In a bankruptcy court filing, FTX's restructuring team warned that both FTX.com and FTX US were very short of what it owes customers, and suggest big clawback battles may be coming.
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FTX's bankruptcy management has revealed details of the $5.5 billion in liquid assets it has found, and suggested that some big clawbacks may be coming.
Despite that substantial increase over the $1 billion it initially reported finding, FTX US and its much larger international sibling FTX.com are both facing "a substantial shortfall of digital assets," according to a statement.
While management is "making important progress in our efforts to maximize recoveries" it is still very preliminary and subject to change, warned John Ray III, the chief executive officer and chief restructuring officer of the FTX Debtors. He added:
"It has taken a Herculean investigative effort from our team to uncover this preliminary information."
FTX's former CEO and founder Sam Bankman-Fried is facing eight counts including fraud and conspiracy for allegedly giving $10 billion in FTX customers' funds to cover trading firm Alameda Research's losses without the right to do so. Several of his top executives have pleaded guilty and are set to testify against him, federal prosecutors have said.
Crunching the Numbers
The revelation came as part of a presentation filed with the federal bankruptcy court in Delaware outlining the $5.5 billion in liquid assets found by the new management team, which calls itself FTX Debtors in court documents.
That includes $1.7 billion in cash, $3.5 billion in various cryptocurrencies and $300 million in securities. Those numbers do not include the 56 million shares of trading app Robinhood valued at $456 million that Bankman-Fried bought with a loan from Alameda Research in May.
Only $1.6 billion in digital assets are connected to FTX.com, and just $181 million at FTX US — half of which was stolen in the post-bankruptcy hack.
While the shares were seized by the U.S. Department of Justice this month, there are several claims on them, notably by bankrupt crypto lender BlockFi which has said they were collateral for a $600 million loan. Bankman-Fried, who has said he is innocent, also claimed the shares as his personal property, saying in a Jan. 12 Substack post he would give "nearly all" of it to the customers who lost money in FTX's collapse — after using it to pay his legal bills.
Billions in Illiquid Investments
Beyond that $5.5 billion in liquid assets that the FTX Debtors have uncovered, "over 300 prepetition investments with book value of approximately $4.6 billion."
But these are venture capital investments. As a result, it warned in big red letters, the "recoverable value [is] likely to be materially lower than acquisition value."
However, that does not include four large FTX subsidiaries which are solvent and were not included in the bankruptcy filing: U.S. crypto derivatives exchange LedgerX; U.S.-based clearing broker Embed; the FTX EU exchange; and FTX JP, which includes both the FTX Japan and FTX Singapore exchanges.
Nor does it include 36 properties in The Bahamas, purchased for a combined $253 million.
Clawbacks Coming
Beyond that, the presentation revealed that FTX's new management is "reviewing all historical transactions conducted by pre-petition management."
As in, reviewing to see if they will be able to claw it back.
These date to 2020, and include hundreds of mergers and acquisition deals, as well as other transactions. But the petition calls out six in particular.
First of all, there is the $2 billion in loans to company insiders. Then there is the 56 million shares of Robinhood, which is valued at $456 million and has also been claimed by bankrupt crypto lender BlockFi, which says they were pledged as collateral for a loan that was not repaid. In one of his more outrageous moves, Bankman-Fried has also laid claim to them.
Next comes $2.1 billion FTX paid Binance to repurchase in Series A shares acquired when Binance invested in FTX. CoinMarketCap is owned by Binance.
Then there are two transactions made within the 90-day "preference period" in which a debtor can claw back payments made to third parties. One is a $400 million investment in Modulo Capital. The other is the $446 million paid to crypto lender Voyager Digital — which is also in bankruptcy.
Beyond that there's the joker in the pack: $93 million in U.S. political donations made between March 2022 and November 2022. Those were made to some 196 Representatives and Senators, according to CoinDesk.
