Crypto exchange FTX has filed for bankruptcy protection in the United States after it was unable to process a deluge of withdrawal requests earlier in the week.
On Thursday, the Securities Commission of the Bahamas froze the assets of FTX Digital Markets, a subsidiary of the embattled crypto exchange, in what is a first test case for the crypto regime of the country.
The financial regulator suspended the registration of the exchange that is headquartered in the Bahamas and had a provisional liquidator appointed by the local Supreme Court.
The powers of FTX directors have been suspended and no assets of the company, including both client and trust assets held by FTX, can be transferred or handled without the written approval of the provisional liquidator.
The commission said it is aware of public statements suggesting that clients’ assets were mishandled, mismanaged or transferred to FTX founder Sam Bankman-Fried’s trading firm Alameda Research.
“Based on the Commission’s information, any such actions would have been contrary to normal governance, without client consent and potentially unlawful,” it said.
The commission said it determined that the prudent course of action was to put FTX Digital Markets into provisional liquidation to preserve assets and stabilise the company.
Japanese financial authorities also moved to suspend local operations of FTX’s platform, while FTX’s Australian business was placed into administration.
The Cyprus Securities and Exchange Commission on Friday planned to suspend FTX.com’s European licence, Bloomberg reported.
US group files for bankruptcy
The subsequent bankruptcy filing in Delaware on Friday includes the separate FTX US, a separate crypto exchange for US customers, Alameda Research and about 130 other companies.
Bankman-Fried resigned as chief executive. Restructuring specialist John Ray III, who previously oversaw the Enron bankruptcy, has taken over as CEO.
“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximise recoveries for stakeholders,” Ray said in a statement.
“The FTX Group has valuable assets that can only be effectively administered in an organized, joint process,” he added.
The group’s Bahamas subsidiary FTX Digital Markets, Australian subsidiary FTX Australia, FTX Express Pay and LegderX, which trades as FTX US Derivatives are not included in the US filing.
Given the far-reaching ties of FTX, the group’s bankruptcy will reverberate through the industry and has already caused widespread fears of contagion as industry players assess their exposure.
Troubled crypto lender BlockFi, which was bailed out by FTX earlier this year, said before news of the bankruptcy filing it was no longer able to operate as usual due to a lack of clarity around FTX and suspended customer withdrawals.
Singapore crypto lender Hodlnaut said about 72% of its deployed digital assets on centralised exchanges were held with FTX but recovery of those digital assets is uncertain.
Broker Genesis disclosed its derivatives business has US$175 million in funds locked in a FTX trading account and will receive a $140 million equity infusion from its parent company Digital Currency Group.
SoftBank said it expects a $100 million loss from its investment in FTX.
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