Billionaire-until-Tuesday Sam Bankman-Fried has stepped down as CEO of FTX amid bankruptcy proceedings for FTX.com, FTX US, Alameda Research, and approximately 130 affiliated companies — collectively FTX Group, effective Friday.
John J. Ray III has been appointed CEO of FTX Group, and Bankman-Fried will “remain to assist in an orderly transition,” the company announced.
“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.
“The FTX Group has valuable assets that can only be effectively administered in an organized, joint process,” said Ray, who also played a part in the winding down of Enron, according to Bloomberg. “I want to ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder that we are going to conduct this effort with diligence, thoroughness and transparency.”
It’s the latest development in a spectacular free-fall of one of the market’s most prominent cryptocurrency exchanges, FTX, which went from a $32 billion valuation to bankruptcy in a matter of days.
The wealth of Bankman-Fried, long considered crypto’s white knight and whiz kid, tumbled from $16 billion to $0 this week, down from a high of $23 billion earlier this year.
The balance sheet of FTX, which as of January “couldn’t stop raising money,” was called into question last week after CoinDesk reported that sister company Alameda Research had $14.6 billion in assets and $8 billion in liabilities, with most of its net equity in FTX’s FTT token.
The saga was set in motion when Changpeng Zhao, CEO of rival cryptocurrency exchange Binance, said he would be dumping his holdings of FTT due to those “recent revelations,” thus starting a Twitter battle where Bankman-Fried accused Zhao of going after FTX with “false rumors” before ultimately calling him asking for a bailout.
Zhao announced Binance would acquire FTX “to protect users” Tuesday but backed out Wednesday after seeing its books, noting that “the issues are beyond our control or ability to help.”
Amid the possible Binance deal, it was revealed that the Securities and Exchange Commission, Commodity Futures Trading Commission, and Justice Department were looking into whether crypto trading platform FTX.com improperly handled customer funds. The SEC’s investigation has been going on for months, according to Bloomberg.
Bankman-Fried took to Twitter on Thursday to take the blame for FTX’s downfall: “I fucked up, and should have done better,” he said, adding that his team was “spending the week doing everything we can to raise liquidity.”
Sources told The Wall Street Journal that FTX lent billions of dollars in customer assets to “fund risky bets” by Alameda Research, thus laying the bricks for FTX’s current financial turmoil. Bankman-Fried called loaning customer assets to Alameda a “poor judgment call,” sources said.
On Thursday, FTX.com’s assets were frozen in the Bahamas, where the company is headquartered, in a “prudent course of action” to preserve assets, according to the Bahamas Securities Commission, Bloomberg reported.
Also on Thursday, cryptocurrency lender BlockFi said it was limiting activity, including pausing withdrawals because of its exposure to FTX.
“We are shocked and dismayed by the news regarding FTX and Alameda,” BlockFi tweeted. “Given the lack of clarity on the status of FTX.com, FTX US, and Alameda, we are not able to operate business as usual.”
FTX provided Jersey City, New Jersey-based BlockFi with a $400 million revolving credit facility over the summer amid a liquidity crisis connected to the ongoing crypto bear market.