Troubled cryptocurrency platform FTX has filed for bankruptcy in the US and its CEO Sam Bankman-Fried has resigned, it said on Friday, the latest blow in a saga that has reverberated across the digital currency landscape.
The filing comes after the world’s largest cryptocurrency platform Binance agreed to buy its rival earlier this week but backed out, prompting market players to consider possible regulatory backlash.
FTX Group announced in a statement Friday that it filed for Chapter 11 bankruptcy proceedings, adding that it has begun an “orderly process to review and monetize assets for the benefit of all global stakeholders.”
Chapter 11 is a US mechanism that allows a company to restructure its debts under the supervision of the courts while continuing to operate.
This week’s financial chaos at FTX has seen major cryptocurrencies, including bitcoin, plummet.
Bankman-Fried issued a “sincere” apology Thursday, adding that FTX would do “everything we can to raise liquidity.”
The cash-strapped company added in its statement that it has appointed John J. Ray as CEO, effective immediately.
“The immediate relief of Chapter 11 is appropriate to allow FTX Group to assess its situation,” Ray said in the statement.
“Stakeholders should understand that events have been swift and the new team has only recently been engaged.”
“Many employees of FTX Group in various countries are expected to continue with FTX Group and assist Mr. Ray and independent professionals in its operations during the Chapter 11 case,” the statement said.
Binance agreed to buy FTX.com on Tuesday — before scrapping the acquisition just a day later.
Binance CEO Changpeng Zhao defended himself against accusations of any targeted plot after the deal fell apart.
“FTX going down is not good for anyone in the industry. Don’t see it as a win for us. User confidence is seriously shaken,” he tweeted.
The platform’s collapse came as a shock even to an already turbulent industry.
Bankman-Fried, who worked as a broker on Wall Street before moving to Hong Kong in 2017, had cultivated friends in Washington and basked in glowing acclaim when he stepped in to rescue other ailing crypto companies earlier this year.
The turmoil at FTX, which was once valued at $32 billion, is a spectacular reversal of fortune for the founder and one-time cryptocurrency wunderkind.
“This is another black eye for the industry,” David Holt, a cryptocurrency industry expert at CFRA, said of FTX’s problems.
Doubts had already grown about FTX’s financial stability despite Bankman-Fried’s good standing in Washington as a public face of crypto-investment.
Attention had focused on the relationship between FTX and Alameda Research, a trading house also owned by Bankman-Fried, which was pulled from the Internet on Wednesday, reports said.
Specialist media site CoinDesk reported that 40 percent of Alameda’s balance was made up of FTX’s FTT tokens, raising concerns about a potential conflict of interest.
“We don’t know exactly what happened, but from all the reporting, it looks like there was a lot of misconduct,” former US regulator Securities and Exchange Commission (SEC) lawyer Howard Fischer said on the CNBC network on Friday. and predicted that some clients would sue to recover their investments.
The company is currently under investigation by the SEC, according to the New York Times, citing sources familiar with the matter.
The watchdog, which normally does not comment on ongoing investigations, did not respond to AFP’s request for comment on Friday, nor did the Justice Department.
Media reports suggest that FTX needed to find about $8 billion to plug a massive hole in its finances and escape bankruptcy.
Binance, meanwhile, called off its FTX takeover deal late Wednesday, citing recent press reports about mismanagement of client funds and potential investigations.
Bankman-Fried, the son of Stanford Law School professors and a graduate of the elite Massachusetts Institute of Technology, has long been a vocal advocate for smoother access to the crypto market for the general public, especially in the United States.
Kevin O’Leary, president of a venture capital firm and television personality who had invested in FTX, called Friday for urgent regulations to protect the industry.
“I lost money on the account, but I still want to invest in crypto,” he told CNBC.