Sam Bankman-Fried's empire has fallen, with the FTX Group filing for Chapter 11 bankruptcy in Delaware less than a day after claiming everything was okay. The international exchange FTX.com, the US-facing platform FTX.US, hedge fund Alameda Research, and about 130 additional affiliated subsidiaries are all part of the proceedings. (Here is a byzantine map of FTX Group’s corporate structure)
Chapter 11 bankruptcy will give the company a chance to keep operating while it figures out how to make customers whole again, but it’s not clear that this is possible. The firm reportedly used customer funds to fund risky bets and acquisitions through Alameda Research, burning a $10 billion hole in its books in what should by now be an incredibly familiar playbook for crypto firm customers hit by previous collapses.
For example, Crypto-bank Celsius paused withdrawals, was revealed to have made risky bets and investments using customer deposits, and shortly thereafter filed for Chapter 11 bankruptcy. Lender Voyager Digital also paused withdrawals and was revealed to have used customer deposits in similar high-risk deals, and shortly thereafter filed for Chapter 11 bankruptcy. Somewhat ironically, Bankman-Fried actually planned to buy Voyager and was posed to bail out Celsius but backed out of those plans.
The fall of Bankman-Fried's empire has been shocking to witness. He was promoted as being a responsible and altruistic player in the chaotic crypto industry. The bankruptcy announcement adds yet another devastating twist, as FTX.US was assumed by many to be stable even if the international exchange crumbled. During the chaos of the past week, Bankman-Fried went out of his way to give the impression that FTX.US was not implicated.
Bankman-Fried has stepped down as chief executive and John J. Ray III—who previously led the liquidation of Enron post-bankruptcy—has been appointed to replace him, according to an announcement posted to Twitter. Bankman-Fried will stay on with the company to "assist in an orderly transition.” The statement also claimed that employees across the world are expected to keep working for FTX Group as well as help Ray during the bankruptcy proceedings, but already, droves of employees have resigned. The company’s entire compliance and legal team, as well as its philanthropic foundation FTX Future Fund all quit in the wake of the recent turmoil.
It’s unlikely FTX comes back from this. Sequoia Capital, which led a $400 million fundraising round that valued FTX at $32 billion zeroed out its investment on Thursday. California became the first state to announce it was investigating FTX. The Department of Justice is separately investigating FTX.
The bankruptcy announcement is likely far from the end of the story, as crypto investors eye the market for signs of contagion from the collapse. Already, troubled crypto-lender BlockFi has paused withdrawals after making a bailout agreement with Bankman-Fried this year.