FTX bankruptcy hearing update, SBF says “could make customers whole”

The crypto markets continue to remain volatile due to the major developments since the first week of November. Some critical events over the last three weeks include FTX’s implosion, an exploiter who stole $600 million worth of digital assets from the bankrupt exchange and the trouble plaguing the crypto lender Genesis and its parent company Digital Currency Group (DCG).

Read more: Deconstructing recent Bitcoin price crash as bankrupt FTX exchange’s assets go ‘missing’

FTX exchange’s day one bankruptcy hearing takeaways

The collapsed crypto exchange FTX had its bankruptcy hearing on November 23 in Delaware. The new leadership that’s handling the restructuring is John J. Ray III, who replaced Sam Bankman-Fried (SBF) as the new CEO of the exchange.

The new FTX executive was also the CEO of Enron and oversaw its liquidation. Ray III has brought in James Bromley, a partner at Sullivan & Cromwell LLP, to represent FTX in the bankruptcy hearing. 

The hearing is significant because billions of dollars of customer funds are stuck, and the decision regarding the bankruptcy will set the tone for the cryptocurrency ecosystem’s future.

The attorney for the exchange stated that “FTX was in the control of a small group of inexperienced and unsophisticated individuals.” He adds that some of these individuals are “compromised.”

James Bromley goes on to state that the fall of FTX is “probably one of the most abrupt and difficult collapses in the history of corporate America.”

Judge John Dorsey of the Bankruptcy Court for the District of Delaware noted that apart from money, customer privacy will also be under scrutiny. Dorsey further added,

There certainly is a pull and tug here between the right to privacy and the right to everybody involved.

Sam Bankman Fried’s letter reveals interesting details

While the bankruptcy hearing concluded, Sam Bankman-Fried continued to air his thoughts on Twitter. The latest development is that SBF sent a letter addressing FTX’s employees because he might no longer have access to the company’s communication channels.

In his letter, SBF recounts the events leading up to signing the chapter 11 bankruptcy. He mentions a few more things that he should have done. Here are key takeaways.

• I froze up in the face of pressure and leaks and the Binance LOI and said nothing. 
• Hyper-correlated crypto crashes led to FTX’s $60 billion collateral shrinking to $9 billion while liabilities grew from $2 billion to $8 billion.
• The loans and secondary sales were generally used to reinvest in the business - including buying out Binance - and not for large amounts of personal consumption.
• SBF wishes 
  • he had put more controls around margin management
  • he was skeptical of large margin positions
  • he continued monitoring the total deliverable assets, total customer positions and other core risk metrics
  • he had stress-tested scenarios involving hyper-correlated crashes and simultaneous runs on the bank

Perhaps, the most interesting takeaway from this letter is the ex-CEO’s comments on raising funds to prevent bankruptcy. He mentioned,

We likely could have raised significant funding, potential interest in billions of dollars of funding came in roughly eight minutes after I signed the Chapter 11 docs. 

Between the billions of dollars of collateral the company still held and the potential interest, Sam Bankman-Fried believes that he could have “returned large value to customers and saved business.” 

He ends his letter with “maybe there still is a chance to save the company” and make “customers whole,” referring to the “billions of dollars of genuine interest.”