The most widely publicized news from the crypto industry this year was the collapse of FTX. Once the world’s second-largest crypto exchange valued at $32 billion, Sam Bankman-Fried’s exchange declared bankruptcy in November 2022.
Google search queries for FTX increased 50-fold after it declared bankruptcy.
Five of its executives have pleaded guilty to federal crimes in US courts.
Shortly prior to its downfall, CZ at Binance publicly disparaged FTX and dumped Binance’s holdings of FTX’s proprietary token, FTT. The situation was bad enough that UK politicians asked Binance if it knew its announcements would topple Sam Bankman-Fried’s empire.
Quickly, John J. Ray III’s team, which oversaw the bankruptcy wind-down of Enron, took over FTX’s halted operations.
They have unearthed the horrible, fraudulent reality of FTX’s operations – including stolen billions from customers.
Indeed, so much has happened with FTX since its implosion that the fallen leader is worth revisiting, here at the conclusion of another year.
Government clean-up continues at the turn of the year
On New Year’s Day 2023, the FTX bankruptcy was less than two months old. As a result, plenty of headlines during the first quarter of 2023 continued the bankruptcy fall-out.
January 10, 2023: The U.S. Justice Department launches an official website through which FTX customers who lost funds in the collapse can report fraud. Meanwhile, a judge agrees to obscure information about most FTX creditors due to potential cyber threats.
January 23, 2023: The New York State Department of Financial Services aims to prevent “FTX-like” commingling of user funds with new regulatory guidance.
January 30, 2023: The UK’s Charity Commission is investigating Effective Ventures Foundation, a charity that benefitted from FTX donations. The Commission says it wants to ensure that Effective Ventures Foundation used the money in line with UK regulations governing non-profits.
January 31, 2023: Alameda Research alleges that Voyager Digital contributed to its collapse with a $446 million “feeder fund.” A lawsuit against Voyager Digital seeks a clawback of the funds.
February 1, 2023: FTX Japan reiterated its promise to return Japanese users’ funds. However, it failed to give an exact timeline for the refund.
February 6, 2023: Huobi lists a shady “FTX User Debt” token issued by DebtDAO.
February 15, 2023: New evidence suggests that Alameda Research lost as much as $1 billion from investing in MobileCoin. The loss likely played a major part in the beginning of Sam Bankman-Fried’s digital asset empire’s financial issues.
March 23, 2023: FTX negotiates a deal with hedge fund Modulo Capital to claw back $460 million of the $475 million that FTX had sent to Modulo Capital.
Q2 springs hope of FTX renewal
April 11, 2023: New court filings reveal more details about the lack of corporate controls at FTX. It cites executives’ concerns that FTX could fold if key figures got “hit by a bus.”
April 12, 2023: Ren Protocol, a DeFi protocol acquired by FTX shortly before its bankruptcy, says it moved all its assets to cold wallets controlled by creditors for “safekeeping.”
April 20, 2023: Jeremy A. Sheridan filed a declaration supporting a bid to redact names of FTX creditors, claiming that revealing them could lead to identity theft, fraud, and personal attacks.
May 3, 2023: Attorneys use Twitter to serve papers to YouTuber Tom Nash, an influencer who plugged FTX. Nash is one of several influencers who became defendants in a class-action lawsuit. However, he failed to respond to more traditional means to serve papers.
May 4, 2023: FTX Group seeks repayment of $4 billion in cash and digital assets from Genesis Global Capital and GGC International. The funds include $2 billion in loans and collateral owed to Alameda Research.
More regulators join the pile-on while FTX turns on former employees and seeks a way out of bankruptcy
June 16, 2023: The Texas State Securities Board alleges that Abra is insolvent and had exposure to FTX in an emergency cease-and-desist order.
June 29, 2023: FTX alleges that former general counsel Daniel Friedberg attempted to pay off whistleblowers in a new lawsuit. The lawsuit seeks the return of Friedberg’s salary and stake in FTX.
June 29, 2023: Protos finds evidence that Alameda Research attempted to profit from a common arbitrage ploy that could profit from the difference in bitcoin’s price on Japanese and Korean markets compared to the rest of the world.
July 29, 2023: Australian regulators revoke FTX Australia’s Australian Financial Services license.
August 1, 2023: FTX debtors-in-possession file a draft plan for repaying creditors. The proposed plan fails to repay all the funds FTX owes to customers.
August 16, 2023: Prosecutors find evidence that Caroline Ellison blamed Sam Bankman-Fried for FTX’s and Alameda Research’s collapse in conversations with employees.
August 31, 2023: FTX publishes a financial statement outlining contracts to which FTX subsidiaries were a party, including an October 2020 deal with iFinex describing fiat currency integration and a revolving line of credit.
September 5, 2023: Law firm Sullivan & Cromwell reportedly earns $110 million in fees from the FTX bankruptcy case. Law firms drew criticism for charging bankrupt digital asset firms as much as $700 million while creditors wait in line to get any money back.
September 7, 2023: Former FTX Bahamas co-CEO Ryan Salame plans to plead guilty to alleged violations of U.S. campaign finance law.
September 7, 2023: The 2nd US Court of Appeals rejects Sam Bankman-Fried’s bid to be released from Brooklyn’s Metropolitan Detention center, saying it would refer the case to the first available three-judge panel. Bankman-Fried’s bail had been revoked due to alleged violations of the terms.
September 7, 2023: Anthony Scaramucci alleges that Sam Bankman-Fried’s father, Joseph Bankman, warned him about FTX’s financial problems in a November 7 phone call. He says he flew to the Bahamas to discuss “rescue funding” but passed on it once he realized what a mess it was.
September 13, 2023: The presiding bankruptcy judge approves FTX’s proposed plan for liquidating its digital assets, setting a limit on the amount it can sell per week.
September 18, 2023: The FTX estate alleges that Sam Bankman-Fried’s parents improperly took an informal leadership role in FTX and committed fraud in a lawsuit.
October 3, 2023: The SEC alleges that former FTX auditor Prager Metis failed to follow accounting rules. Alleged violations include requiring an illegal indemnification clause for audits, attestations, and reviews.
October 4, 2023: Michael Lewis releases a new book, Going Infinite, which describes Jump Trading’s ties to both Robinhood and FTX. Robinhood used Jump Trading as a digital asset market maker until Q4 2022. Jump Trading had $300 million in assets on FTX when it folded.
Testimony during SBF’s criminal trial describes lies and fraud while attorneys rake in the fees
October 20, 2023: Attorney Can Sun’s testimony in the Sam Bankman-Fried trial alleges that Bankman-Fried repeatedly lied to FTX’s attorneys about mixing customer funds with company funds.
October 20, 2023: Testimony in Sam Bankman-Fried’s trial describes an unsuccessful attempt to open accounts at OKX and HTX using fraudulent ID cards. Evidence also points to Genesis Block using FTX technology as a “backbone” for its OTC trading desk, at which residents of Thailand could exchange physical cash for digital assets. Documents describing the ties between FTX and Genesis Block include a “Digital Assets Accounts Control Agreement” from November 2020 and a loan agreement from December 2021.
October 23, 2023: Protos finds evidence that OTC trading desk Genesis Block Ventures had connections with Alameda Research and FTX. Genesis Block Ventures operated a virtual art gallery featuring NFTs belonging to addresses funded by FTX and Alameda Research.
November 7, 2023: Sam Bankman-Fried and Daniel Friedberg filed a lawsuit against Continental Casualty Co., alleging that the insurance company refused to honor an insurance policy that would have covered their legal costs. Continental Casualty Co. was one of four insurance companies where FTX held an insurance policy worth $5 million each.
December 18, 2023: Recent court filings reveal that FTX owes attorneys $1.45 billion and customers $1.42 billion. So far, it paid $350 million to attorneys.