According to FTX, over 1 million creditors could file new bankruptcy filings

FTX logo with $100 bill crypto coins displayed for illustration. FTX has filed for bankruptcy in the US and is seeking protection in court as it seeks a way to return funds to users.

Jonathan Raa | Nurphoto | Getty Images

Troubled cryptocurrency exchange FTX may have more than 1 million creditors, according to a new bankruptcy filing, pointing to the huge impact of its collapse on crypto traders.

Last week, when it filed for Chapter 11 bankruptcy protection, FTX said it had more than 100,000 creditors with claims in the case.

But in one updated filing TuesdayLawyers for the company said, “In fact, there could be upwards of a million creditors in these Chapter 11 cases.”

Typically, in such cases, debtors must provide a list of the names and addresses of the top 20 unsecured creditors, the lawyers said. However, given the size of its debt, the group intends to file a list of the top 50 creditors on or before Friday instead.

According to the filing, five new independent directors have been appointed at each of FTX’s principal parent companies, including former Delaware District Judge Joseph J. Farnan, who will serve as the senior independent director.

In the past 72 hours, FTX has been in contact with “dozens” of regulators in the U.S. and abroad, the company’s lawyers wrote. These include the US Attorney’s Office, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The risk of FTX crypto contagion

This year, a number of crypto firms, including Celsius and Voyager Digital, have failed as they grapple with a collapse in digital asset prices and the resulting liquidity problems.

In previous bankruptcy cases, merchants on these platforms have been labeled “unsecured creditors,” meaning they’ll likely be at the end of a long line of companies demanding repayment, from suppliers to employees.

Before its collapse, FTX offered amateur and professional traders spot crypto investing as well as more complex derivatives trades. At its peak, the platform was valued at $32 billion by investors and had more than 1 million users. The company’s failure had a chilling effect on the industry as investors sold their positions and funds fled the exchanges.

On Monday, the CEOs of Binance and sought to reassure investors about the financial health of their companies. Binance’s Changpeng Zhao said his exchange has seen only a marginal increase in withdrawals, while chief Kris Marszalek said his firm has a “hugely strong balance sheet.”

Mixing of customer funds

The collapse of FTX has resulted in a

“FTX has faced a severe liquidity crisis that has necessitated the filing of these cases last Friday on an emergency basis,” attorneys wrote in Tuesday’s filing. “Questions have been raised about Mr. Bankman-Fried’s leadership and the handling of FTX’s complex range of assets and businesses under his leadership.”

CNBC reported Sunday that Alameda Research, FTX’s sister company, borrowed billions of dollars in customer funds from the exchange to ensure it had enough liquidity to process withdrawals.

In general, it is illegal under US securities laws to commingle client funds with counterparties and trade in them without express consent. It also violates the FTX Terms of Service.

Bankman-Fried declined to comment on the allegations but said the company’s recent filing for bankruptcy was the result of problems with a leveraged trading position.

“I think it’s becoming increasingly clear, even at a fundamental level, that this kind of conflation of interests between the market maker and the exchange is highly unethical,” Jamie Burke, CEO and founder of Web3-focused venture capital firm Outlier Ventures, told CNBC.

in one cryptic twitter thread That week, Bankman-Fried co-wrote the word “What” followed by the letters “H”, “A”, “P”, “P”, “E”, “N”, “E”, “D”. Interrupted tweets.


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