During a bankruptcy court hearing in Delaware on January 31st, FTX attorney Andy Dietderich revealed that the company had been engaged in negotiations with potential bidders and investors since October 2023, but none were willing to contribute sufficient funds to rebuild the FTX exchange.
FTX has now chosen to abandon its efforts to relaunch its cryptocurrency exchange and has instead decided to liquidate all assets, returning funds to its customers.
FTX’s Decision and Bankruptcy Proceedings
The failed negotiations suggest that FTX may not have been what it appeared to be, and founder Sam Bankman-Fried allegedly failed to establish the necessary technology or administration to operate the company as a viable business, Dietderich said.
Bankman-Fried has been convicted on fraud charges related to his operation of FTX. The FTX founder has also faced convictions on charges of conspiracy and money laundering. His sentencing, scheduled for March 28, 2024, is anticipated to result in a lengthy prison term, with experts predicting he may face decades behind bars.
“FTX was an irresponsible sham created by a convicted felon,” Dietderich remarked. “The costs and risks of creating a viable exchange from what Mr. Bankman-Fried left in a dumpster were simply too high.”
Restructuring advisers will have the task of thoroughly reviewing the millions of claims filed against FTX to identify and eliminate those that lack legitimacy, Dietderich continued.
Restructuring advisers have been actively engaged in the process of locating assets and unraveling a convoluted network of debts owed to different creditors, including customers who deposited both cash and cryptocurrency on the FTX trading platform.
The struggling exchange has reportedly been liquidating crypto assets and accumulating cash in an effort to reimburse customers, and FTX’s four largest affiliates witnessed a substantial increase in their combined cash reserves towards the close of 2023.
The affiliates managed to nearly double the group’s overall holdings to $4.4 billion by the end of that year, marking a significant rise from the approximately $2.3 billion reported in late October.
Debate Over Return Amounts
At the hearing, the company sought approval for a process to ascertain the amounts owed to each creditor and customer. US Bankruptcy Judge John Dorsey ruled that the size of each claim would be determined based on what the customer or creditor was owed on the day FTX filed for bankruptcy.
In response to some customers expressing concern that tying their claims to prices in late 2022 might cause them to miss out on potential increases in crypto prices, Judge Dorsey ruled that bankruptcy rules mandate a company’s debts to be linked to the date it filed for court protection.
“I have no wiggle room on that,” Dorsey said. “The Bankruptcy Code says what it says, and I am obligated to follow it.”