Embattled crypto exchange FTX files for bankruptcy

NEW YORK (AP) — It took less than a week for FTX to go from being the world’s third-largest cryptocurrency exchange to bankruptcy court.

The troubled cryptocurrency exchange, billions of dollars short, is seeking bankruptcy protection after the exchange experienced the crypto equivalent of a bank run. FTX, the hedge fund Alameda Research and dozens of other affiliated companies filed for bankruptcy in Delaware on Friday morning.

CEO and founder Sam Bankman-Fried has resigned, the company said. Bankman-Fried was recently estimated to be worth $23 billion and has been a prominent political donor to Democrats. His net worth has all but evaporated, according to Forbes and Bloomberg, which closely track the net worth of the world’s richest people.

“I was surprised to see things play out the way they did earlier in the week,” Bankman-Fried wrote in a series of posts on Twitter.

The unraveling of FTX is causing ripple effects. The companies that backed FTX are already paying off their investments. Politicians and regulators are increasing calls for stricter supervision of the cryptocurrency industry. And this latest crisis has put pressure on the prices of bitcoin and other digital currencies. The total market value of all digital currencies has dropped by around $150 billion in the last week, according to CoinMarketCap.com.

Bankman-Fried has other problems, too. On Thursday, a person familiar with the matter said the Justice Department and the Securities and Exchange Commission were investigating FTX to determine if any criminal activity or securities-related offenses were committed. The person was unable to publicly discuss details of the investigations and spoke to The Associated Press on condition of anonymity.

The investigation focuses on the possibility that FTX used customer deposits to fund bets at Alameda Research. In traditional markets, brokers are expected to separate client funds from other company assets. Violations can be sanctioned by regulators.

In its bankruptcy filing, FTX listed more than 130 affiliated companies worldwide. The company valued its assets at between $10 billion and $50 billion, with a similar estimate for its liabilities. The company named John Ray III, a longtime bankruptcy litigator who is best known for having to clean up the mess created after Enron’s collapse, as its new CEO.

FTX had earlier this week agreed to sell to larger rival Binance after experiencing the crypto equivalent of a bank run. Clients left the exchange after worrying about whether FTX had enough capital.

The crypto world was hoping that Binance, the world’s largest cryptocurrency exchange, could bail out FTX and its depositors. However, after Binance took a look at FTX’s books, he concluded that the smaller exchange’s problems were too big to solve and backed out of the deal.

FTX is the latest in a series of cascading disasters that have rocked the cryptocurrency sector, now under intense pressure from collapsing prices and the siege of financial regulators. Its failure is already being felt throughout the crypto universe.

On Thursday, venture capital fund Sequoia Capital said on Thursday that it is paying off its nearly $215 million total investment in FTX.

Cryptocurrency lender BlockFi announced on Twitter late Thursday that it is “unable to conduct business as usual” and pause customer withdrawals as a result of the FTX implosion.

In a letter posted on its Twitter profile late Thursday, BlockFi, which was bailed out by FTX from Bankman-Fried early last summer, said it was “shocked and dismayed by the news about FTX and Alameda.”

The company ended by saying that any future communication about its status “will be less frequent than our customers and other stakeholders are used to.”

Bitcoin fell immediately after the letter was published and is trading below $17,000. The original cryptocurrency, bitcoin, had been hovering around $20,000 for months before FTX’s troubles became public this week, briefly bringing it down to around $15,500.


Reporters Matt Ott and Michael Balsamo in Washington contributed.