Some investors of FTX, the collapsed crypto exchange, that has resulted in federal prosecution of its cofounder and former CEO, Sam Bankman-Fried, and his associates, now have hope to recover their lost funds.
The company’s officials handling its bankruptcy have recovered over $5 billion worth of liquid assets, including cash and digital assets, FTX’s bankruptcy lawyers said during a hearing on Wednesday.
The news now raises hope that creditors who lost money to the company’s implosion will be repaid. Federal prosecutors had earlier announced plans to seize at least $500 million worth of FTX-connected assets as part of their ongoing prosecution of Bankman-Fried.
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There have been arguments over how much of creditors’ fund and FTX’s assets were lost after the exchange filed for bankruptcy in November.
That disclosure significantly raises the estimated amount of funds FTX claims to hold. Last month, FTX lawyers submitted filings that showed the company and its affiliates had a total of $1.2 billion in cash, per CNN.
FTX went down with about $10 billion investors’ fund. The company’s new CEO, John J. Ray, said earlier that at least $8 billion of customer assets were unaccounted for in the “worst” case of corporate control he’d ever seen.
Before it filed for bankruptcy, Bankman-Fried had approached Binance CEO Changpeng Zhao, seeking a bailout fund. He said FTX needed about $9 billion to enable enough withdrawal liquidity for the exchange’s traders.
The company’s lawyers also said they had identified more than 9 million creditors, toppling the 1 million earlier estimate.
According to FTX attorney Adam Landis, the $5 billion figure doesn’t include any illiquid cryptocurrency assets. He told the court that the company’s holdings are so large that selling them would substantially affect the market, driving down their value.
FTX’s implosion threw the crypto industry into disarray late last year, driving the market value further down.
Bankman-Fried and his former associates Alameda Research CEO Caroline Ellison, and Gary Wang, are facing several criminal and civil charges by the US Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the federal government.
Both Wang and Ellison have pleaded guilty and are cooperating with prosecutors, while Bankman-Fried, last week, pleaded not guilty. He had, from the beginning, blamed FTX’s collapse on ignorance and oversight, an excuse that has been largely discarded.
FTX’s collapse has been attributed mainly to fraud and reckless spending of creditors’ funds, but it is also related to, among other things, a failure to correctly mark illiquid assets to market.
FTX executives, including Bankman-Fried and Ellison, borrowed against the value of the FTX-issued token FTT, per CNBC. Alameda controlled the vast majority of FTT coins circulating, similar to a publicly traded companies float, and could not have liquidated their position at full book value, CNBC noted.