FTX files for bankruptcy, Sam Bankman-Fried steps down as CEO

Cryptocurrency exchange FTX has filed for bankruptcy and Sam Bankman-Fried has resigned as CEO, the company said on Friday following days of market turmoil as liquidity issues continue to plague the troubled exchange. 

FTX said in a statement on Twitter that FTX Trading Ltd. (also known as FTX.com), West Realm Shires Services Inc. (also known as FTX US), Alameda Research Ltd and about 130 additional affiliates have started voluntary proceedings under Chapter 11 of the U.S. Bankruptcy Code in the District of Delaware.

Sam Bankman-Fried, also known as SBF, is stepping down as CEO but will remain to assist in an “orderly transition,” the company said.

“I’m really sorry, again, that we ended up here,” SBF tweeted on Friday following the bankruptcy filing. “I’m going to work on giving clarity on where things are in terms of user recovery ASAP.”

John J. Ray III, who has extensive experience in restructuring and has managed the Enron and Nortel Networks bankruptcy cases, has been tasked to take over the CEO role of the FTX Group, according to the statement.

“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” Ray said in the statement.

FTX’s move comes as the exchange remains mired in a liquidity crunch and failed to find an industry player big enough to bail it out.

Binance, the world’s largest cryptocurrency exchange, expressed interest in acquiring FTX in early Wednesday morning in Asia, but backtracked the next day partially due to regulatory concerns.

“The [FTX] deal did not make sense from a number of fronts,” said Changpeng “CZ” Zhao, CEO of Binance.

Kevin Cheng, chief compliance officer of BitoEX, a major crypto exchange in Taiwan, told Forkast on Friday that FTX users who fail to withdraw from FTX would act as non-priority creditors in such a bankruptcy case and would only be able to reclaim assets proportionally based on the remaining assets FTX held.

“It’d be lucky if users could get back about 30% to 50% of their assets,” Kunchou Tsai, managing partner of Taiwan-based Enlighten Law Group, told Forkast on Friday, adding that creditors in the 2008 Lehman Brothers bankruptcy case only got back about 30% of their assets.

Tsai, who was part of the Taiwanese financial regulator’s legal team that tackled the fallout of the Lehman Brothers case, urged affected FTX users to make copies of their crypto transaction history.

“Screenshots of the FTX app are not necessarily helpful as they probably won’t be considered legitimate enough given they could be easily tweaked or photoshopped,” Tsai said. “It’d be more reliable if you keep the email FTX sends you when you make withdrawal requests. You can even put this email in Google Vault if you use Gmail.”