FTX not to Relaunch its Cryptocurrency Exchange, Opts for Liquidation

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FTX has renounced its plans to relaunch its cryptocurrency exchange operations. FTX lawyer Andy Dietderich announced a recent Delaware bankruptcy court hearing. Citing an inability to secure the funds necessary for its revival, Dietderich stated that the company would instead go ahead with a liquidation process that could potentially pay back customers in full.

FTX Abandons Reestablishment

The decision to abandon the re-establishment of the FTX cryptocurrency exchange and instead opt for liquidation was announced by FTX attorney Andy Dietderich in a hearing in the US Bankruptcy Court for the District of Delaware. Dietderich revealed that discussions had been going on with potential investors for the past few months regarding a rebuild. But the money and effort required for such a process made it unfeasible.

Dietderich stated that FTX wasn’t what it initially appeared to be, and it lacked the fundamental technology and administration required for a successful business. At the hearing, he said, “FTX was an irresponsible sham created by a convicted felon. The costs and risks of creating a viable exchange from what Mr. Bankman-Fried left in a dumpster were simply too high.”

FTX’s Liquidation Efforts

FTX is now prioritising reimbursing customers with genuine claims as it is in the process of liquidating its various assets. Dietderich affirmed that the company has a strategy to recover all the losses despite being faced with several challenges. So far, this promise is at least somewhat substantiated as FTX has been able to collect more than $7 billion from property, cryptocurrency and other such assets under the guidance of new CEO John Ray III.

While this is positive news for customers, many are dissatisfied as any repayment will be made based on the cryptocurrency prices from November 2022, which is when FTX filed for bankruptcy. The cryptocurrency market has recovered since then. However, US Bankruptcy Judge John Dorsey quashed complaints regarding the issue stating that legally repayments must be made based on FTX’s value when it went bankrupt. He said, “I have no wiggle room on that. The Bankruptcy Code says what it says, and I am obligated to follow it.”

FTX and Sam Bankman-Fried Saga

FTX is a private company founded in May 2019 by Sam Bankman-Fried and Gary Wang. Headquartered in the Bahamas, FTX predominantly ran a cryptocurrency exchange and hedge fund. In February 2022, the company launched FTX US, a secondary division that allowed people in the US to trade through the cryptocurrency exchange.

FTX provided its customers with multiple choices in terms of products such as spot markets, derivatives, options and leveraged tokens. It also used sophisticated security measures such as two-factor authentication and KYC measures to keep its platform safe. After the launch of FTX US, the company saw a steady rise in popularity. It was able to get the backing of investors such as Lightspeed Venture Partners, Temasek and Paradigm. Several celebrities also became promotional partners including Stephen Curry and Kevin O’Leary. Furthermore, FTX purchased naming rights for multiple major sports venues.

However, things took a turn for the worse in late 2022 as reports started circulating about the mismanagement of funds and unethical financial practices by certain executives at FTX. As concerns grew, many customers started withdrawing their shares from the company. Binance, a major company in the cryptocurrency market soon followed suit and sold its FTX assets. Finally, unable to cope with the withdrawal volume, FTX filed for bankruptcy in Delaware in November 2022.

Following the bankruptcy announcement, Bankman-Fried resigned as FTX’s CEO. He was later arrested in the Bahamas and extradited to the US in December 2022. Bankman-Fried was initially charged with fraud and money laundering. The US Department of Justice and the US Securities Exchange Commission along with others claimed that the FTX administration drained funds and deceived customers and investors alike with incorrect financial data about the company. In addition, company funds were allegedly used for extravagant personal purchases such as yachts and real estate by Bankman-Fried. Despite pleading not guilty, Bankman-Fried was convicted of fraud, conspiracy and money laundering charges in November 2023. He is scheduled to face a second trial in March 2024 on additional charges of fraud and bribery, which could lead to a lengthy prison sentence.

FTX's Restructuring Efforts

The cryptocurrency market took a big hit following FTX’s bankruptcy. However, it is starting to recover as Bitcoin and other cryptocurrencies are seeing a rise in value since late 2022. As for FTX, CEO John Ray III has taken charge of the restructuring efforts at the company, after what he felt was a “complete failure of corporate control”. Ray has expertise in recovering funds from collapsing organisations, most notably with Enron. For FTX customers, things are looking brighter as $7.3 billion has been recovered in assets, increasing the likelihood of full repayment to all customers. Regarding FTX’s liquidation and asset recovery endeavour Dietderich said, “The situation has stabilised, and the dumpster fire is out.”

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