FTX Lawyer Says ‘Substantial Amount’ of Assets Stolen or Missing

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A “substantial amount” of FTX Group’s assets “have been stolen or are missing,” a lawyer representing the company in bankruptcy court said on Tuesday in the company’s first appearance since its rapid descent into insolvency.

“Unfortunately FTX’s debtors weren’t particularly well managed, to put it mildly,” James Bromley, co-head of the restructuring practice at law firm Sullivan & Cromwell, told a Wilmington judge. , Delaware. “We have probably witnessed one of the most abrupt and difficult corporate collapses in American corporate history.”

At Tuesday’s hearing, U.S. Bankruptcy Judge John Dorsey approved standard motions allowing FTX to continue operating and paying employees while Chief Executive John J. Ray III and his advisers look at the books company looking for cash, cryptocurrency and assets that could be sold to help pay off creditors. He also temporarily allowed the names of major creditors to remain secret.

The fall of Sam Bankman-Fried’s crypto empire into bankruptcy on Nov. 11 was “unprecedented,” Bromley added, noting that an unusual amount of time had elapsed between the company’s filing and his first hearing.

Once Bankman-Fried handed over control of affairs, everyone realized for the first time that “the Emperor had no clothes,” Bromley told the court. The US House and Senate have asked Ray, the new CEO of FTX, to testify at some point in December.

Asset protection and recovery is one of FTX’s primary core objectives, in addition to implementing controls, transparency and investigations, Bromley said during the hearing. Maximizing value is also key to the process, whether selling or reorganizing businesses, and FTX will likely ask Dorsey for permission to sell some assets “fairly quickly,” he added.

Bromley said the types of controls implemented in FTX’s system now include traditional market-standard accounting, auditing, data management and human resources. The FTX team also coordinates with regulators in the United States and around the world. Advisors are in frequent communication with the US Department of Justice and the Southern District of New York Cybercrime Unit, which has opened a criminal investigation related to FTX, Bromley said.

At least two groups of crypto creditors sent lawyers to the hearing to support the company’s request to keep their identities secret. One of the groups includes members who are among FTX’s 50 largest unsecured creditors, paving the way for future asset fights between various creditor groups.

Dorsey overruled objections from the U.S. Trustee, an arm of the U.S. Justice Department that serves as a bankruptcy watchdog, and allowed the names of major creditors to remain secret for the time being. The company’s top 50 unsecured creditors owe more than US$3 billion. A hearing on the matter is scheduled for December 16, with another hearing on the so-called “second day” motions to follow in January.

Proceedings to wind up the duel in the Bahamas will be transferred to Delaware, Dorsey said. Restructuring advisers and U.S. regulators at FTX in the Bahamas will try to craft rules for sharing information and assets, attorney Chris Shore said.

“There’s a tension that exists right now,” Shore said, referring to bankruptcy rules in the United States and efforts by Bahamian liquidators to gain control of assets and information about FTX’s collapse.

–With the help of Claire Boston.

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