The investigations for bankruptcy commenced last week when FTX experienced an $8 billion shortfall due to a run-on deposit. Consequently, this led to the company which was once regarded as one of the safest and most reliable institutions of the freewheeling crypto industry crumbling overnight.
The exchange’s founder Sam Bankman-Fried reportedly transferred $10 billion of customer funds from FTX to his trading company ‘Alameda Research.’ A large amount of that total fund has since disappeared. The total amount is said to be between $1-2 billion.
The financial hole later came to light in records shared by Bankman-Fried with other senior executives last Sunday. The records provided a real-time account of the situation, some sources said.
The company’s sudden downfall due to the run-on deposits last week left FTX unable to fulfill its customers' demands. Consequently, Bankman-Fried struck a rescue deal to sell his firm to its largest rival exchange, Binance.
After a lengthy online skirmish between Bankman-Fried and Changpeng Zhao, CEO of Binance, a review stating FTX’s finances revealed various problems, posing as a deal breaker and Binance pulled out of the deal. Bankman-Fried attempted to secure new financing but was unable to, and later declared bankruptcy. The Justice Department and SEC are currently looking into his management of FTX. They are apparently focusing on whether FTX inappropriately transferred customer funds to Alameda Research.
In regards to the case, Associate Professor in Finance Technology at the University of Liverpool, Gavin Brown referred to a recent report that suggested “42% of the exchanges which failed simply disappeared without traces.”
According to Prof Brown “In the event of exchange failure, or even bankruptcy, it is the investors who are on the hook for losses” He, along with other industry experts warned that often smaller investors often end up back of the queue, after the remains of a crypto business are divided among themselves. They doubt much money will be coming back.
"The unfortunate news is that the money's all gone. It's just not there anymore. Investors should expect pennies on the dollar," says crypto blogger and author David Gerard.
