FTX co-founder and former CEO Sam Bankman-Fried ran the failed cryptocurrency exchange as his “personal fiefdom” and many of its assets have disappeared, an FTX lawyer said at a hearing in US Bankruptcy Court in Delaware on Tuesday. “A substantial amount of assets have either been stolen or are missing,” said James Bromley, a Sullivan & Cromwell partner who is representing FTX, according to a New York Times report.
“What we have here is a worldwide, international organization, but which was run as a personal fiefdom of Sam Bankman-Fried,” Bromley said, according to The Wall Street Journal. “FTX was in the control of inexperienced and unsophisticated individuals, and some or all of them were compromised individuals.”
Bromley also told the court that “substantial amounts of money” were spent on items unrelated to the business, including vacation homes in the Bahamas, the Financial Times wrote. FTX now owes its top 50 creditors over $3.1 billion, according to a bankruptcy court filing.
FTX moved its headquarters from Hong Kong to the Bahamas in September 2021, attributing the move to the Bahamas’ favorable cryptocurrency regulations. A Fortune report said “FTX broke ground on a $60 million headquarters in the Bahamas” in April, but “local construction firms and people familiar with the matter” confirmed that construction never began.
“We have witnessed one of the most abrupt and difficult collapses in the history of corporate America,” Bromley said at the hearing, adding that bankruptcy proceedings “allowed everyone for the first time to see under the covers and recognize the emperor had no clothes.”
Bankman-Fried to staff: “I disappointed all of you”
Bankman-Fried apologized to FTX employees in a newly reported letter shared in the company Slack. “I didn’t mean for any of this to happen, and I would give anything to be able to go back and do things over again. You were my family,” he wrote in the letter, published by Quartz. “I’ve lost that, and our old home is an empty warehouse of monitors. When I turn around, there’s no one left to talk to. I disappointed all of you, and when things broke down I failed to communicate.”
Bankman-Fried also wrote to former employees that FTX filed for bankruptcy due to “an extreme amount of coordinated pressure,” which he said he agreed to “reluctantly.”
“I froze up in the face of pressure and leaks and the Binance LOI [letter of intent] and said nothing,” Bankman-Fried wrote, referring to Binance’s abandoned plan to buy FTX. Bankman-Fried resigned from the CEO role when FTX filed for Chapter 11 bankruptcy in the Delaware court on November 11.
As noted by CoinDesk, Bankman-Fried’s letter “did not address allegations that FTX diverted customer and corporate funds to prop up Bankman-Fried’s Alameda Research, revelations that Alameda had an exemption from FTX’s normal liquidation process or statements that Alameda had loaned funds to FTX officials including himself.” Alameda Research is a related firm co-founded by Bankman-Fried that also filed for bankruptcy on November 11.
As previously reported, FTX’s bankruptcy filing came “after a whirlwind 10 days in which Bankman-Fried desperately sought billions of dollars to save his company after customers rushed to pull their assets out of the business following concerns surrounding its financial health and links between the exchange and Alameda.”
FTX was valued at $32 billion
FTX’s valuation rose to $32 billion in a $400 million funding round announced in January 2022. In September, FTX was reportedly in talks with investors to raise up to $1 billion in another funding round that would have maintained the company’s $32 billion valuation.
At yesterday’s hearing, “Bromley said the bankruptcy team had found that ‘substantial funds’ were transferred from the exchange to Bankman-Fried’s crypto hedge fund Alameda Research, and ‘substantial amounts of money were spent on things not related to the business,'” the Financial Times wrote. That included about $300 million worth of Bahamas real estate consisting of “homes and vacation properties used by the senior executives” of FTX, he said.
FTX’s new CEO, John Ray III, told the bankruptcy court last week that he had never in his career “seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” FTX did not have an “accurate list of bank accounts and account signatories,” lacked a complete list of employees, and used “an unsecured group email account as the root user to access confidential private keys and critically sensitive data for the FTX Group companies around the world,” he also wrote in the court filing.
Separately, Semafor reported yesterday that Bankman-Fried invested $100 million in Elon Musk-owned Twitter. Musk denied the report.