Crypto exchange FTX has filed for US bankruptcy proceedings and founder Sam Bankman-Fried has stepped down as CEO in a stunning downfall that has sent shock waves through markets and drawn calls for better regulation of the digital industry.
The distressed crypto trading platform had been struggling to raise billions in funds to stave off collapse after traders rushed to withdraw $US6 billion ($A8.9 billion) from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.
The company said in a statement shared on Twitter on Friday that FTX, its affiliated crypto trading firm Alameda Research and about 130 other companies have commenced voluntary Chapter 11 bankruptcy proceedings in Delaware.
FTX had raised $US400 million from investors in January, valuing the company at $US32 billion.
It attracted money from investors such as Singapore state investor Temasek and the Ontario Teachers’ Pension Plan as well as celebrities and sports stars.
Bankman-Fried, 30, known for his trademark shorts and T-shirt attire, has morphed from being the poster child of crypto’s successes to the protagonist of the industry’s highest-profile blow-up.
“The shock was that this guy was the face of the crypto industry and it turned out that the emperor had no clothes,” Thomas Hayes, managing member at Great Hill Capital LLC in New York, said.
The week’s turmoil hit already-struggling cryptocurrency markets, sending bitcoin to two-year lows.
Bitcoin dropped after FTX’s announcement and was down 4.3 per cent at $US16,803 on Friday afternoon.
Shares of cryptocurrency and blockchain-related firms also dropped on the news.
FTX’s token FTT plunged 30 per cent on Friday to $US2.57, facing an 88 per cent weekly loss.
Bankman-Fried, whose net worth was estimated as high as $US26.5 billion by Forbes a year ago, repeatedly apologised.
“I’m really sorry, again, that we ended up here,” he said in a series of tweets.
Bankman-Fried did not respond to requests for comment.
In its bankruptcy petition, FTX Trading said it has $US10 billion to $US50 billion in assets, $US10 billion to $US50 billion in liabilities and more than 100,000 creditors.
John J. Ray III, a restructuring expert, has been appointed to take over as CEO.
“The next question is how wide of a contagion effect this is going to have on other exchanges and where the next potential losses can occur,” said John Griffin, founder of Integra FEC, which consults on financial fraud investigations.
FTX was scrambling to raise about $US9.4 billion from investors and rivals, Reuters reported citing sources, as the exchange sought to save itself after customer withdrawals.
“The Chapter 11 filing is a necessary step to allow the company to assess the situation and develop plans to move forward for the benefit of stakeholders,” Ray said in a Slack memo to FTX staff seen by Reuters.
Ray, 63, oversaw the liquidation of Enron after its bankruptcy filing and served as the senior officer of what became Enron Creditors Recovery Corp.
He also oversaw the bankruptcy restructuring at Nortel Networks.
He did not respond to a request for comment.
Some investors, including Sequoia and SoftBank, had already marked FTX investments to zero.
SkyBridge Capital is working to buy back its FTX stake, the alternative investment firm’s founder, Anthony Scaramucci, said in an interview with CNBC on Friday.
The reverberation went beyond the financial markets where the exchange has a significant presence, with the Mercedes Formula One team suspending its partnership agreement ahead of the season’s penultimate race in Brazil.
As FTX’s troubles mounted, regulators around the world stepped in.
FTX is under investigation by the US Securities and Exchange Commission, the US Justice Department and the Commodity Futures Trading Commission, according to a source familiar with the investigations.
FTX Australia called in administrators on Friday, the Australian Financial Review reported, citing a company statement.
The Securities Commission of the Bahamas has frozen assets of FTX Digital Markets, an FTX subsidiary.
“Once Binance walked away from buying FTX after only 24 hours of due diligence the writing was on the wall for FTX,” Antoni Trenchev, co-founder of crypto lender Nexo, said.
“Now we enter the next phase of the fallout, where we witness the second order effects and discover which entities were exposed to FTX and Alameda.”