FTX run as personal fiefdom: lawyer

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FTX was run as a “personal fiefdom” of former CEO Sam Bankman-Fried, lawyers for the collapsed crypto exchange said during its first bankruptcy hearing as they detailed ongoing challenges such as the hacks and important missing assets.

In the most publicized crypto explosion to date, FTX has filed for protection in the United States after traders withdrew $6 billion (A$9 billion) from the platform in three days and that rival exchange Binance has abandoned a bailout deal.

The collapse left around a million creditors facing losses totaling billions of dollars.

A lawyer for FTX told a bankruptcy hearing on Tuesday that the company now intends to sell healthy business units, but has been subject to cyberattacks and has “substantial” assets missing. .

FTX said on Saturday it launched a strategic review of its global assets and is preparing for the sale or reorganization of certain businesses.

The hearing was held in United States Bankruptcy Court in Wilmington, Delaware and was streamed live to approximately 1,500 viewers on YouTube and Zoom.

A lawyer also said the firm had been run as a “personal fiefdom” of Bankman-Fried with $300 million spent on real estate such as homes and vacation properties for senior executives.

FTX, led since filing for bankruptcy by new CEO John Ray, accused Bankman-Fried of working with Bahamian regulators to “undermine” the U.S. bankruptcy case and move assets overseas.

Bankman-Fried did not immediately respond to an email seeking comment.

Reuters reported earlier that Bankman-Fried’s FTX, his parents and top executives of the failed cryptocurrency exchange bought at least 19 properties worth nearly $121 million in the Bahamas in past two years, according to official property records.

The lawyers also said an investigation should take place into Binance’s sale of FTX in July 2021.

Binance took a stake in FTX in 2019.

Separately, a filing Monday night by Ed Mosley of Alvarez & Marsal, an advisory firm advising FTX, showed FTX’s cash balance of $1.24 billion as of Sunday’s date was “significantly higher.” than previously thought.

It includes around $400 million in accounts linked to Alameda Research, the crypto trading firm owned by Bankman-Fried, and $172 million in the Japanese arm of FTX.

Reuters reported that Bankman-Fried had secretly used $10 billion in client funds to support its business activity, and that at least $1 billion of those deposits had gone missing.

During the hearing, FTX representatives argued that client names should be kept secret because disclosing them could destabilize the crypto market and open clients up to hacking.

FTX also argued that its client list is a valuable asset and that disclosing it could harm future sales efforts or allow rivals to poach its user base.

A judge said those names could remain secret until a future court hearing.

FTX lawyers also described an uneasy truce with court-appointed liquidators overseeing the liquidation of FTX’s Bahamas unit, FTX Digital Markets.

The two parties reached an initial agreement to coordinate their US insolvency proceedings before Judge John Dorsey, avoiding the possibility of conflicting rulings from two different US bankruptcy judges.

But the two sides reported that they still had broader disagreements over how to coordinate the recovery and preservation of assets held by various FTX affiliates.

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