FTX spent $300 million on Bahamas real estate, ‘substantial’ assets missing, lawyers say

Crypto exchange FTX was run as a “personal fiefdom” of Sam Bankman-Fried, the company’s lawyers said on Tuesday, describing that one of the firm’s units spent $300 million on real estate in the Bahamas.

The collapse of FTX, once one of the largest cryptocurrency exchanges in the world, has left around 1 million creditors facing losses totaling billions of dollars.

In the most publicized crypto explosion to date, FTX filed for protection in the US after traders withdrew $6 billion from the platform in three days and rival exchange Binance abandoned a bailout deal.

A lawyer for FTX said during a bankruptcy hearing on Tuesday, which was streamed live with nearly 1,000 people watching on YouTube, that an investigation must take place into Binance’s sale of FTX in July 2021 Binance bought a stake in FTX in 2019 and sold it in 2021.

A lawyer said the $300 million spent on real estate was largely on homes and vacation properties for senior executives. The company intends to sell healthy business units, an attorney said.

Reuters reported earlier that Bankman-Fried’s FTX, his parents and top executives of the failed cryptocurrency exchange bought at least 19 properties worth nearly $121 million in the Bahamas in past two years, according to official property records.

During the hearing, a lawyer for FTX also said the company continued to suffer cyberattacks as bankruptcy began and “substantial” assets were missing.

His cash balance of $1.24 billion as of Sunday was “significantly higher” than previously thought, according to a filing late Monday by Edgar Mosley of Alvarez & Marshal, a consulting firm advising FTX.

It includes around $400 million in accounts tied to Alameda Research, the crypto trading firm owned by FTX founder Sam Bankman-Fried, and $172 million in FTX’s Japan arm.

FTX, which said Saturday it launched a strategic review of its global assets and is preparing to sell or reorganize some businesses, had previously said it owed its 50 major creditors nearly $3.1 billion.

Reuters reported Bankman-Fried secretly used $10 billion in client funds to support its commercial enterprise, and that at least $1 billion of those deposits had disappeared.

Details of FTX’s cash balances came ahead of a hearing in Delaware on the so-called day one motionswhich started on Tuesday.

FTX has asked Judge John Dorsey to sign off on the early stages of its bankruptcy, including paying critical employees and suppliers, which will allow it to continue operating during Chapter 11 bankruptcy proceedings.

The company had also asked Dorsey to take over a separate Chapter 15 case filed last week in New York on behalf of FTX’s Bahamas unit by Bahamian court-appointed liquidators. These procedures are used by foreign companies to seek the cooperation of US courts in cross-border bankruptcy cases.

Lawyers representing the Bahamian liquidators, who previously questioned the validity of the U.S. Chapter 11 proceeding and clashed with the team leading it on which case should take precedence, agreed to that request ahead of the hearing of Tuesday.

FTX, led since filing for bankruptcy by new CEO John Ray, has accused Bankman-Fried of working with Bahamian regulators to “undermine” the US bankruptcy filing and transfer assets overseas.

Bankman-Fried, FTX and the Bahamas liquidators did not immediately respond to requests for comment.

Sam Bankman-Fried.
Sam Bankman-Fried.Jeenah Moon/Bloomberg via Getty Images File

FTX is also seeking to compensate unidentified individuals for actions they have taken and continue to take in connection with assets that represent a significant portion of the company’s wealth, according to a court filing Tuesday.

Sealed claims are unusual early in a bankruptcy case. FTX said it was communicating with US regulators and bankruptcy court officials, but did not mention Bahamian regulators.

FTX’s fall from grace has sent shivers through the crypto world, pushing bitcoin to its lowest level in about two years and sparking contagion fears among other companies already reeling from this crypto market meltdown. year.

Major US crypto lender Genesis said on Monday it was trying to avoid bankruptcy, days after the collapse of FTX forced it to halt client redemptions.

“Our goal is to resolve the current situation in a consensual manner without the need to file for bankruptcy,” a spokesperson for Genesis said in a statement emailed to Reuters, adding that it continued to have conversations with creditors.

Bloomberg news reportciting sources, had said Genesis was struggling to raise fresh funding for its loan unit, and was warning investors that it might have to file for bankruptcy if it did not find funding.

The Wall Street Journal reported, citing sources, that Genesis had approached Binance looking for an investment but the crypto exchange decided against it, fearing a conflict of interest. Genesis has also approached private equity firm Apollo Global Management for capital assistance, the WSJ reported.

Apollo did not immediately respond to a request for comment from Reuters on the WSJ report, while Binance declined to comment.

Genesis Global Capital client redemptions suspended in its lending activity last week, citing the sudden failure of FTX.

Crypto exchange Gemini, which operates a crypto lending product in partnership with Genesis, tweeted on Monday that it continues to work with the company to allow its users to redeem funds from its return-generating “Earn” program.

Gemini said on its blog last week that there was no impact to its other products and services after Genesis suspended withdrawals.

Since the FTX implosion, some crypto readers are embrace decentralized exchanges known as “DEX” where investors trade between peers on the blockchain.

Overall daily trading volumes on DEXs jumped to their highest level since May on Nov. 10 as FTX imploded, according to data from DeFi market tracker Llama, but have since pared their gains.