Collapsed crypto exchange FTX expects to have more than 1 million individual creditors, the company said in its first bankruptcy filing, spread across more than 100 companies in the broader group.
According to the filing in bankruptcy court in the US state of Delaware, where FTX US is based, Sam Bankman-Fried, the founder and CEO, stepped down at 04:30 on Friday, “after consultation with his own legal counsel”.
“FTX faced a severe liquidity crisis that necessitated the filing of these cases last Friday on an emergency basis,” the documents state. “Questions have arisen about Mr Bankman-Fried’s leadership and the handling of FTX’s complex range of assets and businesses under his direction.”
The company’s new leadership has been in contact with a large number of law enforcement organizations, the filing confirmed, 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 asked permission to do things differently: because it has more than 100 companies filing for bankruptcy as one block, it wants to merge all the claims. in one list of 50 people and organizations.
“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 attorneys say. “The debtors expect overlap between the various debtors’ creditor lists, and certain debtors may have fewer than 20 significant unsecured creditors.” The company also requested permission to submit notice by email, rather than mail.
While depositors in a cryptocurrency exchange may feel similar to bank account holders, they have much less legal protection. In the case of a collapsed exchange like FTX, they are simply unsecured creditors, and are legally among the last creditors to recover funds, far behind bank loans and slightly ahead of equity owners.
In the past, FTX has taken advantage of that disconnect between expectation and reality, and this year acquired the remains of the failed crypto-pseudobank Voyager with an express promise to protect every depositor in the company by rolling their accounts to FTX’s platform . Now those depositors have become unsecured creditors again.