Good day everyone,

I hope you are all having a good day, welcome to CryptoGod-1's blog on all things crypto. In this post I will be looking at the fallout from the FTX exchange collapse and how investors will only get back a portion of their initial investments.

 

 

FTX Fallout

The collapsed crypto exchange FTX has announced last-minute changes to its payout plans which will see it set aside only 10-25% of holdings for FTX customers. The bombshell news has come as another $230 million worth of proceeds from government forfeiture actions has been allocated for shareholders. This is according to FTX creditor-activist Sunil Kavuri, who noted the firm is transferring “18% of DOJ forfeiture funds,” to FTX equity holders.

This revised level of reimbursement has come as a surprise to many creditors, with many of them unaware of the provision. This agreement was apparently finalised after the creditors voted on a liquidation plan, and it was only revealed 30 days after the deadline.

In traditional Chapter 11 bankruptcy proceeding the shareholders are reimbursed last after creditors. The filing in this case noted that both debtors and preferred shareholders “each have an interest in avoiding the cost, expense and delay that would be associated with litigation in connection with the Plan and the Forfeiture Proceeds.”

Sunil explained in an X chat that as part of the revised agreement “extra money is being transferred to shareholders.” Sunil also added that creditors would receive reimbursements according to the petition date when crypto prices were lower than today. Basically, the price of Bitcoin at the time of the filing of the legal petition was $16,000, but it has since risen to around $64,000 at the time of writing. This has sparked outcry and outrage among many FTX creditors.

It was also noted by Sunil that the new revised document has led many FTX customers to suffer from mental distress and panic attacks, as their life savings have been as good as stolen and their property will not be returned. Many FTX creditors took to social media to criticise the latest agreement, with one writing:

 

“It’s disgusting they sneak this into the plan so late, after the vote.”

 

Another user posted that FTX had managed to scam their users twice.

 

While all this has been happening the FTX native token (FTT) has been up around 60% and its trading volume soared by 3734%. This has led to the token becoming the markets largest gainer by a large margin. At its peak the token managed to reach $2.50, but has since dropped back down to $1.79. The spike was unusual given the token fell over 90% after FTX’s fraudulent activities were exposed and the company had to file for bankruptcy back in 2022.

 

The story of FTX has been a difficult one for many to contend with, and it seems like the drama is far from over yet. The companies FTX and FTX.US managed to crash the crypto market back in November 2022 when their lack of liquidity and mismanagement of funds saw large volumes of withdrawals from the exchange. Once their token FTT tanked, it dragged others such as Ether and Bitcoin along with it, and on the 9th of November 2022 they reach a two year low. Other exchanges, including BlockFi, were also deeply impacted by the collapse of FTX.

 

The timeline of the fallout from FTX went as follows:

2022

• Nov. 2: A report by CoinDesk noted the balance sheet of FTX's sister trading firm, Alameda Research, was comprised mostly of FTX's native exchange token, FTT. This meant the companies main asset was billion of dollars in FTT, and it led to fears Alameda Research was being propped up by the token.

 

• Nov. 6: CEO of rival exchange Binance, Changpeng Zhao, tweeted that he intends to "sell all of Binance's FTT tokens" due to “recent revelations that have came to light." This was in reference to the CoinDesk report, and it led to customers beginning to withdraw funds from FTX en masse.

 

• Nov. 7: There was a rapid decline in the price of FTT and suspicion grew that FTX didn’t have the liquidity needed to back transactions and stay afloat. FTX announced a liquidity crisis and looked for a bailout from venture capitalists and Binance.

 

• Nov. 8: Binance announced they would buy FTX's non-U.S. business, with the CEOs of each exchange signing a nonbinding letter of intent with the promise to bail out the failing exchange to prevent a larger market crash. At the same time FTX stopped all non-fiat customer withdrawals while CEO Bankman-Fried posted numerous tweets apologising and explaining FTX’s liquidity issues while also promising more transparency.

 

• Nov. 9: After completing due diligence for the FTX acquisition, Binance decide to walk away from the deal. Zhao tweeted that the news reports of “mishandled customer funds” and “alleged U.S. agency investigations” contributed to his decision. As more FTX customers withdraw funds Bankman-Fried tweeted “Well played; you won.” in a cryptic post on Twitter. In terms of volume, FTX was the fourth largest exchange in the world at the time.

 

• Nov. 10: The Bahamas decide to freeze the assets of FTX's local subsidiary, while Bankman-Fried admits non-U.S. businesses face liquidity crisis and announces Alameda Research will wind down. He also tweets the FTX saw $5 billion worth of withdrawals on the 6th of November.

 

• Nov. 11: FTX announced that it had filed for voluntary Chapter 11 bankruptcy proceedings for FTX, FTX.US and Alameda, while Bankman-Fried stepped down as FTX CEO. Chapter 11 bankruptcy allows businesses to restructure their debt and continue operations, while a court-appointed CEO with restructuring experience is put in charge. Withdrawals were also temporarily froze following the bankruptcy announcement, despite earlier reassurances that FTX.US was not affected by FTX's liquidity troubles.

 

• Nov. 12: An apparent hack on the evening on November 11th saw the wallets of FTX and FTX.US drained. CoinDesk reported more than $600 million was emptied from the wallets, while FTX posted about the hack on its support channel the instant-messaging service Telegram, saying, "FTX has been hacked. FTX apps are malware. Delete them. Chat is open. Don't go on FTX site as it might download Trojans." The general counsel for FTX, Ryne Miller, posted that evening on Twitter that they would expedite moving remaining assets to cold storage due to the previous "unauthorized transactions."

 

• Nov. 14: The balance sheet of FTX from the 10th of November is posted by the Financial Times. It shows $9 billion in liabilities and just $900 million in assets that could be easily sold. Among the mess of entries was a “hidden, poorly internally labeled ‘fiat@’ account” with a balance of negative $8 billion.

 

• Nov. 17: New FTX CEO John J. Ray III, who led the infamous energy giant Enron through its bankruptcy and liquidation process, give a dire description of FTX's finances in a court filing. An emergency motion added to the court filing noted that there was “credible evidence” that Bahamian regulators directed Bankman-Fried to gain “unauthorized access” to FTX funds and transfer them to the Bahamian government. It remained unclear when this happened, but would have occurred during the same time period as the hack. A press release from the Securities Commission of the Bahamas appears to support these reports.

 

• Dec. 12: Bankman-Fried is arrested by Bahamian authorities on the request of the United States government to extradite him for eight criminal charges including wire fraud and conspiracy to defraud investors. Bankman-Fried had already scheduled to testify in front of the House Financial Services Committee the following day.

 

• Dec. 13: The DOJ, SEC, and CFTC announce civil and criminal charges against Bankman-Fried. Ray testifies to the House committee instead of Bankman-Fried and he informed them that FTX had “no record-keeping whatsoever."

 

• Dec 19: Former Alameda Research CEO Caroline Ellison and FTX cofounder Gary Wang plead guilty to "charges arising from their participation in schemes to defraud FTX’s customers and investors, and related crimes." The pair are cooperating with the government in the FTX case.

 

• Dec. 21: Bankman-Fried is extradited to face criminal charges in the U.S. after he agreed with a Bahamian court to the extradition.

 

• Dec. 22: Bankman-Fried is arraigned in Manhattan federal court and released under house arrest at his parents' home on a $250 million bond.

 

2023

• Jan. 3: Bankman-Fried pleads not guilty to criminal charges as he appears in a New York court. His decision to contest the allegations mean there will be a criminal trial.

 

• Feb. 23: Bankman-Fried is charged with four additional criminal counts in a superseding indictment in New York federal court. These include accusing him of securities fraud, wire fraud, and multiple conspiracy counts related to wire fraud on FTX customers and Alameda’s lenders; illegal campaign contributions; money laundering; operating an unlicensed money transmitting business; and bank fraud.

 

• Mar. 30: Bankman-Fried pleads not guilty to five new criminal charges, which included bribing a foreign government. This was in relation to a payment of at least $40 million in cryptocurrency to one or more Chinese government officials in an attempt to unfreeze trading accounts tied to his crypto hedge fund, Alameda Research.

 

• July 20: United States prosecutors alert federal judge of attempted witness tampering by Bankman-Fried. They requested a federal judge to issue an order which would bar the former billionaire and other parties from making public statements likely to interfere with a fair trial.

 

• July 26: A federal judge placed a gag order on Bankman-Fried to prohibit him from speaking publicly about his case. Prosecutors drop the campaign finance charge against Sam Bankman-Fried, meaning his trial will fully focus on stealing billions of dollars from cryptocurrency customers at his FTX exchange. 

 

• Aug. 11: A United States judge revoked Bankman-Fried's bail ahead of his trial after prosecutors accused him of repeatedly tampering with witnesses.

 

• Aug. 14: Bankman-Fried was transferred from house arrest to a prison in Brooklyn's Metropolitan Detention Center. The prison was notorious for poor conditions and housed famous inmates such as convicted sex trafficker Ghislaine Maxwell to Honduras' former president Juan Orlando Hernández, who was sentenced to 40 years for conspiring to distribute more than 400 tons of cocaine and related firearms offenses.

 

• Oct. 2: Criminal trial begins for Bankman-Fried's pre-extradition charges in a Manhattan Federal court.

 

• Oct. 28: Bankman-Fried testifies in his own defence, and within his testimony he states a "lot of people got hurt" when FTX collapsed but continues to insist he did not defraud anyone or steal billions of dollars from customers.

 

• Nov. 2: A 12 member jury convicted Bankman-Fried on all seven counts in one of the biggest financial frauds on record. The jury reached the verdict after just over four hours of deliberations. Bankman-Fried had pleaded not guilty to two counts of fraud and five counts of conspiracy.

 

2024

• March 28: Bankman-Fried is sentenced to 25 years in prison, three years of supervised release, and ordered to pay $11 billion in forfeiture for his orchestration of multiple fraudulent schemes by Judge Lewis A. Kaplan in Federal District Court in Manhattan. It was shorter than the 40 to 50 years that federal prosecutors had sought after a jury found him guilty of fraud, conspiracy and money laundering.

 

• April 30: CZ of Binance is sentenced to four months in prison for looking the other way as criminals used the platform to move money connected to child sex abuse, drug trafficking, and terrorism.

 

• May 8: A court filing by FTX says that nearly all of its customers will receive the money back that they are owed. The exchange states they will repay all of its clients and creditors and the company estimates it owes $11.2 billion and has between $14.5 billion and $16.3 billion to distribute. 

 

• August 9: A US court ordered the bankrupt cryptocurrency exchange FTX to shell out $12.7bn (£9.9bn) to compensate customers and fraud victims. This compensation order by the US district court for the southern district of New York also permanently bans FTX from trading, holding or receiving funds for the purpose of buying or selling digital assets.

 

• August 22: FTX and its affiliated debtors noted that its amended reorganization plan filed with the United States Bankruptcy Court for the District of Delaware received majority support from all classes of creditors qualified to vote, including customer classes in FTX US and FTX.com. 

 

• September 24: Caroline Ellison, the former chief executive of FTX's sister firm and crypto hedge fund Alameda Research, is sentenced to 2 years in prison for her role in the FTX collapse. The crimes she pleaded guilty to carried a maximum sentence of 110 years. Elisson, former girlfriend of Bankman-Fried, testified against him as part of his trial.

 

• September 28: A court filing notes that the FTX bankruptcy estate plans to set up a fund to repay the exchange’s preferred shareholders with property and proceeds recovered by the U.S. Department of Justice (DOJ) in its legal action against FTX insiders. This last minute revelation was different from the previously agreed reorganization plan and will leave customers getting only 25% of what their crypto is worth at today's prices.

 

• Yet to happen: Former Director of Engineering Nishad Singh and former Chief Technology Officer Gary Wang will learn their fates on Oct. 30 and Nov. 20, respectively. Both pleaded guilty to criminal charges and played a role in their boss Sam Bankman-Fried's conviction. Repayments to creditors are also yet to begin but are scheduled for later in October.

 

 

 

Have a great day.

Peace. CryptoGod-1.

 

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