FTX recovers some assets

2023-01-11

FTX, a cryptocurrency exchange, had a difficult year in 2022 when it declared bankruptcy in November. The exchange, which had a pre-collapse valuation of $32 billion, had to face multiple charges of fraud and theft of customer deposits against its CEO, Sam Bankman-Fried. Bankman-Fried was arrested and extradited to the US and is now under house arrest while he awaits trial.

Recently, a statement was made by FTX's liquidators in front of a US bankruptcy judge in Delaware, that the exchange has recovered at least $5 billion worth of liquid assets, including various types of cryptocurrency and securities. This is a positive development for the exchange and its customers, as it means that the liquidators will be able to return some of the assets to the exchange's creditors and customers. However, the $5 billion does not include the crypto assets currently under the custody of the Securities Commission of the Bahamas, which are estimated to be worth around $170 million at the end of 2022.

One of the challenges in liquidating a cryptocurrency exchange is the complexity of the process and the volatility of the assets. FTX's legal team has reported that the assets recovered do not include the exchange's illiquid cryptocurrencies, as their value is likely to change if they were to be sold. FTX's large crypto holdings are so large that selling some of the digital assets would have a substantial impact on their market value, making it harder to estimate their true value.

The collapse of FTX also brought to light the issues with jurisdiction when it comes to international assets and subsidiaries. FTX's subsidiaries in the Bahamas, where Bankman-Fried resided and operated from, were under the jurisdiction of Bahamian authorities and U.S and Bahamian-based liquidators had previously clashed over control of the exchange's international assets. However, FTX's legal team reported that they have now reached a cooperation agreement with the Bahamas' provisional liquidators, as well as with liquidators in Australia, where the only other FTX subsidiaries are subject to separate bankruptcy proceedings.

Another aspect worth mentioning is that plans are underway to monetize over 300 other FTX non-strategic investments with a book value of over $4.6 billion. This is also one of the steps that liquidators are taking to recover as many assets as possible for the exchange's creditors and customers.

Finally, the hearing also came a week after federal prosecutors moved to seize over $450 million worth of shares connected to FTX from financial services company Robinhood as part of their ongoing prosecution of Bankman-Fried. U.S. Bankruptcy Judge, John Dorsey, sided with FTX's legal team in a motion to keep the names of about 9 million FTX customers and creditors closed to the public, but allowed the names to remain sealed for three months, not the six months requested by FTX's lawyers.

In short...

The story of FTX serves as a reminder of the fragility of the cryptocurrency market and the importance of due diligence when it comes to investing in digital assets. It also highlights the challenges that liquidators face when trying to recover assets for creditors and customers, and the complex nature of international jurisdiction when it comes to assets and subsidiaries.

Based on the information provided, it is unclear if there is much hope for a positive outcome for FTX. The exchange's collapse in November 2020 and the subsequent charges of fraud and theft of customer deposits against its CEO, Sam Bankman-Fried, have led to a complex and uncertain legal process. While it is true that liquidators were able to recover at least $5 billion worth of assets, it's important to keep in mind that this does not include the crypto assets currently under the custody of the Securities Commission of the Bahamas, which are estimated to be worth around $170 million at the end of 2022. Additionally, the complex jurisdictional issues involved in recovering assets for the exchange's creditors and customers, as well as the challenge of liquidating illiquid cryptocurrencies, make it difficult to predict the outcome for the affected parties.