In less than a week, FTX went from being the world’s largest cryptocurrency exchange to bankruptcy court.
The beleaguered cryptocurrency exchange, short of billions of dollars, is seeking bankruptcy protection after experiencing the crypto equivalent of a bank run. FTX, its subsidiary hedge fund Alameda Research and dozens of other companies filed for bankruptcy in Delaware on Friday morning.
CEO and founder Sam Bankman-Fried has resigned, the company said. By recent estimates, Bankman-Fried was worth $23 billion and has been a major political donor to Democrats. His net worth has all but vanished, according to Forbes and Bloomberg, which closely track the net worth of the world’s richest people.
Bankman-Fried has other problems, too. On Thursday, a person familiar with the matter said the Department of Justice and the US Securities and Exchange Commission are investigating FTX to determine if criminal activity or security breaches were committed. The person could not provide details of the investigations publicly and spoke to The Associated Press on condition of anonymity.
The investigation focuses on the possibility that FTX may have used customer deposits to fund bets at Alameda Research. In traditional markets, brokers are expected to separate client funds from other business assets. Regulators can sanction violations.
A few days ago, FTX had agreed to sell to larger rival Binance after experiencing the cryptocurrency equivalent of a bank run. Clients fled the exchange over fears that FTX did not have enough capital.
The crypto world was hopeful that Binance, the world’s largest crypto exchange, could bail out FTX and its depositors. However, after Binance had the opportunity to review FTX’s accounting books, it became clear that their problems were too big to solve and they backed down.