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Lawyers Detail the ‘Abrupt and Difficult’ Collapse of FTX in First Bankruptcy Hearing

LEON NEAL

“You have witnessed probably one of the most abrupt and difficult collapses in the history of corporate America,” an attorney for FTX said during the company’s first bankruptcy hearing in Delaware on Tuesday.

James Bromley of Sullivan and Cromwell, representing FTX, detailed the company’s rise and collapse in a brief presentation during the hearing, explaining how the company fell apart within the course of two weeks after a CoinDesk report showed that Alameda Research, a subsidiary of the overall FTX group, held an unexpectedly large amount of FTT tokens, issued by FTX itself.

There are over 100 different debtors tied to the FTX group that filed for bankruptcy, another attorney said.

Bromley called the case an “unprecedented matter,” tacitly acknowledging the chaos of FTX’s bankruptcy, which saw a hack the night it filed for bankruptcy and several days before typical first-day filings were available.

The new team at FTX, including new CEO John Ray III, has “assembled a team of investigators,” which includes former enforcement officials with the Securities and Exchange Commission, Commodity Futures Trading Commission and former prosecutors, Bromley said. FTX has also retained crypto analytics firm Chainalysis to help it investigate the company’s holdings.

Bromley also acknowledged the number of investigations into FTX.

"We have received requests I would say – some might say demands – from the U.S. Congress, both from the Senate and the House [of Representatives] to have Mr. Ray appear during the month of December,” he said.

The House Financial Services Committee and the Senate Agricultural Committee have both announced hearings into FTX’s collapse next month.

‘Personal fiefdom’

Bromley described the FTX empire – at its height valued at $32 billion – as the “personal fiefdom of Sam Bankman-Fried,” the former CEO of the exchange. The lawyer told the court that Bankman-Fried and a small group of executives ran the company “with a lack of corporate controls that none of us in the profession … have ever seen.”

The attorney questioned some of FTX’s expenditures, saying that one of the U.S. entities spent around $300 million on real estate in the Bahamas – homes and vacation homes for members of FTX’s leadership team.

Bromley said that when Bankman-Fried reluctantly handed over the reins to FTX’s new CEO, former Enron cleanup man John Jay Ray III, it allowed those left at the company to, “for the first time, really see under the covers and recognize that the emperor had no clothes.”

Though Bromley did not identify Bankman-Fried by name, he told the court that FTX “was in the control of a small group of inexperienced and unsophisticated individuals, and unfortunately, the evidence seems to indicate that some or all of them are also compromised individuals.”

“A substantial amount of [FTX’s] assets have either been stolen or are missing,” Bromley said.