FTX, the bankrupt cryptocurrency exchange, announced that it has found more than $5 billion in cash and other liquid assets and is hoping to sell hundreds of additional investment holdings worth more than $4.6 billion.
These assets are valued as of FTX’s bankruptcy filing in November and do not include $425 million held by authorities in the Bahamas, according to company lawyers in the United States Bankruptcy Court in Wilmington, Del., on Wednesday.
FTX lawyers also told the bankruptcy judge that the amount of the shortfall in FTX customer funds is not yet clear. According to FTX lawyer Andrew Dietderich, the company is working on determining the size of the claims pool and potential recoveries for the approximately 9 million customer accounts it has identified.
Mr. Dietderich stated that the new FTX management is “constructing financial statements from the ground up,” rather than relying on previous statements. The company is also “well under way on plans to monetize over 300 other nonstrategic investments, with a book value over $4.6 billion,” Mr. Dietderich said.
According to The Wall Street Journal, FTX, affiliated hedge fund Alameda Research, and other entities controlled by founder Sam Bankman-Fried invested more than $5 billion in startup ventures as well as venture firms such as Sequoia Capital. Many of these investments were concentrated in the cryptocurrency sector.
FTX Chief Executive John J. Ray III has stated that some of the companies in that venture portfolio are likely troubled, and he is concerned about how the current downturn in cryptocurrency assets may affect the value of those stakes, which could be a significant source of recovery for customers.
According to Mr. Ray, who took over the firm from Mr. Bankman-Fried and declared bankruptcy after concerns about the exchange’s financial health fueled a wave of customer withdrawals, the company did not keep reliable financial records and lacked normal corporate controls under previous management.
Since entering Chapter 11, FTX has sold some salvageable assets, including Embed Financial Technologies, LedgerX, FTX Japan, and FTX Europe. The current sales process excludes FTX.com and FTX.US, the company’s primary exchanges serving international and US customers. Kris Hansen, a lawyer for the unsecured creditors committee, stated at the hearing on Wednesday that a “reboot” of the exchanges is being discussed and, if realized, could unlock “incredible value” for customers.
Separately, the bankruptcy judge acknowledged a letter sent Monday by a bipartisan group of U.S. senators questioning the independence of Sullivan & Cromwell LLP, the law firm guiding FTX through bankruptcy. Four senators wrote in their letter that Sullivan & Cromwell may be unable to conduct an independent investigation into FTX’s demise because the firm’s lawyers worked for the company while it was allegedly misusing customer funds.
Judge John Dorsey deemed the letter inappropriate and stated that it would have no bearing on his decisions in the chapter 11 case.
FTX was charged more than $8.5 million in legal fees by Sullivan & Cromwell prior to its bankruptcy. In court papers, the law firm stated that it is acting in the best interests of FTX and its stakeholders, and that its lawyers do not represent any outside party with an interest in the chapter 11 case that could create a conflict.