FTX was run as 'personal fiefdom,' faces hacks, missing assets, attorneys say

NEW YORK/LONDON:Attorneys for the defunct cryptocurrency exchange FTX outlined continuous issues including cyberattacks and sizable missing assets during its first bankruptcy hearing, claiming that it was governed as a "personal fiefdom" of former CEO Sam Bankman-Fried.

The biggest cryptocurrency scandal to date saw FTX seek for protection in the US after users withdrew $6 billion in three days, and rival exchange Binance abandoned a rescue plan. An estimated 1 million creditors are now dealing with losses amounting to billions of dollars as a result of the collapse.At a bankruptcy court on Tuesday, a counsel for FTX stated that although the firm currently plans to sell off healthy business divisions, it has experienced cyberattacks and "significant" assets have gone missing.

On Saturday, FTX said that it had started a strategic evaluation of its worldwide assets and was getting ready to sell or reorganise some companies. A lawyer also claimed that Bankman-Fried had ran the company as his "personal fiefdom," spending $300 million on real estate, including residences and holiday homes for key workers. FTX, which has been run by new CEO John Ray since the bankruptcy filing, has charged Bankman-Fried with collaborating with Bahamian officials to "undermine" the US bankruptcy case and transfer assets abroad.

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An email asking for feedback did not receive a prompt response from Bankman-Fried.According to official property records, Bankman-FTX, Fried's his parents, and top officials of the defunct cryptocurrency exchange purchased at least 19 homes in the Bahamas for close to $121 million over the last two years, according to a previous story by Reuters.Additionally, lawyers argued that Binance's July 2021 sale of FTX ought to be the subject of an inquiry. In 2019, Binance invested in FTX.Separately, FTX's cash balance of $1.24 billion as of Sunday was "significantly larger" than previously believed, according to a filing made late on Monday by Ed Mosley of Alvarez & Marsal, a consulting firm that advises FTX.

Along with $172 million at FTX's Japan division, it also includes about $400 million in accounts linked to Bankman-Fried's cryptocurrency trading company Alameda Research.According to Reuters, Bankman-Fried utilised $10 billion in client cash in secret to support his trading company, and at least $1 billion of those deposits had disappeared.

Disclosure debate

At the hearing, FTX officials claimed that client identities should remain a secret because releasing them may cause the cryptocurrency market to become unstable and expose users to hacking. Additionally, FTX said that because its client list is a valuable asset, revealing it will harm future sales attempts or open the door for competitors to steal its user base.Until a subsequent court hearing, the judge ruled that those names could not be revealed.

The wind-down of FTX's Bahamas subsidiary, FTX Digital Markets, was being managed by court-appointed liquidators, according to the FTX lawyers.In order to minimise the danger of contradictory decisions from two distinct US bankruptcy judges, the two parties first agreed to coordinate their insolvency procedures before Judge John Dorsey in the US. However, both parties made it clear that they continue to disagree on how best to organise the recovery and preservation of assets owned by various FTX affiliates.Requests for comment from Bankman-Fried, FTX, and the Bahamas liquidators were not immediately fulfilled.

Contagion fears

The demise of FTX has shaken the crypto community, sending bitcoin to its lowest point in about two years and igniting concerns of contagion among other businesses already suffering from the collapse of the crypto market this year.Days after being forced to halt client redemptions due to FTX's collapse, major US crypto lender Genesis stated on Monday that it was attempting to avoid bankruptcy.A Genesis representative told Reuters via email that the company's "aim is to handle the current issue consensually without the necessity for any bankruptcy filing," adding that the company is still in contact with its creditors.

According to a Bloomberg News report that cited sources, Genesis was having .Last week, Gemini stated on its blog that the suspension of Genesis withdrawals had no effect on any of its other goods or services.Since the collapse of FTX, some cryptocurrency players have turned to "DEXs," or decentralised exchanges, where investors trade among themselves on the blockchain.According to data from market watcher DeFi Llama, overall daily trading volumes on DEXs increased to their highest level since May on Nov. 10 as FTX imploded, but have since reduced gains.