The Australian arms of crumbling cryptocurrency empire FTX have been placed in voluntary administration.
Scott Langdon, John Mouawad and Rahul Goyal of KordaMentha Restructuring took over as administrators of the Sydney-based cryptocurrency businesses FTX Australia Pty Ltd and subsidiary FTX Express Pty Ltd on Friday following a board meeting earlier today that decided to place the companies in voluntary administration.
Sam Blankman-Fried’s crypto empire, previously valued at US$32 billion (A$48bn) has collapsed this week after market leader Binance withdrew a takeover offer after conducting due diligence on the business, saying “our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help”.
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
FTX halted crypto and fiat withdrawals from its exchange this week as customers tried to recoup their funds following a Coindesk analysis that suggested Bankman-Fried’s affiliated business, trading platform Alameda Research, was insolvent. The problem is the value in both businesses was reliant on the other.
The 30-year-old FTX CEO – one critic dubbed him Sam Bankrun-Fraud – has been accused of running a Ponzi scheme using investor money in FTX to support his other company, Alameda Research, with most of the value in both businesses based on the FTX’s own cryptocurrency, FFX.
The Coindesk story triggered a mass liquidation of FTT, creating a liquidity crunch for FTX.
The Wall Street Journal reports that FTX lent billions of dollars in customer assets to Alameda Research, which reportedly owes FTX around US$10 billion.
As a consequence, FTX is believed to have a capital shortfall of up to US$8 billion.
The Information has since revealed a complex relationship between between Bankman-Fried and his venture capital investors, with the crypto boss turning around and tipping an estimated US$500 million into the VCs, including Sequoia Capital, as a limited partner.
The downfall began with the collapse in the wake of the TerraLuna stablecoin crash in May leading to the demise of Three Arrows Capital and Bankman-Fried’s US$1 billion intervention in loans and equity to rescue BlockFi and Voyager Digital.
US regulators are now circling Bankman-Fried’s smouldering empire, alongside further legal action.
Bankman-Fried took to Twitter to apologise saying he “f*cked up and should have done better”.
1) I'm sorry. That's the biggest thing.
I fucked up, and should have done better.
— SBF (@SBF_FTX) November 10, 2022
In a 22 message thread, he said the problems are associated with the international arm of FTX and US business is fine.
“FTX US, the US based exchange that accepts Americans, was not financially impacted by this shitshow,” he wrote.
He also said Alameda will cease trading on FTX.
15) First, one way or another, Alameda Research is winding down trading.
They aren't doing any of the weird things that I see on Twitter–and nothing large at all. And one way or another, soon they won't be trading on FTX anymore.
— SBF (@SBF_FTX) November 10, 2022
In Australia, KordaMentha said they are now examining the crypto exchange’s books to see whether there are enough assets to pay back local customers and they have been in contact with the corporate regulator, the Australian Securities and Investments Commission.
Bankman-Fried is one of FTX Australia’s three directors. The local arm had five staff.
Administrator Scott Langdon said all customers of FTX Express and FTX Australia are requested to not deposit funds or execute any trades until further notice.
“We are working cooperatively with the directors to confirm the status quo and will report back to all stakeholders,” he said.
“We appreciate the uncertainty this creates for customers of FTX and will report to all customers as a matter of urgency.”
Meanwhile, in the Bahamas, where FTX is registered, the Securities Commission there as frozen the assets of FTX Digital Markets and is now looking to appoint a liquidator.
Australia does not yet have custody rules around digital assets that would require local traders to keep the assets onshore.