FTX and FTX.US, a major cryptocurrency exchange and its US branch, filed for Chapter 11 bankruptcy on November 11, 2022 due to a lack of liquidity and mismanagement of funds. The CEO of the exchange, Sam Bankman-Fried, was arrested on December 12 and charged with wire fraud and conspiracy to defraud investors. He allegedly used customer funds as a "personal piggy bank" to make private investments. The value of FTT, the exchange's native token, plummeted, taking other coins down with it, including Ethereum and Bitcoin. Other exchanges with exposure to FTX or FTT also faced financial troubles, with BlockFi filing for bankruptcy on November 28. The new CEO of FTX is John J. Ray III, who led the energy giant Enron through its bankruptcy and liquidation process about two decades ago.
FTX, a major cryptocurrency exchange, and its U.S. branch, FTX.US, filed for Chapter 11 bankruptcy on November 11, 2022. The bankruptcy was a result of a lack of liquidity and mismanagement of funds, which led to a large volume of withdrawals from investors. The value of FTX's native token, FTT, plummeted, taking other coins down with it, including Ethereum and Bitcoin, which reached a two-year low as of November 9.
The former CEO of FTX, Sam Bankman-Fried, was arrested on December 12 in the Bahamas and was later extradited to the U.S. He pleaded not guilty to eight criminal charges, including wire fraud and conspiracy to defraud investors. According to a complaint filed by the Securities and Exchanges Commission (SEC), Bankman-Fried used customer funds as a “personal piggy bank” to make private investments, including real estate and political campaign donations.
FTX's crash had wide-reaching implications throughout the crypto market, as other exchanges and cryptocurrencies with exposure to FTX or FTT faced sinking prices and financial troubles. For example, BlockFi, another cryptocurrency exchange, filed for bankruptcy on November 28.
The new CEO of FTX is John J. Ray III, who led the infamous energy giant Enron through its bankruptcy and liquidation process about two decades ago. In the bankruptcy filing on November 17, Ray exposed the severity of FTX’s murky finances, citing a “complete failure of corporate controls” and a “complete absence of trustworthy financial information.”
The events leading up to the bankruptcy include initial reports and sell-offs beginning on November 2, with the CEO of rival exchange Binance, Changpeng Zhao, announcing plans to sell off Binance's stockpile of FTT due to "recent revelations" of FTX and its sister company Alameda's blurred funds. This led to a rapid decline in FTT's value, as well as that of other coins, with Bitcoin dropping to a two-year low. Bankman-Fried announced on November 10 that the platform saw $5 billion in withdrawals on November 6.
Zhao and Bankman-Fried then struck a deal for Binance to acquire the non-U.S. branch of FTX on November 8. However, Binance withdrew from the deal on November 9, citing news reports of mishandled customer funds and alleged U.S. agency investigations as the reason for their decision.
FTX halted all non-fiat customer withdrawals on November 8 and filed for voluntary Chapter 11 bankruptcy proceedings for FTX, FTX.US, and Alameda on November 11. However, FTX and FTX.US wallets were emptied on the evening of November 11 in an apparent hack, with more than $600 million drained from the wallets.
Overall, the collapse of FTX was a result of a combination of factors, including mismanagement of funds, a lack of liquidity, and a hack that drained the exchange's wallets. The events had wide-reaching implications for the crypto market, and the arrest of the former CEO on criminal charges related to the mismanagement of customer funds further compounded the damage caused by the collapse.