February 4, 2023

Raven Tribune

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In Search of FTX Assets, Lawyers Locate Billions in Cash and Cryptocurrency

Two months after FTX filed for bankruptcy, lawyers for the once-soaring cryptocurrency exchange have begun mapping its assets and determining their value, as they work out how much they can recover to repay lenders and customers who lost billions of dollars.

In a court filing Tuesday, attorneys for New York firm Sullivan & Cromwell — which is facing controversy related to the work it did for FTX before bankruptcy — said they identified $5.5 billion in assets held in client accounts or tucked away in other parts of the company.

As lawyers revealed more details about the nature of the assets associated with FTX, the scope of the challenge involved in untangling and recovering them became clearer. In just three years, FTX, founded by Sam Bankman-Fried, has been rapidly putting money into a hodgepodge of assets, from esoteric cryptocurrencies to investments in hundreds of other companies.

About $1.7 billion of the $5.5 billion in cash is on FTX’s books. Another $3.5 billion or so is in cryptocurrency assets – a pool that includes more established coins like Bitcoin, as well as others of questionable value. The lawyers say that cryptocurrencies can be monetized because coins are relatively easy to trade.

The total includes $268 million in Bitcoin, as well as $245 million in so-called stablecoins, or cryptocurrencies designed to maintain a fixed value of $1. But it also includes holdings worth hundreds of millions of dollars in lesser-known coins that may not hold their value in the long run: There’s $529 million of FTT, a coin made by FTX, as well as $42 million of Dogecoin, a cryptocurrency that was invented for example. Kidding, just to lunges; in price for a while.

The crypto recovered by FTX also includes another $1.2 billion in various digital currencies held on other exchanges — holdings the lawyers said they had “limited visibility” into. A smaller amount, worth about $300 million, is in investment funds linked to the cryptocurrency market.

Aside from $5.5 billion, FTX also holds large positions in 20 digital assets that lawyers have described as “illiquid tokens” that are difficult to monetize. It can take a long time to discover its value.

Despite the large pool of assets identified by the lawyers, FTX said in a statement accompanying the filing that they found fewer digital assets than they had hoped to find, both on the main offshore exchange in the Bahamas and on its US unit. FTX attorneys said they shared the information earlier in the day With members of a committee representing clients, lenders and others.

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When FTX collapsed in November, initial reports indicated that up to $8 billion was missing from customer accounts, including funds in some of the 9 million accounts customers had opened on the exchange. The exact amount of money you owe to lenders – including other major cryptocurrency trading companies – has not been disclosed.

As lawyers continue to dig into FTX’s finances, the final accounting for what the exchange owes, holds, and recovers is likely to change. The task is complicated by the fact that FTX has not kept complete financial records. spp He confirms this for yearsMr. Bankman Fried treated customer deposits as money in a piggy bank that he could deal with as he saw fit.

FTX lawyers said Mr. Bankman-Fried and two associates obtained more than $1 billion in loans from the exchange.

Prosecutors charged that FTX regularly diverted customer deposits to fuel trading and cover losses at Alameda Research, a Cryptocurrency trading company Owned by Mr. Bankman Fried. FTX executives have also spent clients’ money acquiring luxury real estate in the Bahamas and making political donations to both Democrats and Republicans, according to federal authorities.

Mr. Bankman Fried Not guilty On charges of fraud, money laundering, and campaign finance violations. and has He denied stealing customers’ money.

Federal authorities said Bankman-Fried also used billions of dollars in customer deposits to invest in hundreds of other cryptocurrency companies. Last week, lawyers for FTX said Mr. Bankman-Fried’s business had generated at least $4.6 billion in investments in nearly 300 other companies, and that that money could be recovered through litigation or negotiations. This amount is not counted out of the $5.5 billion total.

It will be difficult to recover – or even the value of – the most classified digital assets FTX lawyers have identified among the exchange’s holdings, including millions of dollars’ worth of Serum, Sol/Ethereum and a little-known cryptocurrency called Trump Loses.

Many of these coins with unusual names appeared or rose in popularity in 2020 and 2021, as the cryptocurrency market boomed. Entrepreneurs have tried to capitalize on the hype by marketing new cryptocurrencies to investors looking to make quick profits. But now many of these currencies have depreciated. In some cases, the number of coins held by FTX is so large that it will be difficult for the company to sell the coins without reducing their price.

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FTX also plans to raise money by selling some business operations in the Bahamas, Japan and Europe that might be viable through a capital injection. The company plans to work with officials in the Bahamas to market the company’s real estate holdings – a total of 36 properties worth $253 million.

But it’s unclear how much of all those assets could be sold for, or how quickly. In short, FTX clients and lenders still need to prepare for a multi-year legal drama before they see a return for any money, and they could potentially incur huge losses, experts say.

“It is possible to give creditors the option of acquiring digital currency or cash. It depends on what the underlying cryptocurrency is,” said Kenneth Marshall, a financial advisor who specializes in working with investors who have been victims of failed deals, including those related to cryptocurrencies. to go on for a long time.”

The recent disclosure of FTX’s assets has also shed light on the work of Sullivan & Cromwell, one of the world’s most respected law firms. Not only did she represent FTX in bankruptcy, she also did legal work for the exchange before it crashed.

On Friday, Andrew R. Vara, a US trustee in bankruptcy proceedings, filed an objection to FTX’s decision to retain Sullivan & Cromwell, claiming that its business prior to bankruptcy involved a potential conflict of interest. He also called for the trustee to appoint an independent examiner to investigate matters.

The law firm’s bankruptcy business isn’t cheap: Billing rates for Sullivan and Cromwell’s partners range from $1,575 to $2,165 an hour, according to a previous court filing.

A representative for Sullivan & Cromwell referred to a court filing on Tuesday saying the law firm had “worked tirelessly” to recover the company’s assets. In a related court filing, Andrew Dietrich, the firm’s attorney, defended the firm’s past work for FTX and its ability to conduct an investigation into the events surrounding the stock market crash.

Mr. Dietderich contested Mr. Bankmann-Fried’s previous claim that he was pressured into bankruptcy. In the suit, he said Mr. Bankman Freed took advantage of restructuring attorney John J. Ray III to replace him as CEO after consulting with his father and three other attorneys.