The Australian administrators of failed cryptocurrency platform FTX are working to return funds to creditors but say some Australian-based customers could be forced to deal with US administrators.
FTX put its Australian companies into voluntary administration with KordaMentha last month following the spectacular collapse of the global cryptocurrency exchange at the start of November. Around 30,000 Australian customers were owed money or cryptocurrency from the exchange, in amounts ranging up to $1m.
The administrator Scott Langdon told a first meeting of creditors on Thursday that the company had received more than 1,000 emails from affected customers. The main question was whether they would get their money back.
Langdon said it was a “very unfortunate set of circumstances” and the company was leaving no stone unturned in its investigation.
“That requires some detailed analysis that requires work with the US bankruptcy counterparts … to determine the existence or otherwise of the digital currencies and who they belong to …
“We believe that there may be a significant void in terms of what customers believe they own versus what in reality exists.”
Since FTX went into administration, KordaMentha has been working to determine the tangled web of companies within FTX and which customers might be owed money by which branch of the business.
FTX Australia and FTX Express were both set up as Australian companies wholly owned by FTX Trading Limited, which is located in Antigua and Barbuda.
FTX Australia was the company established to for trading derivatives, of which the administrators have determined there are around 11,000 customers – and 4,000 derivatives positions held by those customers. This is the company with the Australian Financial Services Licence which is currently suspended, and currently holds $2.5m in cash recovered by administrators.
FTX Express is the company responsible for allowing customers to exchange fiat to cryptocurrency and vice versa. The administrators have said there are 17,000 customers who may be creditors of FTX Express, and they have been able to secure $38.6m in cash from this business.
But creditors were told that if they had deposited cryptocurrency from a different wallet directly onto the FTX platform, then their funds were held by the US parent company and therefore beyond the reach of local administrators.
“I had Joe the carpenter call me yesterday,” Langdon said. “He indicated to me that he had transferred $300,000 to another exchange to facilitate the purchase of a digital asset. He then moved that digital asset onto the FTX platform.
“It is our current understanding that that did not require any interaction with FTX Express or FTX Australia. Accordingly, our current view is subject to our further analysis, that particular customer is likely to be a creditor of the FTX Trading regime.”
The administrators could not say how many customers were in this situation. Langdon said KordaMentha was working through the issue diligently with legal advisors, and did not rule out court involvement.
A complication was that prior to the administrators being appointed and access to the FTX platform being cut off, many customers sought to withdraw or convert their cryptocurrency into fiat but were unable finish the transaction. Langdon said these customers would likely be creditors of FTX Express.
Langdon said on top of the $41.1m the administrators had secured from the company, there was a further $700,000 in cash held by a counterparty that the administrators were pursuing.
The administrators in Australia have no access to the FTX platform, and will need to keep in open dialogue with the US bankruptcy administrators throughout the process.
Locally FTX Australia is the only company that operated in Australia with employees. It had four employees and one contractor, all based in Sydney.
The next creditors’ meeting is not likely to be held until sometime next year, the meeting heard.
The meeting was held an hour after the FTX founder, Sam Bankman-Fried, told a New York Times summit he did not ever try to commit fraud, and was shocked by the collapse of his company.
The demise of FTX has had flow-on effects for other businesses in Australia, including Brisbane-based platform Digital Surge, which has stopped withdrawals and deposits, and also two Australian law firms listed as creditors in the US bankruptcy case.