Crypto exchange FTX was run as a “personal fiefdom” of Sam Bankman-Fried, attorneys for the firm said on Tuesday, describing that one of the company’s units spent $300 million on Bahamas real estate.
The collapse of FTX, once one of the world’s largest cryptocurrency exchanges, has left an estimated 1 million creditors facing losses totaling billions of dollars.
In the highest-profile crypto blowup to date, FTX filed for protection in the United States after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.
An attorney for FTX said at a bankruptcy hearing on Tuesday, that was livestreamed with nearly 1,000 people watching on YouTube, that an investigation must take place into Binance’s sale of FTX in July 2021. Binance bought a stake in FTX in 2019 and sold it in 2021.
An attorney said the $300 million spent on real estate was largely homes and vacation properties for senior staff. The company intends to sell off healthy business units, an attorney said.
Reuters earlier reported that Bankman-Fried’s FTX, his parents and senior executives of the failed cryptocurrency exchange bought at least 19 properties worth nearly $121 million in the Bahamas over the past two years, official property records show.
At the hearing, an attorney for FTX also said that the company continues to suffer cyberattacks as bankruptcy begins, and that “substantial” assets are missing.
A considerable amount of time was dedicated to debate over whether FTX’s top 50 creditors should be identified by name in the court filing.
The judge said he will allow the top creditors to remain redacted but will revisit the issue at future hearings. The next hearing is scheduled for Jan. 11.
Its cash balance of $1.24 billion as of Sunday was “substantially higher” than previously thought, a filing Monday night by Edgar Mosley of Alvarez & Marshal, a consultancy firm advising FTX, said.
It includes around $400 million at accounts related to Alameda Research, the crypto trading firm owned by FTX founder Sam Bankman-Fried, and $172 million at FTX’s Japan arm.
FTX, which said on Saturday it has launched a strategic review of its global assets and is preparing for the sale or reorganization of some businesses, had previously said that it owes its 50 biggest creditors nearly $3.1 billion.
The details of FTX’s cash balances came ahead of a hearing in Delaware on FTX’s so-called first-day motions, which kicked off on Tuesday.
FTX has asked Judge John Dorsey to sign off on initial steps in its bankruptcy, including paying employees and critical vendors, which will allow it to continue operating during Chapter 11 bankruptcy proceedings.
The firm had also asked Dorsey to take over a separate Chapter 15 case filed last week in New York on behalf of FTX’s Bahamas unit by liquidators appointed by a Bahamas court. Such proceedings are used by foreign companies to seek U.S. courts’ cooperation in cross-border bankruptcy cases.
Lawyers representing the Bahamian liquidators, who have previously questioned the validity of the U.S. Chapter 11 proceedings and clashed with the team leading it over which case should take precedence, agreed to that demand before Tuesday’s hearing.
FTX, led since the bankruptcy filing by new CEO John Ray, has accused Bankman-Fried of working with Bahamian regulators to “undermine” the U.S. bankruptcy case and shift assets overseas.
Bankman-Fried, FTX and the Bahamas liquidators did not immediately respond to requests for comment.
FTX is also seeking to indemnify unidentified individuals for actions they took and continue to take in connection with assets that represent a significant share of the company’s estate, according to a Tuesday court filing.
Sealed indemnification requests are unusual at the start of a bankruptcy case. FTX said that it was communicating with U.S. regulators and bankruptcy court officials, but did not mention Bahamas regulators.
FTX’s fall from grace has sent shivers through the crypto world, driving bitcoin to its lowest level in around two years and triggering fears of contagion among other firms already reeling from the collapse in the crypto market this year.
A Bloomberg News report, citing sources, had said Genesis was struggling to raise fresh cash for its lending unit, and warning investors it may need to file for bankruptcy if it does not find funding.
On Tuesday, Barry Silbert, CEO of the venture capital Digital Currency Group, which owns Genesis, sought to reassure clients. Silbert confirmed, in a letter to investors first obtained by The New York Times, that Genesis had decided to hire financial and legal advisers to explore options "amidst the fallout from the implosion of FTX."
"Let me be crystal clear: DCG will continue to be a leading builder of the industry," Silbert also wrote. "We have weathered previous crypto winters and while this one may feel more severe, collectively we will come out of it stronger."
The Wall Street Journal reported, citing sources, that Genesis had approached Binance seeking an investment but the crypto exchange decided against it, fearing a conflict of interest. Genesis also approached private equity firm Apollo Global Management for capital assistance, the WSJ said.
Apollo did not immediately respond to a Reuters request for comment on the WSJ report, while Binance declined to comment.
Crypto exchange Gemini, which runs a crypto lending product in partnership with Genesis, tweeted on Monday that it was continuing to work with the company to enable its users to redeem funds from its yield-generating “Earn” program.
Gemini said on its blog last week there was no impact on its other products and services after Genesis paused withdrawals.
Since the implosion of FTX, some crypto players are taking to decentralized exchanges known as “DEXs” where investors trade peer-to-peer on the blockchain.
Overall daily trading volumes on DEXs leapt to their highest level since May on Nov. 10, as FTX imploded, according to data from market tracker DeFi Llama, but have since pared gains.