Crypto Platform FTX Goes Bankrupt, Dem Megadonor Boss Resigns

FTX Group, a collection of some 130 companies behind the cryptocurrency platform FTX, has filed for bankruptcy, and its boss, Sam Bankman-Fried, has quit.

The group has initiated voluntary bankruptcy proceedings under Chapter 11 in the District of Delaware, according to a press release on Nov. 11.

Bankman-Fried, who has been replaced in his role as CEO by John J. Ray III, will remain to assist with an orderly transition, as will “many employees” of FTX Group in various countries.

“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” Ray said in a statement.

The bankruptcy proceedings cover Bankman-Fried’s crypto hedge fund Alameda Research and FTX US, but exclude subsidiaries FTX Australia Pty., FTX Express Pay Ltd., and several others.

The bankruptcy marks a stunning downfall for Bankman-Fried, who said in a series of posts on Twitter that he was “shocked to see things unravel the way they did.”

“This doesn’t necessarily have to mean the end for the companies or their ability to provide value and funds to their customers chiefly,” he wrote, apologizing for how things have developed and holding out hope for finding a way to “recover.”

Bankman-Fried on Thursday admitted he had “[expletive] up” and said he was “sorry” for a number of missteps managing the crypto platform.

“The full story here is one I’m still fleshing out every detail of, but as a very high level, I [expletive] up twice,” he wrote in a post on Twitter.

Once valued at $32 billion, FTX was seen as one of the more stable players in the loosely regulated crypto industry.

‘When It Rains, It Pours’

One mistake, Bankman-Fried said, was underestimating margin on users’ accounts. It’s a flub that snowballed when FTX users rushed to withdraw their deposits, sparking a liquidity crunch.

The run was triggered when Changpeng Zhao, CEO of its main rival, Binance, posted messages on Twitter over the weekend questioning the stability of its operations and announcing it was liquidating is holdings of FTT, a token put out by FTX.

“We will try to do so in a way that minimizes market impact. Due to market conditions and limited liquidity, we expect this will take a few months to complete,” Zhao said.

But FTX users rushed for the exits. Bankman-Fried said that on Sunday, the exchange experienced around $5 billion in withdrawals, the biggest amount “by a huge margin.”

“Because, of course, when it rains, it pours,” he said.

On Monday, Bankman-Fried was scrambling to raise money, even approaching Binance for help.

“This afternoon, FTX asked for our help. There is a significant liquidity crunch,” Zhao said in a post on Twitter.

Bankman-Fried and Zhao both later announced that Binance had reached a tentative deal to buy FTX’s businesses located outside the United States, tossing FTX a lifeline.

But after conducting due diligence, Zhao later reversed his offer.

“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged U.S. agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” the Binance account on Twitter stated in a post.

Federal investigators are reportedly looking into whether FTX.com misused customer funds, and are probing ties between the platform and Bankman-Fried’s other companies, according to Bloomberg.

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Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s ever heard is from Roy Peter Clark: ‘Hit your target’ and ‘leave the best for last.’