The Latest on FTX’s Bankruptcy, BlockFi and More - The New York Times

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The collapse of FTX, one of the world’s largest cryptocurrency companies, is still sending shock waves through the crypto world.
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By Lora Kelley
FTX, one of the world’s largest cryptocurrency exchanges, collapsed with stunning speed this month.
A run on deposits left the company owing customers $8 billion, setting off a chain of events that has shaken the crypto world and driven investigations by the Securities and Exchange Commission and the Justice Department.
This time last month, the $32 billion cryptocurrency company managed billions of dollars’ worth of customer assets; now, FTX could owe money to more than a million people and organizations.
Just three weeks ago, Sam Bankman-Fried, the founder and chief executive of FTX and the figure at the center of the crisis, was trying to reassure his customers. “FTX is fine,” he wrote on Twitter. “Assets are fine.” The next day, Mr. Bankman-Fried announced his plan to sell FTX to Binance, a rival cryptocurrency exchange.
In a matter of days, Binance pulled out of the deal, FTX filed for bankruptcy and Mr. Bankman-Fried, once a star in the world of crypto, had tendered his resignation.
Here are the latest developments on the crisis:
On Nov. 22, a new chapter for FTX began as it kicked off its bankruptcy proceedings at a federal court in Delaware.
What is FTX? FTX is a now bankrupt company that was one of the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. The company, based in the Bahamas, built its business on risky trading options that are not legal in the United States.
Who is Sam Bankman-Fried? He is the 30-year-old founder of FTX and the former chief executive of FTX. Once a golden boy of the crypto industry, he was a major donor to the Democratic Party and known for his commitment to effective altruism, a charitable movement that urges adherents to give away their wealth in efficient and logical ways.
How did FTX’s troubles begin? Last year, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, sold the stake he held in FTX back to Mr. Bankman-Fried, receiving a number of FTT tokens in exchange. In November, Mr. Zhao said he would sell the tokens and expressed concerns about FTX’s financial stability. The move, which drove down the price of FTT, spooked investors.
What led to FTX's collapse? Mr. Zhao’s announcement drove down the price and spooked investors. Traders rushed to withdraw from FTX, causing the company to have a $8 billion shortfall. Binance, FTX’s main rival, offered a loan to save the company but later pulled out, forcing FTX to file for bankruptcy on Nov. 11.
Why was Mr. Bankman-Fried arrested? FTX’s collapse kicked off investigations by the Justice Department and the Securities and Exchange Commission focused on whether FTX improperly used customer funds to prop up Alameda Research, a crypto trading platform that Mr. Bankman-Fried had helped start. On Dec. 12, Mr. Bankman-Fried was arrested in the Bahamas for lying to investors and committing fraud. The day after, the S.E.C. also filed civil fraud charges.
James Bromley, a partner at the law firm Sullivan & Cromwell who is representing FTX, said that “a substantial amount of assets have either been stolen or are missing.”
The bankruptcy case involves more than 100 companies and could affect more than a million creditors.
Mr. Bankman-Fried, 30, was replaced as chief executive of FTX this month by John Jay Ray III, a veteran of corporate turnarounds including Enron’s bankruptcy proceedings. Mr. Ray wrote in a scathing court filing in the U.S. Bankruptcy Court for the District of Delaware that he had never encountered “such a complete failure of corporate control.”
“This situation is unprecedented,” Mr. Ray added in the filing.
FTX’s implosion sent shock waves through the crypto and financial communities. Numerous funds and crypto start-ups were entangled with FTX, which extended lifelines to other firms after the crypto market crashed in the spring.
Crypto asset prices sank on Monday, and the price of Bitcoin fell.
On Monday, BlockFi, a cryptocurrency lender and financial services firm with close ties to FTX, filed for bankruptcy. BlockFi had suspended withdrawals this month, explaining that it had “significant exposure” to FTX.
Genesis Global Capital, a crypto lender that was a trading partner with FTX, told its customers this month that it would halt withdrawals because of liquidity issues.
Genesis then hired a restructuring adviser as it explores options including a potential bankruptcy. About $175 million of its assets were in FTX when the exchange froze accounts.
Mr. Bankman-Fried faces investigations by the S.E.C. and the Justice Department. They will hinge on the question of whether FTX illegally lent customers’ funds to Alameda Research, a crypto hedge fund that Mr. Bankman-Fried also founded.
“It’s somewhere between being, on one hand, allegedly an extraordinary crime, and simultaneously being just the most extraordinary sloppiness and failure of basic controls,” said Eugene Soltes, an expert on corporate integrity at Harvard Business School. If a traditional brokerage firm had been accused of using customer funds in a similar way, he added, “there would be F.B.I. agents walking down the halls, picking up documents and computers.”
In the courtroom last week, lawyers for FTX did not spare Mr. Bankman-Fried. “The emperor had no clothes,” Mr. Bromley said, adding that Mr. Bankman-Fried ran FTX as a “personal fiefdom.”
Before his downfall, Mr. Bankman-Fried was prominent member of the effective altruism community, a movement dedicated to maximizing the impact of donations that is popular in Silicon Valley.
Mr. Bankman-Fried also donated to political causes and candidates. He gave about $40 million to federal campaigns and committees that primarily supported Democrats in the months leading up to the 2022 elections, according to Federal Election Commission records. Those efforts made him the party’s second-biggest donor, behind George Soros, the billionaire financier.
More than 80 investors poured nearly $2 billion into the company over two years, often agreeing to invest in the buzzy company with little oversight. No investors sat on FTX’s board of directors, and FTX did not tell investors about the nature of its relationship with Alameda Research.
FTX’s investors included powerful and well-known firms including Sequoia Capital, SoftBank and BlackRock. Sequoia, which published a glowing profile of Mr. Bankman-Fried on its website this year, apologized to its limited partners for its investment in FTX, which it now values at $0.
Caroline Ellison, who served as the chief executive of Alameda Research, is a major character in the FTX fallout, as well. The week that FTX and Alameda collapsed, Ms. Ellison told employees that her company had dipped into FTX customer funds.
Ms. Ellison, 28, a Stanford graduate who was at times romantically involved with Mr. Bankman-Fried, lived in a residence in the Bahamas with nine roommates including Mr. Bankman-Fried and other top FTX executives.
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