FTX's New CEO Finds a "Complete Absence of Trustworthy Financial Information"

Bahamian FTX Liquidators Cite ‘Serious Fraud and Mismanagement’ in Court Filings

There are signs that “serious fraud and mismanagement” occurred at crypto exchange FTX, according to court filings made by the company’s Bahamian liquidators late Wednesday.

The crypto exchange, headquartered in the Bahamas, declared bankruptcy in the U.S. after revelations from CoinDesk regarding a blurring of lines with sister trading firm Alameda Research’s financials led to investor panic and significant outflows.

“The Joint Provisional Liquidators’ findings to date indicate that serious fraud and mismanagement may have been committed” with respect to the group, said the document filed in the U.S. Bankruptcy Court of the Southern District of New York. The documents were filed on behalf of Brian Simms, Kevin Cambridge, and Peter Greaves, who have been put in charge of winding up the company’s affairs in the Bahamas.

Interview: Fallen crypto CEO Sam Bankman-Fried opens up about FTX, Alameda Research, and his regrets

Last night, Sam Bankman-Fried DMed me on Twitter.

That was surprising. I’d spoken to Bankman-Fried via Zoom earlier in the summer when I was working on a profile of him, so I reached out to him via DM on November 13, after news broke that his cryptocurrency exchange had collapsed, with billions in customer deposits apparently gone. I didn’t expect him to respond — typically, people under investigation by both the Securities and Exchange Commission and the Department of Justice don’t return requests for comment.

Bankman-Fried, though, apparently wanted to talk. About how FTX and his hedge fund Alameda Research had gambled with customer money without, he claims, realizing that’s what they were doing. About who gets lauded as a hero and who’s the fall guy. About regulators. (“Fuck regulators.”) About what he regrets (“Chapter 11,” the decision to declare bankruptcy) and about what he would have done differently with FTX and Alameda (“more careful accounting + offboard Alameda from FTX once FTX could live on its own”).

Sam Bankman-Fried, Tom Brady and other FTX endorsers face class-action suit

A lawsuit filed by one of the country’s most prominent attorneys seeks to extract billions of dollars from a cryptocurrency executive as well as a star-studded cast of his 11 paid endorsers, including quarterback Tom Brady, supermodel Gisele Bündchen, comedian Larry David, NBA star Stephen Curry and tennis star Naomi Osaka.

The scope of the case filed Wednesday by David Boies, known for representing Al Gore in the 2000 Supreme Court case deciding the presidential election and Elizabeth Holmes in her Theranos fraud trial, is ambitious. It attempts to put former CEO Sam Bankman-Fried and numerous celebrities on the hook for persuading customers to purchase cryptocurrency through FTX, the crypto exchange that collapsed last week. The money in scores of FTX customer accounts is now frozen.

The suit did not include a figure but said that defendants were “responsible for the many billions of dollars in damages they caused.”

Elon Musk says he doesn’t want to be a CEO, walks back SEC insultsAt a time when Tesla shares were on a massive upswing, Musk had written in a tweet on July 2, 2020: “SEC, three letter acronym, middle word is Elon’s.” The message was widely read as having a vulgar meaning and comprising a major insult to the agency.

On Wednesday in the Delaware court, attorneys asked him about this tweet and Musk claimed it had been widely misunderstood. The Tesla CEO said in court that he meant the initials to stand for “Save Elon’s Company” but the tweet was “interpreted differently.”

FTX’s Collapse Leaves Employees Sick With Anger

The implosion of FTX was financially ruinous for some employees. Outside the U.S., many staff were paid via direct deposit to their accounts on the cryptocurrency exchange, so when FTX froze customer withdrawals last week, these employees couldn’t access their funds, people familiar with the matter said.

“You have to understand just how devastated the average FTX employee was,” said Nathaniel Whittemore, a former FTX marketing specialist who quit last week. “Not only did it seem they might be out of job, but they also were potentially facing the total loss of their savings. All I could think of was rage and white-hot anger.”

It was also common for employees to hold FTX equity or get part of their pay in the exchange’s FTT tokens, the people said. Last fall, Mr. Bankman-Fried offered employees the opportunity to buy shares in FTX at a 50% discount to what venture capitalists had paid in a recent funding round, the people said. Now, that equity is worthless and the price of FTT has crashed 90% since the start of November.

FINRA Targets Crypto-Related Communications

FINRA has announced that it is conducting a targeted examination of broker-dealer practices related to retail communications about “crypto asset” products and services. As part of this sweep, FINRA is asking broker-dealers for all retail communications that were distributed or made available by a broker-dealer or its affiliates on behalf of the broker-dealer that refer or relate to crypto assets or services involving crypto transactions or the holding of cryptocurrency during the period of July 1, 2022, to September 30, 2022.

Elizabeth Holmes Says US Wrong to Suggest She Marry Partner to Pay Debts

Prosecutors said in their sentencing recommendation memo that the amount “may dwarf her ability to pay,” noting that her “modest assets” are outweighed by $450,000 in loans for her civil settlement with securities regulators and more than $30 million in liabilities for legal fees.

But the government also said the US Probation Office reported that Holmes’s family “appears to have substantial assets,” and that the former CEO “is managing her affairs to avoid subjecting their assets to any judgment in this case.”

Holmes said in Monday’s filing that her “financial condition should not come as a surprise.”

“The reason Ms. Holmes has essentially no assets is that she was barely an adult when she left Stanford to start the company, she received a regular salary and did not cash out her shares, she has been unable to work since 2018,” her lawyers wrote, adding that after she was indicted that year, she was unable to invest what assets she did have because her trading accounts were repeatedly closed by financial institutions.

Gary Gensler under pressure over FTX debacle

The implosion of FTX has become the financial scandal of the decade, and U.S. lawmakers are already demanding to know who’s to blame. On Tuesday, the Senate banking committee grilled members of the Fed and other financial agencies about how FTX could have torched billions of customer and investor funds without anybody noticing. The hearing produced some finger-pointing and calls for new laws to regulate crypto, but the real fireworks are likely to begin when Congress questions Securities and Exchange Commission Chair Gary Gensler—the country’s top financial cop—about the FTX debacle.

“He’s in a corner,” one Washington insider who is plugged into the crypto scene told me, saying Congress will be keen to grill Gensler over why his agency missed a massive fraud that took place right under its nose. Some lawmakers are also likely to ask the SEC chair why, only a month before FTX imploded, he was instead engaged in a highly theatrical enforcement action against Kim Kardashian over a minor token sale from 2021. The headaches will only mount after the Republicans take control of the House in January and with it subpoena power. Rep. Tom Emmer (R-Minn.), a member of GOP leadership, has already signaled he is prepared to investigate Gensler over an alleged plan to secure a regulatory monopoly in the U.S. for FTX after meeting with CEO Sam Bankman-Fried in March.