FTX will sell or rebuild global empire, CEO says

FTX’s new CEO said Saturday that the failed cryptocurrency exchange wants to sell or restructure its global empire, even as Bahamian regulators and FTX dispute in court filings and press releases whether the bankruptcy should proceed in New York or Delaware.

“Based on our research over the past week, we are pleased to learn that many of FTX’s regulated or licensed subsidiaries in the United States and abroad have solvent balance sheets, responsible management and valuable franchises,” said FTX CEO John Ray. in his statement.

Ray, who replaced FTX founder Sam Bankman-Fried when the company filed for Chapter 11 bankruptcy protection on Nov. 11, added that in the coming weeks it was a priority to “explore a sale, recapitalization or other strategic transaction related to these.” subsidiaries and other companies we identify in the course of our business.”

Ray’s announcement came amid a flurry of filings in Delaware’s bankruptcy court on Saturday morning. In those documents, FTX requested permission to pay third-party vendors, consolidate bank accounts and create new accounts.

The exact timing of the possible sale is unclear. The FTX said it has not set a specific timetable for the completion of this process and “does not intend to disclose further developments unless we determine that further disclosure is appropriate or necessary.”

Both the FTX and the Bahamas securities regulator are seeking jurisdiction over the bankruptcy proceedings in two different US courts. Last week, Bahamian regulators admitted to the practice in a press release after FTX lawyers accused them of doing so in an emergency court filing, potentially transferring hundreds of millions of “digital assets” from FTX custody to themselves.

Ray singled out some of the company’s healthier subsidiaries for praise. One example was LedgerX, a derivatives platform regulated by the Commodity Futures Trading Commission. LedgerX was one of the few FTX-related properties that was not part of the bankruptcy proceedings and is still operating today. The platform, which FTX acquired in 2021, allows traders to buy options, swaps and futures on bitcoin and ethereum.

FTX’s new CEO has asked employees, vendors, customers, regulators and government stakeholders to “be patient” with them.

FTX said in a filing that there could be more than a million creditors in this Chapter 11.

FTX and its accountants have identified 216 bank accounts in 36 banks with positive balances globally. Cash balances across all businesses were approximately $564 million, of which $265.6 million was held by LedgerX on a restricted basis.

FTX advocates also want to implement a “cash pooling system” by combining all the funds of each different FTX entity into one consolidated balance sheet and new bank accounts that the FTX is currently in the process of opening.

It should be noted that FTX lawyers wrote that “they work closely and will continue to work”. [existing FTX banks] ensure that previous authorized signatories do not have access to any previous FTX accounts that will continue to be used. Previous reports and court documents have shown that Sam Bankman-Fried had near-absolute control over cash management and account access.

FTX’s bank accounts reflect the global influence of its crypto-asset empire. Institutions in Cyprus, Dubai, Japan and Germany held a wide range of global currencies. FTX subsidiaries had more than a dozen accounts with Signature Bank, an American institution that has taken aggressive steps to serve cryptocurrency clients in 2021. Major American banks are not listed except for one Bank of America account for Blockfolio. Blockfolio was acquired by FTX in the summer of 2020.

In another filing, FTX lawyers moved to obtain $9.3 million in what FTX called “critical” vendor payments. No list was provided, but the FTX action established criteria for “critical vendor” status.

In good news for clients, FTX attorneys have filed a lawsuit to redact “certain confidential information” including the names and “all associated personal information” of FTX clients. “Distribution to the public [FTX’s] can provide a customer list […] Competitors are given an unfair advantage to contact and poach their customers,” the document reads, potentially jeopardizing FTX’s ability to sell its assets or businesses.

FTX lawyers want to continue the process in Delaware. Bahamas regulators, on the other hand, argue that they do not recognize the jurisdiction of Chapter 11 proceedings and want to file a Chapter 15 proceeding in New York.

Chapter 15 is the path of the bankrupt hedge fund Three Arrows Capital. The detonation of the Three Arrows caused a spiraling crisis that brought down Voyager, Celsi, and eventually the FTX.

The Chapter 11 process that FTX is seeking would allow the company to be restructured or sold to the highest bidder, though it’s unclear who that might be. Rival exchange Binance initially made an offer before pulling it. This turnaround deepened the liquidity crisis at FTX and revealed a multi-billion dollar gap.

The FTX’s first bankruptcy court hearing is scheduled for Tuesday in Delaware.

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