LONDON, Nov 11 (Reuters) – Crypto exchange FTX is to start U.S. bankruptcy proceedings and CEO Sam Bankman-Fried is to step down, after a liquidity crisis at the cryptocurrency group that has prompted intervention from regulators around the world.
The distressed crypto trading platform had been struggling to raise billions in funds to stave off collapse after a wave of withdrawals.
The company said in a statement on Friday, shared via a tweet, that FTX and its affiliated crypto trading fund Alameda Research and approximately 130 other companies have commenced voluntary Chapter 11 bankruptcy proceedings in Delaware.
“I’m really sorry, again, that we ended up here,” said FTX founder Bankman-Fried, in a series of tweets after the commencement of the bankruptcy filing.
In his tweets, Bankman-Fried said the bankruptcy filing “doesn’t necessarily have to mean the end for the companies” and that he was “optimistic” the group’s new CEO would “help provide whatever is best”.
John J Ray III has been appointed to take over as CEO from Bankman-Fried, who will assist with an orderly transition.
The week-long saga that began with a run on FTX and an abandoned takeover deal by rival Binance has hit an already struggling bitcoin and other tokens.
FTX was scrambling to raise about $9.4 billion from investors and rivals, Reuters reported citing sources, as the exchange sought to save itself after customer withdrawals.
“The Chapter 11 filing is a necessary step to allow the company to assess the situation and develop plans to move forward for the benefit of stakeholders,” Ray said in a Slack memo to FTX staff seen by Reuters.
“I realise that the recent news of the situation has been troubling and stressful, but I also know that the bankruptcy filing will be the beginning of a path forward.”
Some investors, including Sequoia and SoftBank, had already marked FTX investments to zero. SkyBridge Capital is working to buy back its FTX stake, the alternative investment firm’s founder Anthony Scaramucci said in an interview with CNBC on Friday.
REGULATORY SCRUTINY
These events mark a rapid reversal for Bankman-Fried, the 30-year-old crypto executive, whose wealth was estimated by Forbes at around $17 billion just two months ago.
Bitcoin dropped after FTX’s announcement, trading 5.7% lower at $16,524. The world’s largest cryptocurrency fell to a two-year low of $15,632 on Wednesday before regaining some ground in a cross-asset rally after U.S. inflation data.
FTX’s token FTT plunged 34% on Friday to $2.43, facing an 89% weekly loss.
As FTX’s troubles mounted regulators around the world stepped in.
FTX is under investigation by the U.S. Securities and Exchange Commission, Justice Department, and Commodity Futures Trading Commission, according to a source familiar with the investigations.
Cyprus’s Securities and Exchange Commission has asked FTX EU to suspend its operations on Nov. 9, the regulator said on Friday.
Bankman-Fried did not respond to Reuters’ requests for comment.
“Once Binance walked away from buying FTX after only 24 hours of due diligence the writing was on the wall for FTX,” said Antoni Trenchev, co-founder of crypto lender Nexo.
“Now we enter the next phase of the fallout, where we witness the second order effects and discover which entities were exposed to FTX and Alameda.”
Additional reporting by Rae Wee in Singapore, Hannah Lang in New York, David Shepardson in Washington, Aishwarya Nair in Bangalore, Georgina Lee in Hong Kong, Elizabeth Howcroft and Alun John in London and Jasper Ward in the Bahamas; Editing by Sam Holmes and Jane Merriman
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