New Information Describes Magnitude of the Shortfalls Discovered at the FTX.COM and FTX.US Exchanges
WILMINGTON, Del., March 2, 2023 /PRNewswire/ — FTX Trading Ltd. and its affiliated debtors (together, the “FTX Debtors”) announced that they met with the Official Committee of Unsecured Creditors (the “UCC”) in their chapter 11 cases this morning and shared a presentation that will be filed on the docket in the chapter 11 cases today. The presentation describes for the first time publicly the magnitude of the shortfalls discovered in the fiat bank accounts and digital asset wallets associated with the FTX.com and FTX.US exchanges.
“This is the second in what the FTX Debtors anticipate will be a series of presentations as we continue to uncover the facts of this situation,” said John J. Ray III, the Chief Executive Officer and Chief Restructuring Officer of the FTX Debtors. “It has taken a huge effort to get this far. The exchanges’ assets were highly commingled, and their books and records are incomplete and, in many cases, totally absent. For these reasons, it is important to emphasize that this information is still preliminary and subject to change. We believe it is more important to provide transparency to stakeholders by making this information public now than to wait until we can achieve certainty.”
The presentation and information can be found on the docket of the chapter 11 cases and posted on the quick links section of the FTX Debtors Kroll site at https://cases.ra.kroll.com/FTX/.
Information about the Exchanges
The presentation describes the steps taken by the FTX Debtors to identify and inventory the wallets associated with the FTX.com and FTX.US exchanges. The presentation also provides information on how FTX’s prepetition management comingled assets, using FTX.com and FTX.US sweep wallets to store, borrow and lend digital assets for the proprietary account of the FTX Debtors and related parties, including employees, suppliers, vendors and business partners, as well as exchange customers. The presentation discloses the present view of the balances in the exchange wallets and associated fiat bank accounts as well as the corresponding amount of customer and related party claims.
At FTX.com, the presentation shows a massive shortfall. Using spot prices at the Petition Time, $2.2 billion of total assets have been located today in the wallets of the accounts associated with the FTX.com exchange, of which only $694 million constitutes “Category A Assets” (which are the most liquid currencies, such as fiat, stablecoin, BTC or ETH). Other assets at FTX.com include $385 million of customer receivables and substantial claims against Alameda Research LLC and related parties. The presentation shows a $9.3 billion net borrowing by Alameda Research LLC from the FTX.com wallets and accounts at the Petition Time.
The presentation shows a shortfall at FTX.US as well. Using spot prices at the Petition Time, $191 million of total assets have been located today in the wallets of the accounts associated with the FTX.US exchange, in addition to $28 million of customer receivables and $155 million of related party receivables. This compares to $335 million of customer claims and $283 million of related party claims payable. With respect to FTX.US, the presentation shows a $107 million net payable by FTX.US to Alameda Research LLC.
The presentation also provides information concerning daily deposits and withdrawals from both exchanges during the 90 days prior to the commencement of the chapter 11 cases for the exchanges.
Information about Total Liquid Assets
The presentation updates the information concerning the total amount of “liquid assets” at the FTX Debtors and their debtor and non-debtor subsidiaries disclosed on January 17, 2023. The total amount of these assets increased from $5.5 billion to $6.1 billion; in each case the digital assets are priced at Petition Time spot prices. This increase results primarily from digital asset pricing source adjustments and newly located digital assets including (i) $202 million of crypto held at Alameda; (ii) $125 million of stablecoin; and (iii) $57 million of crypto held at subsidiaries. “Liquid assets” as defined for purposes of the prior January 17 presentation included Category A Assets and FTT, and the last page of the presentation includes information to reconcile the January 17 information with the new method of categorization that excludes FTT from Category A Assets.
Nature and Limitations of the Presentation
The FTX Debtors believe the transparency provided through these presentations is important for stakeholders and the public, and to ensure that all stakeholders have roughly contemporaneous access to the preliminary information as it develops. However, the information in the presentation is preliminary and subject to material change. The analysis is further complicated by the incomplete nature of the books and records and financial information maintained by pre-petition management.
Importantly, it is not possible to calculate or predict customer recoveries based on the preliminary information in the presentation. Among other reasons:
- The presentation does not attempt to adjust for commingling of assets or insider access to assets, which may be the subject of future, material adjustments.
- The presentation does not attempt to identify whether any of the assets belong to any particular estate, or whether any customer or related party has a valid or allowable claim.
- Actual recoveries will depend on many facts and factors, including (a) the extent of other assets and liabilities of FTX Trading Ltd. and West Realm Shires Financial Services, Inc., (b) the nature of intercompany payables and receivables, (c) claims and causes of action, (d) the resolution of numerous legal issues, (e) recoveries from the liquidation, sale or reorganization of over a hundred companies comprising the FTX group globally and (f) fluctuations in the value of assets.
The FTX Debtors are represented by Sullivan & Cromwell LLP as legal counsel and are assisted by Alvarez & Marsal North America, LLC as financial advisor, Perella Weinberg Partners LP as investment banker, Quinn Emanuel Urquhart & Sullivan, LLP as special counsel and Landis Rath & Cobb LLP as Delaware counsel. The UCC is represented by Paul Hastings LLP as legal counsel, FTI Consulting as financial advisor, Jefferies LLC as investment banker and Young Conaway Stargatt & Taylor LLP as Delaware counsel.
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