FTX files for bankruptcy; Bankman-Fried resigns as CEO

Entities tied to FTX.com, FTX US and trading firm Alameda Research were part of the Chapter 11 bankruptcy filing in Delaware.

Sam Bankman-Fried’s FTX crypto empire filed for Chapter 11 bankruptcy in Delaware, capping a rapid downfall for his companies.

Sam Bankman-Fried’s digital-asset empire filed for Chapter 11 bankruptcy, capping the downfall of one of crypto’s wealthiest and most influential moguls and his collection of high-flying ventures including the FTX.com exchange and a massive trading operation.

More than 130 entities tied to FTX.com, FTX US and trading firm Alameda Research Ltd. were listed in filings at federal court in Delaware, with the Alameda petition listing assets and liabilities of at least $10 billion each. That easily makes it the biggest bankruptcy in the U.S. this year, affecting investors and other counterparties around the world.

Though Chapter 11 lets companies continue operating while they work out a plan to repay creditors, FTX’s filing Friday morning — a 23-page form checking boxes — offered no hint of reorganization plans.

Bankman-Fried resigned as chief executive of FTX Group as part of the filing, and John J. Ray III was appointed to replace him, according to a Twitter statement. Ray, a turnaround and restructuring expert, previously served senior roles in bankruptcies including Enron Corp.’s. The initial filings offered no explanation for the firm’s downfall.

“It’s such an unfortunate, stunning and shocking moment for the industry,” said Owen Lau, analyst at Oppenheimer & Co. “There will be a lot of angry investors, angry customers and angry regulators around the world.”

Even in a global cryptocurrency landscape that that’s seen numerous firms rise and fall, FTX’s bankruptcy stands out.

Not only did it operate one of the world’s largest exchanges for digital assets, it was rapidly on its way to mainstream recognition, establishing Bankman-Fried as a statesman for his industry who could speak easily with U.S. lawmakers and regulators about shaping its future. By the time the market peaked in 2021, FTX had earned the trust of more than 5 million users worldwide, trading more than $700 billion worth of crypto that year alone.

A court will now weigh in on how to handle the interests of customers, creditors and business partners seeking to be made whole.

ARENA DEAL

Bankman-Fried, an avid supporter of Democrats, also made pledges to help others, promising that one day he’d give all of his wealth away to charity and political causes. The company’s name was ubiquitous across professional sports, including Formula 1 racing, soccer, baseball and basketball, even adorning the home arena of the National Basketball Association’s Miami Heat. That arena deal was supposed to last 19 years.

Crisis befell FTX this month after prices for the exchange’s native crypto token, FTT, plummeted and users raced to withdraw their assets. Rival crypto exchange leader Changpeng “CZ” Zhao had earlier said he would sell some $529 million of coins due to “recent revelations that came to light,” appearing to allude to a CoinDesk report that raised questions about Alameda’s financial health.

Crypto assets dropped on the news, with Bitcoin slumping as much as 8% before regaining some ground. Ether and smaller tokens also declined. Solana, which was backed by Alameda, tumbled 10%. FTX’s implosion came almost exactly one year after Bitcoin peaked at around $69,000. BlockFi, a troubled crypto lender that received emergency financing from FTX US earlier this year, said Thursday it will pause client withdrawals citing “a lack of clarity” over the status of Bankman-Fried’s empire.

Zhao’s Binance Holdings tentatively agreed Tuesday to buy FTX.com amid the exchange’s liquidity crunch, but backed out of the deal following a short period of due diligence. Bankman-Fried then pivoted to hold talks for last-ditch financing, including with fellow crypto entrepreneur Justin Sun.

Now U.S. authorities are investigating Bankman-Fried as well as FTX. His wealth, which stood at around $16 billion at the start of the week, has vanished along with his reputation as a crypto wunderkind who just recently was regarded as a savior of swathes of the industry.

By Thursday, someone had removed the small-lettered signage on the Miami office door of FTX US, a domestic exchange that operates separately. On Twitter that day, Bankman-Fried reassured customers that FTX US was “100% liquid” and “not financially impacted” by FTX International’s problems.

But inside those offices activity was sparse. FTX caps sat on a bookshelf, and scattered employees in hoodies watched large computer screens.

A “How are you holding up?” overheard in a hallway was met with a shrug of shoulders.

The case is FTX Trading Ltd., 22-11068, U.S. Bankruptcy Court for the District of Delaware.

[More: FTX implosion raises new alarms about crypto exposure]