Comments about the missing assets came from FTX attorney James Bromley in the US Bankruptcy Court for the District of Delaware, which held a hearing for the fallen crypto giant.
Sam Bankman-Fried charmed Washington. Then his crypto empire imploded.
During the hearing, Bromley also described FTX as a company “run by inexperienced and unsophisticated individuals”, adding that “some or all of them were also compromised individuals”. FTX, he said, “is one of the sharpest and most difficult corporate meltdowns in American corporate history.”
The revelations sparked more questions about the implosion of what had been seen as the cornerstone of the nascent digital asset industry. Regulators, lawyers, and investors are struggling to understand precisely what happened to FTX as its loss continues to send shockwaves through the interconnected crypto economy.
FTX filed for bankruptcy this month after a bank run caused a liquidity crunch. Shortly thereafter, the company’s chief executive and co-founder, 30-year-old Sam Bankman-Fried, resigned. “What we have is a global organization, but an organization that was effectively run as a personal fiefdom of Sam Bankman-Fried,” Bromley told the court.
A message left in Bromley’s office at his New York law firm, Sullivan & Cromwell, was not immediately returned. A message to Bankman-Fried was not immediately returned.
The Department of Justice, the Securities and Exchange Commission and the Commodity Futures Trading Commission have launched investigations into FTX. They are investigating whether the exchange circumvented consumer deposit protection and affiliate relationship protection rules, four people with knowledge of the investigations said.
FTX Investors Sue Sam Bankman-Fried, Celebrity Endorsers
The Southern District of New York’s Cybercrime Unit has also opened a criminal investigation into FTX, Bromley told the court on Tuesday. Bromley said he was in “constant communication” with that office, as well as the Justice Department, the SEC, the CFTC and other regulators statewide and abroad.
Bromley said he was responding to requests from House and Senate lawmakers for John J. Ray III, FTX’s new CEO, to testify in December. The Senate Banking Committee, the Senate Agriculture Committee and the House Financial Services Committee are all planning to hold hearings into the implosion of the Bankman-Fried crypto empire next month.
In a filing last week, Ray, who was brought in to oversee the company’s restructuring, described a company with a mess in communication and record keeping.
“One of the most pervasive failures of the FTX.com business in particular is the lack of lasting records of decision-making,” Ray said.
Last week, one of the nation’s most prominent attorneys filed a class action lawsuit seeking to extract large sums from Bankman-Fried and celebrities who have appeared in ads or otherwise endorsed FTX, including the quarterback of NFL Tom Brady, model Gisele Bündchen, comedian Larry David, NBA player Stephen Curry and tennis player Naomi Osaka.
FTX’s bankruptcy has affected a number of other crypto companies and their clients. They include BlockFi, a lender to which FTX extended a $400 million credit facility, or outstanding loan, last summer. The loan hasn’t been fully drawn down, and because it can’t access the rest of the money, BlockFi said in a November 10 statement, it halted withdrawals and “was unable to operate as usual.”
Genesis, another lender, said in a tweet thread last week that “FTX has created unprecedented market turbulence resulting in abnormal withdrawal requests that have exceeded our current liquidity.” He also said he was suspending withdrawals for the time being.