Cryptocurrencies, here are the real flaws of Ftx
A sprawling empire of more than 100 interconnected companies covering 27 regions, many assets still unlocated, former FTX leadership now compromised. Everything you need to know about the cryptocurrency trading platform meltdown
But where are the resources of Ftx, the shattered cryptocurrency trading platform founded by Sam Bankman-Fried?
FTX — now under Chapter 11 proceedings governing a controlled bankruptcy with continued operations in an effort to achieve a recovery — owes more than $3 billion to its 50 largest creditors alone, according to new court filings . .
To the largest creditor, it owes more than $226 million. FTX may have more than a million creditors, according to previous filings filed. The platform, once valued at $32 billion, collapsed in a matter of days, after concerns about its liquidity presented by the CEO of rival Binance.
Replacing Bankman-Fried as CEO to lead the liquidation efforts on Nov. 11 was John Ray III, who previously oversaw Enron's bankruptcy.
From the filing in federal court in Delaware, where the bankruptcy lawsuit is taking place, we got our first glimpse of the convoluted web of legal entities that Bankman-Fried had woven. What emerges is an organizational chart of FTX's sprawling empire of more than 100 interconnected companies spanning 27 regions, including the company's headquarters in the Bahamas. Already last week the new CEO Ray described the mismanagement of FTX as the worst he has ever seen . Especially on the multibillion-dollar transactions that Bankman-Fried allegedly carried out between the same Ftx and another of its companies, Alameda Research.
But where have the regulators been so far? "Since cryptocurrencies are still considered a separate species, it was not subject to the stringent rules that are now in force all over the world and was managed like a family shop, obviously in the interest of the creator and father-master" comments the economist Marco Onado on the Sun 24 Hours .
All the details.
FILING FOR BANKRUPTCY AFTER RESCUE IN SMOKE
A very serious shortage of liquidity for Ftx, over 100,000 creditors and the growing fear that a hole in the balance sheet could emerge from the bankruptcy proceedings, on the assets that theoretically should cover debts close to 9 billion dollars.
The former CEO had in fact assured that there was sufficient funds to cover the customers' positions and that the cryptocurrency trading platform had not invested the customers' assets. Statements that later turned out to be false. On November 11, the ruined cryptoasset portal presented its books in court. A few hours earlier, the last rescue attempt had failed, with the failure of the acquisition by the rival Binance.
TOTAL FAILURE OF COMPANY CONTROL SYSTEMS
In his first bankruptcy court appearance in Wilmington, Delaware, on November 22, the group's attorney, James Bromley, said that FTX "was controlled by individuals with no experience, some of them even compromised."
In his speech, the lawyer spoke of a "total failure of corporate control systems", accusing the former leadership of the group (including the founder Sam Bankman-Fried, who escaped and took refuge in the Bahamas) of fraudulent activities and a total lack of supervision .
It didn't have an accounting department or cash management system, so even basics like where the cash is are a mystery. As for digital assets, they have singled out "only a fraction" of what they hope to recover, according to the statement.
A “significant” portion of the assets managed by the US cryptocurrency exchange platform FTX have not yet been located, and “may have been stolen”. The group has also approached the Congressional Securities and Exchange Committee and the Justice Department to locate the as-yet-untraced digital assets of FTX.
FROM FTX A SPREADING NETWORK OF COMPANIES
An initial examination of FTX's accounts revealed that "significant funds" had been transferred to Alameda Research, another Bankman-Fried firm. The pattern that emerges from the documentation is a network that included major international exchange Ftx, a US cryptocurrency marketplace, Bankman-Fried proprietary trading group Alameda Research founded in 2017, and about 130 affiliated companies.
Now FTX and Alameda are facing investigations by the Justice Department and the Securities and Exchange Commission, centered on whether FTX's shortfall arose because it had illegally lent its clients' deposits to Alameda, reports the New York Times .
According to the Times reconstruction, Alameda made quick profits by exploiting inefficiencies in the Bitcoin market. Not long after its establishment, Mr. Bankman-Fried moved the company to Hong Kong. In 2019 he started Ftx; after which he appointed Caroline Ellison and Sam Trabucco, joint CEOs of Alameda. Trabucco stepped down earlier this year, leaving Ellison as sole manager.
THE RELATIONSHIP WITH ALAMEDA
The relationship between Alameda and FTX was the original sin that led to the implosion of Mr. Bankman-Fried's empire. Alameda has traded heavily on the Ftx platform, meaning it has at times profited when other Ftx clients have lost money, the NyT points out.
According to a recent bankruptcy filing, the company's quarterly financial statements have never been audited. According to the New York Times reconstruction, Alameda had withdrawn client funds from FTX to compensate for deficiencies in its accounts. Ftx now owes creditors $8 billion and the amount it lent to Alameda is $10 billion, according to Times sources.
WOWED NEW CEO JOHN RAY III
"Never in my career have I seen such a complete failure of corporate control systems and such a total absence of credible financial information," said John Ray III, in charge of bankruptcy proceedings at Ftx and newly appointed chief executive officer of the company, in recent days. company, in the documentation submitted to the bankruptcy court.
FTX said on Saturday it has begun a strategic review of its global businesses and is preparing to sell or restructure some businesses.
SHOCKED THE CRYPTO SECTOR
The collapse of such a major group has shaken the notoriously volatile cryptocurrency industry, and triggered fears of contagion among other companies already recovering from the cryptocurrency market crash this year.
Bitcoin fell 5% to a new two-year low of $16,492 after FTX bankruptcy announcement. Changpeng Zhao, chief executive of Binance, said on Friday that the fall of FTX left cryptocurrencies facing a financial crisis similar to the one in 2008 and that more companies could fail in its wake.
THE ANALYSIS BY ECONOMIST MARCO ONADO, FORMER CONSOB COMMISSIONER, ON THE SOLE 24 ORE
“The list of scandals in the world of cryptocurrencies is getting longer, the authorities still have blunt weapons, but effective regulation still seems to come” observes the economist Marco Onado, former Consob commissioner, in Il Sole 24 Ore. “Ftx's collapse demonstrates that one of the largest exchange platforms for new instruments could be managed as a personal fiefdom by the boss, Sam Bankman-Fried, to the point of allowing him to literally make something like 8 billion dollars of customers disappear, sending them to a related company. After bringing the company's valuation to 32 billion, among the hosannas of investors, commentators, assorted cheer leaders” underlines Onado.
According to the economist, “The United States are especially in the dock, also because the main initiatives come from there. Also due to the fragmentation of the supervisory authorities in that country (the United States is the only one in which the regulation of securities and derivatives is headed by two different authorities) there is still questioning about a specific regulation for cryptocurrencies, on the basis of the fact that it is a completely new instrument”.
“Meanwhile, the information they receive (and which FTX provided) is not viewed in a unified picture, which is the essence of effective supervision. Not surprisingly, the US Treasury Secretary, Janet Yellen, has pointed her finger at the authorities of her country” concluded Onado.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia-on-demand/criptovalute-ecco-le-vere-magagne-di-ftx/ on Thu, 24 Nov 2022 13:59:11 +0000.