FTX Creditor obtains $60 million in claims from previous clients
A company run by a former executive of FTX has successfully obtained bankruptcy claims totaling $60 million from impacted users.
Users mostly receive assistance from FTX Creditor with claims up to $100,000. It has been commended on social media for its quick transaction speed, with transactions taking as little as 30 minutes to complete.
Following FTX’s collapse in November 2022, Louis d’Origny and former FTX CEO Ramnik Arora recognized a chance to turn the tragedy into a successful business endeavor. The two started a number of investment funds and the FTX Creditor platform in order to purchase bankruptcy claims from other users who were affected by the collapse of the exchange.
The venture began by accumulating about $31 million in claims through the funds and expanded its operations with FTX Creditor, bringing the total to an additional $60 million in claims. While initial estimates suggested that creditors might recover only 25% to 30% of investments, the strategy allowed for purchasing claims at significantly lower costs, hinting at potentially higher returns for investors.
D’Origny highlights the excitement among clients getting the refunds in an interview with Bloomberg, saying that many of them are keen to reinvest in cryptocurrency. Arora was instrumental in the engineering of the FTX Creditor platform and has not been charged with any crimes.
More than a million consumers worldwide suffered large financial losses as a result of FTX’s failure. Sam Bankman-Fried, the former CEO and founder, is currently facing a 40–50 year jail sentence after being found guilty on several counts of fraud and money laundering.
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The growth of FTX
Soon after its inception, FTX quickly rose to dominate its market through high-profile acquisitions of struggling competitors, such as Liquid Global, LedgerX and Blockfolio. FTX used aggressive marketing campaigns, such as Super Bowl ads, celebrity endorsements and naming rights to the Miami Heat’s arena. These marketing campaigns promised that people could put their money in these accounts and earn higher yields than the average bank.
Cryptocurrency began to boom in early 2021, and the price of Bitcoin peaked at $64,000, up from $10,000. Customers began to take notice and venture capital groups invested nearly $2 billion in FTX.
What is FTT?
Cryptocurrency platforms often create their own tokens to attract new customers. As more people invest in and demand a digital token, its value increases, so platforms may offer perks. FTX created its own digital token called FTT in May 2019. FTX also offered other perks for staking FTT, such as discounts and NFT rewards.
The downfall of FTX
In late 2021 and early 2022, the price of Bitcoin started to decline drastically from its high at the beginning of 2021, and other cryptocurrencies started to follow. Many major platforms started shutting down, except for FTX, which continued acquiring competitors.
However, the rise of FTX came to an end in November 2022 when CoinDesk published an article stating that Alameda Research, also founded by Bankman-Fried, was heavily dependent on FTX’s digital token FTT, with assets valued at $5 billion. FTX’s balance sheet was leaked and showed there was a lack of diversification and the two companies were tied too closely together. The balance sheet listed $9 billion in liabilities and $900 million in assets, with poorly labeled entries showing a negative $8 billion balance.
Alameda borrowed as much capital as it needed from FTX. It was later found that this funding was mostly from customer deposits, and the trading firm would borrow money routinely from FTX customer assets.
FTX and its sister companies did not produce balance sheets showing assets and liabilities, which is standard financial reporting procedures. FTX’s balance sheets were never audited because it was a private company. Without these audits, there was no record of cash flow or assets to show the company could cover liabilities or customer assets. The FTX balance sheets showed assets were less than Bankman-Fried had stated.
Binance, a cryptocurrency exchange platform and FTX competitor, agreed to buy out FTX on Nov. 8 before the full extent of its problems went public. Changpeng Zhao, CEO of Binance, was one of FTX’s first investors. However, the deal fell through, and Binance cited the mishandling of customer funds and the U.S. investigations as the reasons for backing out of the acquisition.
The collapse of FTX
In November 2022, FTX’s collapse lasted 10 days, starting on Nov. 2 and ending on Nov. 12. It began with the CoinDesk article and the leaked balance sheet. Binance initially announced it would sell all its FTT tokens because of the mishandled and blurred funds.
The value of FTT dropped significantly, prompting FTX customers to withdraw money from their accounts. However, other cryptocurrency platform collapses, such as Celsius Network and Voyager Digital, had people worried about their investments.
During this mass withdrawal, FTX lost billions of dollars. Bankman-Fried ordered Alameda Research to sell assets to cover the needed capital from the withdrawals and he also looked for financing to cover the gap of about $8 billion between what was owed and what could be paid.
On Nov. 8, FTX blocked customers from taking money out of the platform by removing that option online, which meant hundreds of thousands of customers did not have access to their money. When FTX could not pay the $8 billion gap, the company filed for bankruptcy. FTX crashed due to mismanagement of funds, lack of liquidity and the large volume of withdrawals. Binance announced it would buy FTX to prevent a larger market crash, but quickly bailed out of the deal as more news reports of mishandled customer funds surfaced.
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Criminal charges and lawsuits
Authorities arrested Bankman-Fried on Dec. 12, 2022, for multiple fraud charges with FTX. Bankman-Fried was indicted by the U.S. District Court on eight criminal charges, including money laundering, wire fraud, campaign finance violations and securities fraud.
Bankman-Fried was released from custody with a $250 million bond, which is the largest in history.
As of January 2023, $5 billion in assets has been recovered in cash and liquid assets. The total assets missing was estimated at $8 billion.
FTX investors filed a class action lawsuit against FTX and its celebrity endorsers on Nov. 15, 2022. The civil suit claimed FTX used “false representation and deceptive conduct.” The lawsuit also accused FTX of using a Ponzi scheme to misuse funds and move customer money between entities.
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FTX debtors’ report
On April 9, 2023, FTX debtors released their first report outlining the failures of FTX Group’s management team before bankruptcy. “The FTX Group lacked appropriate management, governance and organizational structure,” the report stated.
The findings included security failures, such as private keys to move crypto assets often left in unencrypted files and crypto assets left unsecured in hot wallets connected to the internet. It also named failures to use multifactor authentication in critical areas and several people with access to the billions of dollars in the crypto wallets.
In addition, FTX lacked accounting and financial controls. FTX did not have experienced personnel to handle financial reporting, risk management, audits or accounting procedures. Most financial policies were generic or did not exist for a firm handling significant financial assets, according to the report. There were also no formalities for intercompany transactions, allowing liabilities and assets to transfer between insiders and FTX Group entities without any documentation or checks and balances.
