FTX took less than a week to go from being the third largest cryptocurrency exchange in the world to bankruptcy court.
NEW YORK (AP) — FTX took less than a week to go from the world’s third-largest cryptocurrency exchange to bankruptcy court.
A cryptocurrency exchange short of billions of dollars is seeking bankruptcy protection after the exchange experienced the crypto equivalent of a bank run. FTX, its affiliate hedge fund Alameda Research and dozens of other companies filed for bankruptcy in Delaware on Friday morning.
CEO and founder Sam Bankman-Fried has resigned, the company said. Bankman-Fried was recently valued at $23 billion and was a prominent political donor to Democrats. According to Forbes and Bloomberg, which closely track the fortunes of the world’s richest people, his wealth has almost evaporated.
Bankman-Fried has other problems as well. On Thursday, a person familiar with the matter said the Justice Department and the Securities and Exchange Commission were looking into FTX to determine whether criminal activity or securities crimes had been committed. The person could not publicly discuss details of the investigation and spoke to The Associated Press on condition of anonymity.
The investigation focuses on the possibility that FTX may have used customer deposits to fund bets at Alameda Research. In traditional markets, brokers must segregate client funds from other company assets. Violations may be penalized by regulatory authorities.
Earlier this week, FTX agreed to sell itself to larger rival Binance after experiencing the cryptocurrency equivalent of a bank run. Clients fled the exchange after becoming concerned about whether FTX had enough capital.
The crypto world was hoping that Binance, the world’s largest crypto exchange, would be able to save FTX and its investors. However, after Binance had a chance to look at FTX’s books, it became clear that the smaller exchange’s problems were too big to handle, and Binance backed out of the deal.
FTX is the latest in a series of cascading disasters that have rocked the crypto sector, which is now under intense pressure from collapsing prices and circling financial regulators. His failure is also sending tsunami-like waves throughout the crypto world.
Cryptocurrency lender BlockFi announced on Twitter late Thursday that it was “unable to operate as usual” and was suspending customer withdrawals in the wake of the FTX crash.
In a letter posted on its Twitter account late Thursday, BlockFi — which was bailed out by Bankman-Fried’s FTX early last summer — said it was “shocked and disappointed by the news regarding FTX and Alameda.”
The company concluded by saying that any future communications about its status “will be less frequent than what our customers and other stakeholders are used to.”
Bitcoin fell immediately after the letter was published, losing nearly 5% before returning above $17,000 overnight. The original cryptocurrency Bitcoin hovered around $20,000 for months before FTX’s problems became public this week, causing it to briefly rise to $15,500.
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Washington reporters Matt Ott and Michael Balsama contributed.
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