In a sudden and stunning collapse, FTX, the world’s second largest cryptocurrency exchange, run by 30-year-old Sam Bankman-Fried along with more than 130 entities affiliated with FTX, filed for Chapter 11 bankruptcy protection in Delaware on Friday. Separately, the Securities Commission of the Bahamas appointed a Bahamas-based provisional liquidator for the controlling FTX entity and froze its assets along with those of the related entities.
In connection with the filing, John Jay Ray III, an experienced restructuring professional who was involved in the Enron liquidation, has taken over as FTX’s CEO following Bankman-Fried’s recent resignation.
To date, none of the debtor entities have filed schedules of assets and liabilities or sought any substantive “first day” relief from the bankruptcy court; however, in their petitions, the FTX entities assert their assets and liabilities each exceed $10 billion. That said, several reports indicate that, as of the day prior to bankruptcy, FTX purportedly had only $900 million in easy-to-sell assets as compared with approximately $9 billion in liabilities.
Adding to the company’s significant financial issues, approximately $662 million of unauthorized withdrawals from company accounts reportedly took place the day after the company was placed into bankruptcy. Company officials as well as authorities are investigating these transactions. Additionally, the Kraken exchange reportedly has identified an account on its platform associated with the “FTX hack” and is sharing relevant information with law enforcement to assist with the investigation.
Significant additional FTX customer funds may be missing, and multiple government agencies are reportedly investigating the exchange, including the Bahamas Financial Crimes Investigation Branch, U.S. Department of Justice (DOJ), U.S. Securities and Exchange Commission (SEC) and U.S. Commodities Futures Trading Commission.
The bankruptcy filings will likely result in numerous investigations and claims brought by the debtors and other estate representatives as they try to recover funds for distribution to creditors. Probable bankruptcy claims include alleged preference and fraudulent transfer clawback claims, claims against insiders and affiliated entities, and allegations pertaining to fraud or other purported wrongdoing by directors, officers and other professionals who worked for the debtors.
As part of the bankruptcy process overseen by the court, the court will establish certain dates and deadlines of consequence. A deadline for filing claims against the debtors will be established, of which creditors and other interested parties should receive notice. Many other actions will take place during the course of the proceedings that may affect the rights of various parties, including investors, employees, stakeholders, government entities and other creditors (secured and unsecured).
Due to the potential impact of the bankruptcy, it is important to seek the advice of knowledgeable counsel if you believe your rights may be affected.
 Vicky Ge Huang, “Bankrupt Crypto Lender Celsius Network Says It Lent Alameda Research $13 Million,” The Wall Street Journal (Nov. 11, 2022), https://www.wsj.com/livecoverage/stock-market-news-today-11-11-2022/card/bankrupt-crypto-lender-celsius-network-says-it-lent-alameda-research-13-million-jTnI38SvOBOB7JCy8DmJ.
 Dan Milmo, “FTX Assets Frozen by Bahamas Regulator as Crypto Exchange Fights for Survival,” The Guardian (Nov. 11, 2022), https://www.theguardian.com/technology/2022/nov/11/ftx-assets-frozen-bahamas-regulator-crypto-exchange-bankman-fried.
 Elizabeth Napolitano, “From Enron to FTX: Wall Street Turnaround Titan John Jay Ray III Takes Reins from FTX CEO Sam Bankman-Fried,” CoinDesk (Nov. 11, 2022), https://www.coindesk.com/business/2022/11/11/from-enron-to-ftx-wall-street-turnaround-titan-john-jay-ray-iii-takes-reins-from-ftx-ceo-sam-bankman-fried/.
 Jasper Ward, FTX Collapse Being Scrutinized by Bahamas Authorities, Reuters (Nov. 13, 2022), https://www.reuters.com/technology/ftx-collapse-being-scrutinized-by-bahamas-investigators-2022-11-13/
 Sunil Jagtiani and Bloomberg, “Sam Bankman-Fried interviewed by Bahamian police and regulators a day after declaring bankruptcy, source says,” Fortune (Nov. 12, 2022), https://fortune.com/2022/11/13/sam-bankman-fried-interviewed-police-regulators-bahamas-tokens-ftx/.
 Emily Nicolle and Bloomberg, “A hacker behind unauthorized FTX crypto withdrawals has been identified, says rival exchange Kraken,” Fortune (Nov. 12, 2022), https://fortune.com/2022/11/12/hacker-behind-unauthorized-ftx-crypto-withdrawals-identified-says-rival-exchange-kraken/.
 Angus Berwick, “Exclusive: At least $1 billion of client funds missing at failed crypto firm FTX,” Reuters (Nov. 13, 2022), https://www.reuters.com/markets/currencies/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12/; Jasper Ward, “FTX collapse being scrutinized by Bahamas authorities,” Reuters (Nov. 13, 2022), https://www.reuters.com/technology/ftx-collapse-being-scrutinized-by-bahamas-investigators-2022-11-13/.