The collapsed crypto exchange FTX expects to have more than 1 million individual creditors, the company has said in its first bankruptcy filing, scattered across more than 100 companies in the wider group.
According to the filing at the bankruptcy court in the US state of Delaware, where FTX US is based, Sam Bankman-Fried, the founder and chief executive, stepped down at 4.30am on Friday, “after consultation with his own legal counsel”.
“FTX faced a severe liquidity crisis that necessitated the filing of these cases on an emergency basis last Friday,” the documents say. “Questions arose about Mr Bankman-Fried’s leadership and the handling of FTX’s complex array of assets and businesses under his direction.”
The new leadership of the company has been in contact with a large number of law enforcement organisations, the filing confirms, including “the US Attorney’s Office, the US Securities and Exchange Commission, the Commodity Futures Trading Commission, and dozens of federal, state and international regulatory agencies”.
Typically, the Delaware bankruptcy court requires the company to file a list of the 20 largest unsecured debtors but FTX has requested permission to do things differently: because it has more than 100 companies filing for bankruptcy as one bloc, it wants to amalgamate all the claims into one list of 50 people and organisations.
“There are over 100,000 creditors in these Chapter 11 cases. In fact, there could be more than one million creditors in these Chapter 11 cases,” the lawyers say. “The debtors anticipate overlap among the various debtors’ creditor lists, and certain debtors may have fewer than 20 significant unsecured creditors.” The company has also asked permission to file notice by email, rather than post.
While depositors in a cryptocurrency exchange may feel similar to bank account holders, they have far less legal protection. In the case of a collapsed exchange such as FTX, they are simply unsecured creditors, and legally stand to be some of the last creditors to recover funds, far behind bank loans and slightly ahead of equity owners.
In the past, FTX has benefited from that disjunct between expectation and reality, acquiring the remnants of the failed crypto pseudobank Voyager this year with an explicit promise to protect every depositor in the company by rolling their accounts over onto FTX’s platform. Now, those depositors have again become unsecured creditors.