FTX Bankruptcy – Why Did FTX.com Eventually File For Bankruptcy?

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Sam Bankman-Fried established the FTX exchange in 2019 in the Bahamas and Antigua and Barbuda. The company has several separate entities, one of them being FTX.US, available for US residents only. Additionally, the exchange relates to Alameda Research, where it all started. 

The CEO of FTX.com co-founded Alameda Research in September 2017 as a quantitative trading firm specializing in crypto. From there, Bankman-Fried created FTX (short for Futures Exchange). The exchange had a reputation as one of the most respectable crypto firms, with all the funds coming from ventures and partner investments.

Surprisingly, the company plunged into crisis in 2022, with its peak being November 11th, when it officially filed for Chapter 11 bankruptcy protection.

FTX.com has several regulations in various jurisdictions. Therefore, the crash will affect investors in numerous countries. 

FTX Trading Ltd resides in Antigua and Barbuda, while its subsidiary, FTX Digital Markets Ltd, is in the Bahamas. These are the two leading firms with the latest holding regulation by the Securities Commission of the Bahamas. Once US regulators started investigating the whole operation, the Bahamas SC gave in and blocked all FTX assets held on this offshore island.

Furthermore, FTX provides services to Australian residents through its branch FTX Express Pty Ltd, AUSTRAC-registered digital currency services provider.

The company also holds a Gibraltar Financial Services Commission license through its Zubr Exchange Limited branch.

The firm received European approval through K-DNA Financial Services Ltd, a duly incorporated firm in Cyprus, holding CySEC license 273/15. This company partnered with FTX Switzerland GmbH and FTX Trading GmbH, which ensured a German license a membership with FINOS. These entities allow it to offer tokenized stock trading to EU residents.

Furthermore, FTX was the first broker to obtain a license from the newly established UAE regulator in charge of digital currency trading – the Virtual Asset Regulatory Authority (VARA). Its subsidiary, DAAG Trading, DMCC, obtained its license in July 2022, becoming the first to legally provide crypto services in the UAE. Right after, Binance received the same approval.

FSA Japan has issued a license to FTX Japan Corporation, while in South Africa, there’s a branch under the name OVEX FSP (Proprietary) Limited.

So, to answer the question. The bankruptcy affected residents in all of the aforementioned countries since the exchange supposedly has over 1 million customers.

On November 2nd, CoinDesk reported saying that a significant portfolio of Alameda Research funds was in FTT, a native token of the FTX exchange. To be precise, the assessment shows $5.1 billion worth of FTT.

Since the firm was a market maker on FTX at the beginning, there should be no relations between firms whatsoever. However, without strict crypto regulations, this went on and on.

Since FTT is a native token, it highly depends on FTX’s liquidity. If the exchange doesn’t function properly, neither is the token. Therefore, reserves should be in other tokens, such as Bitcoin, for instance.

The whole time, Bankman-Fried tried to relax his investors, tweeting about the company being in a good place, everything was fine, and there were no liquidity issues. Only four days after the tweet, he filed for bankruptcy.

Learning this, Binance CEO Changpeng Zhao, who was holding a significant amount of FTT since he was one of the FTX investors, decided to sell it. This caused significant market disruption and a decline in the price of FTT. On November 8th, Zhao tweeted that he would purchase FTX due to a liquidity crisis. Since several US regulators, including CFTC and SEC, are looking into the case after the CoinDesk report, Zhao backed out of the purchase, leaving FTX with $8 billion in debt to investors.

On November 9th, FTX announced issues with processing withdrawal requests. At the time of writing this report, withdrawals are impossible.

Finally, on Friday, November 11th, the company made a turnaround and filed for Chapter 11 bankruptcy protection.

FTX’s bankruptcy file reportedly wiped out $1 trillion from the crypto market. Leading cryptocurrencies, Bitcoin and Ethereum, also declined due to significant market volatility. But worse than that, FTX invoked mistrust. People have seen one crypto giant fall in just a few days. Therefore, their trust plummeted as well. 

According to Bloomberg, Bankman-Fried is the quickest-losing billionaire ever. His net worth was estimated at $16 billion, while he currently has nothing. In spring 2022, his wealth peaked, reaching an incredible amount of $26 billion. However, his recent actions led to the bankruptcy of the FTX and himself.

Since he officially stated in the court that he had no idea that the money he was abusing actually belonged to his investors, it has become clear that so-called “crypto kings” are irresponsible towards their investors.

Will it cause further market disruptions? We will see. What’s for sure, the company has 100,000 creditors and no way to reimburse them all.

FTX failed due to a negative CoinDesk report about one of its related firms, Alameda Research. Since the backup funds of Alameda Research were in FTT, a native FTX token, it caused people to question the company’s liquidity. The estimate shows that this exchange has over 100 related companies, each going under investigation. 

Two major US regulators, CFTC and SEC, are now all over the case, starting an official investigation of FTX, Alameda Research, and the FTX CEO, Sam Bankman-Fried. They froze over $46 million in USDT, belonging to global investors, pending investigation.

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The post FTX Bankruptcy – Why Did FTX.com Eventually File For Bankruptcy? appeared first on Global Fraud Protection.


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