitcoin as a hedge against possible financial sanctions. He gives the example of the unprecedented financial sanctions levied against Russia by the U.S. and many western nations following its invasion of Ukraine — billions in Russian assets were frozen after the Ukraine war began.
“Sanctions risk may diminish the appeal of U.S. Treasuries, propel broader diversification in central bank reserves, and bolster the long-run fundamental value of both cryptocurrency and gold,” Ferranti writes.
In the paper, Ferranti says El Salvador is a model for central banks owning bitcoin. The country, headed by bitcoin bull Nayib Bukele, has purchased millions of dollars worth of the crypto and has even made bitcoin an official national currency.
See also: ‘We just bought the dip’: El Salvador expands bitcoin holdings
Since the inception of popular cryptos like bitcoin and ether
ETHUSD,
+3.74%,
part of its appeal has been the lack of involvement from central banks, in favor of the decentralized nature of the digital asset.
In the wake of the recent crypto winter and collapse of popular crypto exchange FTX, as well as financial issues for crypto companies Voyager and Celsius, some crypto bulls have called for increased regulation and transparency for the industry.
The paper comes after FTX struggled with liquidity issues in November, eventually leading to a bankruptcy filing. Sam Bankman-Fried resigned as CEO and later apologized for the collapse of his former company.
See: Why do people invest in crypto? ‘It’s partly fraud and partly delusion,’ says Charlie Munger.
Also see: Tom Brady, Steph Curry and Kevin O’Leary set to lose big from FTX bankruptcy filing
Bitcoin’s price is down over 70% over the past year, and the price for ether is also down over 70% over the same period. The total market cap for all crypto nearly hit $3 trillion during parts of 2021, but is now around $800 billion.
To make the deal work, Mr. Musk has been trying to add subscription revenue and reassure advertisers about the platform’s future. Twitter was losing money before Mr. Musk bought the company, and the deal added a debt burden that requires fresh sources of cash.
It is tough to determine the state of the company. Twitter no longer has to file regular financial reports to the Securities and Exchange Commission, which are crucial tools for determining a company’s financial health.
Analysts and academics have been able to piece together a picture of the company from information Mr. Musk has offered as well as details of the deal and the company’s last regulatory filings. Bankruptcy could be one result. Mr. Musk, the world’s richest person, could also raise new funds, or buy back debt from lenders, giving Twitter a buffer to turn around its business.
Here is a look at their assessments of Twitter’s financial situation and prospects.
Twitter Finances, Pre-Musk
Twitter is and was a popular tool for politicians, celebrities and journalists. But as a business, it was stagnating.
It hasn’t booked an annual profit since 2019, and posted a loss in eight years of the past decade. The company’s net loss narrowed in 2021, to $221.4 million from $1.14 billionthe previous year.
Twitter has struggled to attract new users and increase revenue, which came in at about $5.1 billion last year. In its last quarterly filing as a public company, for the period ended June 30, revenue was $1.18 billion, down slightly year-over-year.
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Nearly 90% of its revenue last year came from advertising, and it traditionally has been the company’s main source of revenue. In 2021, Twitter took in $4.51 billion from advertisers, and $572 million from licensing data and other services.
The company had more than $2 billion in cash and less than $600 million in net debt before the takeover talks—very little debt for a company in the S&P 500 index. But that cash position was down 35% from a year earlier as of June 30, filings show, and Mr. Musk paid for Twitter by taking on $13 billion in debt. He paid for the rest in equity, some contributed by multiple investors.
Twitter had a market capitalization of $37.48 billion in March, the month before Mr. Musk agreed to buy it, S&P data showed. Social-media stocks have slumped sharply since then. But now, according to
Jeffrey Davies,
a former credit analyst and founder of data provider Enersection LLC, “This thing’s probably not worth more than what the debt stack is, quite frankly, unless you put a lot of option value just on Elon.” Mr. Musk last month said he and investors were overpaying for the company in the short term.
Revenue Under Musk
Mr. Musk said earlier this month that Twitter had suffered “a massive drop in revenue” and was losing $4 million a day. It isn’t clear if that reflects the broader downturn in the digital ad market or the pause in advertising by several companies since Mr. Musk bought the business.
Some companies, including burrito chain
Chipotle Mexican Grill Inc.,
cereal maker
General Mills Inc.
and airline
United Airlines Holdings Inc.,
have paused their ad spending on Twitter over uncertainty around where the company is headed. The departure of several top executives from its ad department have soured relationships, The Wall Street Journal has reported.
The exodus of advertisers poses a threat for a company so reliant on that revenue stream. “As an online ad company, you’re flirting with disaster,” said
Aswath Damodaran,
a finance professor at New York University’s Stern School of Business.
Elon Musk has purchased Twitter, ending a monthslong saga over whether or not he would go through with his offer to acquire the social media platform. WSJ takes an inside look at the tweets, texts and filings to see exactly how the battle played out. Illustration: Jordan Kranse
Deal negotiations for long-term contracts that usually begin at the end of the year haven’t taken place yet or have been put on hold. Those deals comprise more than 30% of Twitter’s U.S. ad revenue, The Wall Street Journal reported.
Revenue will likely remain under pressure until advertisers fully grasp the new business model, potentially leading many of them to return to the platform, said
Brent Thill,
a senior analyst at Jefferies Group LLC, a financial-services firm. “Those advertisers will come back if they feel that the users are there and there’s an ability to monetize their advertisement,” Mr. Thill said.
But that could take time. Mr. Thill said it could take months for advertisers to get clarity. “It’s an enigma,” he said.
Market-research firm Insider Intelligence Inc. recently cut its annual ad-revenue revenue outlook for Twitter by nearly 40% through 2024.
Mr. Musk wants the company to lean more on subscriptions and depend less on digital advertising. He said last Tuesday that the company’s upgraded subscription service, costing $7.99 a month, would launch Nov. 29.
A walkway at Twitter headquarters in San Francisco. The company has aggressively cut staff to reduce expenses.
Photo:
George nikitin/Shutterstock
Reducing Costs
The company has moved quickly to slash costs, including cutting its staff by half. Salaries and other compensation make up a large chunk of overall expenses. The company had 7,500 full-time employees at the end of 2021, up from 5,500 a year earlier, filings show.
The layoffs of roughly 3,700 people could save the company roughly $860 million a year, if the employees that are leaving made an average of about $233,000 annually—the company’s most recently disclosed median pay figure. The estimated savings would represent about 15% of Twitter’s $5.57 billion in costs and expenses last year. Its costs and expenses climbed 51% from the previous year, as hiring drove up its payroll.
More employees left the company last week, rejecting Mr. Musk’s demand that they commit to working “long hours at high intensity” to stay.
Debt Mountain
Before Mr. Musk’s acquisition, net debt totaled $596.5 million as of June 30, according to S&P Global Market Intelligence, a data provider. That compares with a negative balance of $2.18 billion the prior-year period, indicating a cash surplus.
Twitter paid $23.3 million in interest expense in the quarter ended June 30, according to a filing.
Now, the company will have to pay at least $9 billion in interest to banks and hedge funds over the next seven to eight years, when the $13 billion in debt matures, according to a review of Twitter’s loans by Mr. Davies, the former credit analyst.
The interest payments are substantial for a company that reported $6.3 billion in total operating cash flow over the past eight years, he said.
What’s more, the company’s debt stack now includes floating-rate debt, meaning that interest costs are set to rise as the Federal Reserve continues to increase interest rates. Twitter’s debt was entirely fixed rate before the deal.
Twitter’s credit ratings, which were below investment grade before the transaction with Mr. Musk, have deteriorated further.
Moody’s
Investors Service on Oct. 31 downgraded Twitter’s rating to B1 from Ba2, a two-notch drop, and S&P Global Ratings on Nov. 1 downgraded it to B- from BB+, a five-notch drop.
If Twitter files for bankruptcy, Elon Musk’s $27 billion investment would likely be wiped out.
Photo:
Susan Walsh/Associated Press
Financial Prospects
Twitter’s financial challenges could result in the company filing for bankruptcy, raising equity or buying back some debt from its lenders, analysts and academics said.
If Twitter files for bankruptcy, as Mr. Musk warned was possible in an all-hands meeting earlier this month, his $27 billion investment would likely be wiped out because equity holders are the last to be paid when a company restructures.
Buying back debt from lenders at a steep discount would help the company reduce its debt load and interest costs as well as its valuation, which would be beneficial in the long run, Mr. Davies said.
“I don’t think they can issue any more debt,” Mr. Davies said. “It’s a really, really tough structure.”
The company could also replace some of the debt with equity, both from Mr. Musk and from outside investors, said
David Kass,
a finance professor at the University of Maryland’s
Robert H. Smith
School of Business. For that, Mr. Musk would need to persuade potential investors that he has a viable long-term business plan, he said. Replacing debt could enable the company to generate cash. Mr. Musk has said some of his latest
Tesla Inc.
stock sale, yielding almost $4 billion in cash, was because of Twitter.
If successful, the company could generate positive free cash flow in two or three years, which it could use to pay down the residual debt and eventually go public again, Mr. Kass said. “The prospect of an eventual IPO within three to five years would be a very attractive enticement for large funds,” he said.
—Theo Francis and Jennifer Williams-Alvarez contributed to this article.
, the used-car dealer that was a pandemic winner, is rushing to conserve cash as once-plentiful financing options dry up and business deteriorates.
On Friday, Carvana laid off about 1,500 people, its second round in six months. Its weakening finances mean raising funds would be difficult and costly, and it could run out of cash in a year, analysts say.
Few companies have been hit harder by rising interest rates than Carvana. The company’s interest expense nearly doubled early this year when it paid up to get financing for an acquisition. Its cost to finance car purchases is up by three-quarters this year, and some of its real estate has lost value. Car buyers, meanwhile, are holding off purchases in the hope that rates fall.
In a memo to Carvana’s employees announcing the layoffs, Chief Executive
Ernie Garcia III
blamed an uncertain economic environment that he said was particularly tough on fast-growing companies that sell products affected by higher interest rates. “We failed to accurately predict how this would all play out and the impact it would have on our business,” he said.
The company said it has millions of satisfied customers, and that disrupting the auto industry isn’t easy. “We have seen many e-commerce companies written off early in their journey only to become market leaders. We plan to follow suit,” a spokesman said. Earlier this month, Carvana executives said cash flows and profitability are the strategic focus now.
WSJ’s Ben Foldy explains the factors that helped drive Carvana’s growth and why investors are now questioning its future. Illustration: Preston Jessee
Carvana became wildly popular among car buyers, with heavy advertising and haggle-free cars delivered to their doors. Investors bought in, driving the shares up more than sixfold. The stock has fallen more than 97% from its peak last year. Carvana’s bonds are trading at distressed levels.
“They built an infrastructure across the enterprise with the assumption that the growth would be there,” said Daniel Imbro, a managing director at Stephens Inc.
The ratings firm S&P Global Ratings warned that Carvana’s liquidity likely would erode faster than expected, and changed the outlook on its CCC+ rating to negative earlier this month. It said the company’s standing to raise more cash from stock and bond investors has deteriorated.
Less than a year ago, Carvana was still trying to keep up with demand. In February, it agreed to buy a car-auction business that would help boost inventory. Car sales slowed, though.
The day the deal was completed in May, Mr. Garcia said it had overshot on growth and laid off 2,500 workers. Days earlier, it had issued a $3.275 billion bond with a 10.25% coupon to fund the purchase. The high coupon almost doubled Carvana’s annual interest expense and reflected investors’ fears of a recession and rising inflation.
Carvana CEO Ernie Garcia III and his father, Ernest Garcia II, when the company went public in 2017.
Photo:
Michael Nagle/Bloomberg News
Carvana thrived when interest rates were low because it could borrow cheaply to buy cars and make loans to customers. Its credit line from
Ally Financial
to buy cars had an average 2.6% interest rate last year, compared with 4.5% at the end of September. Ally required Carvana to set aside 12.5% of the amount borrowed as of late September, up from 7.5%, further tightening its cash situation. An Ally spokesman declined to comment.
Carvana earned big profits selling its car loans to investors who were hungry for yield. Gains from the loans help Carvana offset the losses it makes selling cars. When investors turned choosier on these securities in the spring, Carvana sold many of the loans to Ally instead, on less-favorable terms. The gains it books from loan sales fell by around one-third in the third quarter from the year-earlier period.
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Mr. Garcia told analysts on a call Nov. 3 that the company would keep cutting costs and that it has access to around $4 billion in liquidity, in addition to its $316 million cash and some other assets. The amount includes what it can borrow on credit lines to buy cars and make loans. It also included around $2 billion of real estate, which isn’t typically considered a liquid asset.
The company’s chief financial officer said Carvana could borrow against the real estate, which includes sites it bought this year. It previously raised around $500 million from selling some sites where it inspects cars and then leasing them back for 20 or 25 years.
That step might work, analysts said, but would also add expenses. They said any real-estate deals would likely occur piecemeal over time, or involve high rent payments because of Carvana’s credit troubles.
Scott Merkle, a managing partner at SLB Capital Advisors, which specializes in sale-leaseback transactions, said the long-term leases in the space generally rely on financially sound tenants that can be expected to make their lease payments for years. He said that overall conditions for sellers have softened in that market because of higher interest rates, but that sale-leasebacks still provide a better cost of capital for companies than other financing.
Carvana said it is testing ways to make more from its car sales, such as having customers pick up cars from its vending machines.
Photo:
USA TODAY NETWORK/Reuters
Some Carvana-leased properties have received a tepid response on the market. A 12-story “flagship” car-vending machine in Atlanta that Carvana sold and leased back in December was relisted this summer. It is still on the market, and the asking price has since been lowered.
Carvana said it is testing ways to make more from its car sales, such as taking payment before delivery and having customers pick up cars from its vending machines.
“We’ve got a bunch of committed liquidity. We’ve got a bunch of real estate, and I think that we feel like that puts us in a good position to ride out this storm,” Mr. Garcia told analysts on the Nov. 3 call.
—Ben Foldy, Will Feuer and Ben Eisen contributed to this article.
Write to Margot Patrick at margot.patrick@wsj.com and Kristin Broughton at Kristin.Broughton@wsj.com
said it fired three of the founder’s top deputies.
Gary Wang, an FTX co-founder and its chief technology officer; FTX engineering director Nishad Singh; and Caroline Ellison, who ran Mr. Bankman-Fried’s trading arm, Alameda Research, were terminated from those roles after FTX tapped
John J. Ray
to oversee the companies’ bankruptcy, an FTX spokeswoman said late Friday.
Mr. Bankman-Fried resigned on Nov. 11, when FTX filed for bankruptcy. He was replaced by Mr. Ray, a veteran restructuring executive who once oversaw the liquidation of Enron Corp.
FTX and Alameda sought protection from creditors after executives at both businesses revealed that FTX had lent billions of dollars worth of customer assets to Alameda to plug a funding gap, The Wall Street Journal previously reported. In a Thursday court filing, Mr. Ray highlighted numerous failings, including “the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals.”
On a Nov. 9 video call with Alameda employees, Ms. Ellison said that she, along with Messrs. Bankman-Fried, Wang and Singh, were aware of the decision to send customer money to the trading firm, the Journal previously reported.
The four executives also comprised the board of what they called the Future Fund, a philanthropic arm charged with making grants to nonprofits and investments in “socially-impactful companies.”
Messrs. Bankman-Fried, Wang and Singh all owned stakes in at least some of the FTX companies, according to Mr. Ray’s court filing.
“Mr. Bankman-Fried ultimately agreed to resign, resulting in my appointment as the debtors’ CEO,” Mr. Ray wrote in the filing. “I was delegated all corporate powers and authority under applicable law, including the power to appoint independent directors and commence these Chapter 11 cases on an emergency basis.”
Write to Justin Baer at justin.baer@wsj.com and Hannah Miao at hannah.miao@wsj.com
Billionaire Dallas Maverick’s owner Mark Cuban recently offered his perspective on the implosion of crypto platform FTX late this week.
“‘That’s somebody running a company that’s just dumb-as-fucking greedy.’”
— Mark Cuban
Cuban, speaking on Friday at a conference in Washington, D.C. hosted by Sports Business Journal, shared the view that avarice was at the root of the downfall of one-time crypto darling Sam Bankman-Fried, whose firm FTX Group just filed for chapter 11 bankruptcy.
“So what does Sam Bankman [Fried] do, he’s just–‘gimme more, gimme more, gimme more.’ So I’m gonna borrow money, loan it to an affiliated company and hope and pretend to myself that the FTT tokens that are in there on my balance sheet are gonna to sustain their value.”
Check out: Mark Cuban says buying metaverse real estate is ‘the dumbest shit ever
FTX’s collapse marks a stunning turnabout for a company, which was once valued at $26 billion, and whose founder, Bankman-Fried was viewed by many in the crypto industry as a venerable actor in the Wild West of digital exchanges.
On Thursday, the 30-year-old entrepreneur tweeted: “I f—ked up, and should have done better,” referencing the collapse of his exchange.
Embattled FTX, short billions of dollars, sought bankruptcy protection after the exchange experienced the crypto equivalent of a bank run. FTX, an affiliated hedge fund Alameda Research, and dozens of other related companies also filed a bankruptcy petition in Delaware on Friday morning. Boasting a nearly $16 billion fortune recently, Sam Bankman Fried’s net worth had all but evaporated in the wake of the FTX implosion, according to the Bloomberg Billionaires Index.
The price of FTX’s native token FTT went down about 88.8% over the past seven days to around $2.74, according to CoinMarketCap data.
The U.S. Justice Department and the Securities and Exchange Commission are looking into the crypto exchange to determine whether any criminal activity or securities offenses were committed.
Regulators and are examining whether FTX used customer deposits to fund bets at Alameda Research, a no-no in traditional markets, according to reports.
Cuban, who is one of the stars of the investing show “Shark Tank” and owns the NBA’s Dallas Mavericks, is a big investor in crypto and blockchain-related platforms. According to a CNBC report, he has said that 80% of his investments that aren’t on Shark Tank are crypto-centric.
See: Tom Brady, Steph Curry and Kevin O’Leary set to lose big from FTX bankruptcy filing
For his part, Cuban is part of a class-action lawsuit accused of misleading investors into signing up for accounts with crypto platform Voyager Digital, which filed for bankruptcy in July. The suit alleges that Cuban touted his support for Voyager and referred to it “as close to risk-free as you’re gonna get in the crypto universe.”
Cuban mentioned Voyager in his Friday interview. Representatives for the billionaire investor didn’t immediately respond to a request for comment.
The Mavericks owner took to Twitter on Saturday to say that the crypto implosions “have been banking blowups. Lending to the wrong entity, misvaluations of collateral, arrogant arbs, followed by depositor runs.”
Cuban’s net worth is $4.6 billion, according to Forbes.
FTX CEO Sam Bankman-Fried appeared at a Senate committee hearing earlier this year on cryptocurrencies.
Photo:
Sarah Silbiger/Bloomberg News
Alameda Research’s chief executive and senior FTX officials knew that FTX had lent its customers’ money to Alameda to help it meet its liabilities, according to people familiar with the matter.
Alameda’s troubles helped lead to the bankruptcy of FTX, the crypto exchange founded by
Sam Bankman-Fried.
Alameda is a trading firm also founded and owned by Mr. Bankman-Fried.
In a video meeting with Alameda employees late Wednesday Hong Kong time, Alameda CEO
Caroline Ellison
said that she, Mr. Bankman-Fried and two other FTX executives,
Nishad Singh
and
Gary Wang,
were aware of the decision to send customer funds to Alameda, according to people familiar with the video. Mr. Singh was FTX’s director of engineering and a former Facebook employee. Mr. Wang, who previously worked at Google, was the chief technology officer of FTX and co-founded the exchange with Mr. Bankman-Fried.
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Alameda faced a barrage of demands from lenders after crypto hedge fund Three Arrows Capital collapsed in June, creating losses for crypto brokers such as
Voyager Digital Ltd.
, the people said.
Ms. Ellison said on the call that FTX used customer money to help Alameda meet its liabilities, the people said.
On Friday, FTX, Alameda, FTX US and other FTX affiliates filed for bankruptcy protection.
Bankruptcy means that it could be a long time before individual investors and others owed their funds are able to potentially recover any of them, if ever.
Ms. Ellison didn’t return a phone message and an email seeking comment. Messrs. Singh and Wang didn’t respond to multiple messages seeking comment. Ryne Miller, FTX US’s chief legal officer, declined to comment.
Cryptocurrency platform FTX filed for chapter 11 on Friday and CEO Sam Bankman-Fried resigned. WSJ’s Vicky Ge Huang explains what happened to the company and what this could mean for investors. Photo: Olivier Douliery/AFP
Write to Dave Michaels at dave.michaels@wsj.com, Elaine Yu at elaine.yu@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com
FTX said it is investigating abnormalities with wallet movements.
Photo:
DADO RUVIC/REUTERS
Bankrupt cryptocurrency exchange FTX is probing a potential hack and asked customers to stay off the FTX website, the company said. More than $400 million worth of crypto funds appears to be missing, according to crypto analytics firm Elliptic Enterprises Ltd.
The potential hack occurred Friday after FTX filed for bankruptcy. Ryne Miller, FTX US’s general counsel, said in a Saturday tweet that FTX and FTX US had started moving all digital assets to cold storage—crypto wallets that aren’t connected to the internet—after the bankruptcy filing.
FTX is “investigating abnormalities with wallet movements related to the consolidation of FTX balances across exchanges,” Mr. Miller said on Twitter. He called the movements unauthorized transactions and said the facts are still unclear. FTX will “share more info as soon as we have it,” he said.
A post in the exchange’s official Telegram channel called the fund flows a hack.
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Approximately $473 million in crypto assets appeared to be taken from FTX without permission, according to
Tom Robinson,
co-founder of Elliptic. The tokens were quickly converted to ether, the second-largest cryptocurrency, on so-called decentralized exchanges.
Such platforms process transactions automatically, making them popular among hackers to prevent funds from being seized, he said.
—Caitlin Ostroff contributed to this article.
Write to Elaine Yu at elaine.yu@wsj.com and Vicky Ge Huang at vicky.huang@wsj.com
Beleaguered cryptocurrency platform FTX filed for bankruptcy protection Friday, and Chief Executive
Sam Bankman-Fried
resigned.
FTX and a bevy of affiliates said they had more than 100,000 creditors and tens of billions of dollars in assets and liabilities. It is the largest crypto-related bankruptcy ever, and a demise remarkable for its swiftness as well as its size.
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.
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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.
FTX is the latest in a string of crypto companies seeking bankruptcy protection this year.
Photo:
Leon Neal/Getty Images
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)
