Failed crypto exchange FTX has recovered over $5 billion, lawyer says

NEW YORK/WILMINGTON, Del., Jan 11 (Reuters) – Crypto exchange FTX has recovered more than $5 billion in liquid assets, but the extent of customer losses in the collapse remains unknown, a lawyer for the bankrupt company founded by Sam Bankman- said Fried Wednesday.

The company, valued a year ago at $32 billion, filed for bankruptcy protection in November and US prosecutors accused Bankman-Fried of orchestrating an “epic” fraud that may have cost investors, customers and lenders billions of dollars.

“We have found over $5 billion in cash, liquid cryptocurrencies and liquid investment securities,” Andy Dietderich, an attorney for FTX, told a U.S. bankruptcy judge in Delaware at the start of Wednesday’s hearing.

Dietderich also said the company plans to sell non-strategic investments that had a book value of $4.6 billion.

However, Dietderich said the legal team is still working to create accurate internal records and the actual customer shortage remains unknown. The US Commodities Futures Trading Commission has estimated missing customer funds at more than $8 billion.

Dietderich said the $5 billion recovered does not include assets seized by the Securities Commission of the Bahamas, where Bankman-Fried was located.

FTX’s lawyer estimated that the seized assets were worth as little as $170 million, while Bahamian authorities put the figure as high as $3.5 billion. The seized assets are largely composed of FTX’s proprietary and illiquid FTT token, which is highly volatile in price, Dietderich said.

CUSTOMER PRIVACY

U.S. Bankruptcy Judge John Dorsey in Delaware on Wednesday granted FTX’s request to keep 9 million FTX customer names secret. But he allowed the names to remain hidden for only three months, not six months as FTX wanted.

“The difficulty here is that I don’t know who is a customer and who is not,” Dorsey said. He set a hearing for Jan. 20 to discuss how FTX will differentiate between customers and said he wants FTX to come back in three months to explain more about the risk of identity theft if customer names are made public.

Media companies and the US Trustee, a government bankruptcy watchdog that is part of the Justice Department, had argued that US bankruptcy law requires disclosure of creditor details to ensure transparency and fairness. FTX said disclosing customer names could allow rivals to poach users, undermining the value of the business FTX is trying to sell.

FTX’s legal team also sought approval on Wednesday for procedures to sell affiliates LedgerX, Embed, FTX Japan and FTX Europe.

The affiliated companies are relatively independent from the wider FTX group, each having their own separate client accounts and separate management teams, according to the FTX court documents.

The crypto exchange has said it is not committed to selling any of the companies, but that it received dozens of unsolicited offers and plans to hold auctions starting next month.

The US trustee has objected to selling affiliates until the extent of the alleged FTX fraud is fully investigated.

In addition to selling affiliates, a company attorney said Wednesday that FTX will end its seven-year sponsorship deal with the League of Legends video game, which began in 2021.

FTX’s founder, Bankman-Fried, 30, was indicted on two counts of fraud and six counts of conspiracy last month in Manhattan federal court for allegedly stealing client deposits to pay off debt from his hedge fund, Alameda Research, and lying to stock investors about FTX’s financial condition . He has pleaded guilty.

Bankman-Fried has acknowledged shortcomings in FTX’s risk management practices, but the one-time billionaire has said he does not believe he is criminally responsible.

In addition to lost customer funds, the collapse of the company has also probably wiped out equity investors.

Some of those investors were revealed in a lawsuit Monday, including American football star Tom Brady, Brady’s ex-wife supermodel Gisele Bündchen and New England Patriots owner Robert Kraft.

Reporting by Dietrich Knauth in New York and Tom Hals in Wilmington, Del.; Editing by Alexia Garamfalvi, Mark Porter and Matthew Lewis

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