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FTX scraps plan to revive exchange and will repay billions to customers

FTX scraps plan to revive exchange and will repay billions to customers

January 31, 2024

In a significant development, FTX has officially abandoned its efforts to revive its cryptocurrency exchange, opting instead for the liquidation of all assets and the subsequent return of funds to customers. The announcement came from FTX attorney Andy Dietderich during a bankruptcy court hearing in Delaware on Wednesday.

Negotiations spanning several months with potential bidders and investors failed to yield results, as none were willing to inject sufficient capital for the reconstruction of the exchange, according to Dietderich. This revelation shed light on the underlying issues within FTX, exposing the fact that founder Sam Bankman-Fried had not established the necessary technology or administration to sustain the company as a viable business.

Bankman-Fried, who has been convicted on fraud charges related to FTX, now faces the prospect of significant prison time. Dietderich criticized FTX, describing it as an "irresponsible sham" created by a convicted felon, highlighting the challenges and risks of transforming the remnants left by Bankman-Fried into a viable exchange.

The company has shifted its focus to liquidating assets to repay customers whose cryptocurrency deposits were locked when FTX filed for bankruptcy in November 2022. FTX claims to have recovered over $7 billion in assets and has secured agreements with government regulators, who agreed to wait until customers are fully repaid before attempting to collect on approximately $9 billion in claims.

Despite expressing an intent to fully repay customers, FTX has faced criticism from dozens of customers who argue that the use of November 2022 cryptocurrency prices for repayment calculations is unfair. Bitcoin, for example, has seen a significant increase in value since then.

In November, a Manhattan federal jury found Bankman-Fried guilty on seven counts of wire fraud and conspiracy to launder money. Prosecutors revealed that he siphoned "stolen funds" to enrich himself and support high-risk investments, including political contributions and celebrity endorsements. Bankman-Fried's extravagant spending, such as $200 million on Bahamas property, exacerbated Alameda's budget shortfall as the crypto market crumbled in 2022.

Accusations of swindling FTX customers out of approximately $10 billion extended from 2019 to November 2022. Prosecutors argued that the liquidity crisis leading to FTX's collapse resulted from lending customer funds to Alameda Research, FTX's sister hedge fund, without proper disclosure.

Bankman-Fried admitted to "large mistakes" in managing the exchange during his testimony, acknowledging the absence of a risk management team. The sentencing hearing, where he faces a potentially lengthy prison term, is scheduled for March 28, according to US District Judge Lewis Kaplan.