Highlights include:
John Ray III is threatening to sue for the recovery of assets, including donations to politicians and charities;
SBF is demanding $500 million to pay his legal fees;
Anonymity has been granted to the top 50 creditors to spare them embarrassment;
Many creditors won't come forward as it requires a full ID check to make a claim.

The hunt for FTX’s missing riches

Bankruptcy courts are not built for Sam Bankman-Fried’s mess

The Economist 10 January 2023

On January 5th Sam Bankman-Fried turned up at the funeral of his own crypto empire. He lodged a complaint against ftx’s bankruptcy proceedings, demanding $500m in frozen assets earmarked for creditors. Mr Bankman-Fried wants the money in order to pay legal fees for his criminal trial, in which he is accused of sucking billions of dollars of customer deposits from the crypto exchange for his own use (he has pled not guilty).

The demand is an opening salvo in what will be a long, chaotic battle. America’s bankruptcy laws have evolved over centuries to pick apart regular businesses. Now, on the fly, lawyers must work out how to apply them to crypto companies. In November ftx filed for bankruptcy under Chapter 11, which allows a bankrupt firm to re-organise rather than liquidate. The process usually plays out as a legally refereed tussle between a company and its creditors. The firm, told by a court what it owes, tries to convince lenders to accept stakes in the business rather than cash. If successful, it emerges with less borrowing and a shiny new growth plan. If unsuccessful, it shuts up shop. A big restructuring might have 100 creditors. A long one lasts a year. A complex one takes at least a couple.

Counting investors and depositors, ftx has over a million creditors—making it, by this measure, the ugliest corporate carcass ever seen. The empire’s implosion has left 134 insolvent entities in 27 jurisdictions. They range from ftx Zuma, an exchange in rural Nigeria, to Good Luck Games, an online card-game developer. The proceedings could take a decade, and may turn up more allegations of wrongdoing. As he sorts the mess, John Ray III, Mr Bankman-Fried’s successor as boss of ftx, has become a de-facto federal investigator. At a recent congressional hearing he promised to recommend more suspects for criminal charges if he stumbles across candidates.

The bankruptcy court’s first task is to find those owed money. Creditors are usually keen to come forward. Not in bankruptcies dealing with crypto. For many, the attraction of storing wealth this way is its facelessness. Lodging a claim requires an id check, so creditors must decide quite how deep their desire for privacy runs. Investors, who include some of tech’s most illustrious funders, are also reluctant to fess up to their involvement. To coax them out of hiding, the court has—in a highly unusual move—agreed to keep FTX’s 50 biggest creditors under wraps.

At the same time, Mr Ray III is scrambling to locate assets. This involves constructing corporate accounts from what he calls the worst record-keeping he has ever seen. ftx did not even keep note of how much customers deposited. Billions of dollars were lost by Alameda, a sister trading firm. Until November 29th lawyers thought that at least there were very few external loans. Then BlockFi, another bankrupt exchange, demanded $500m in shares that ftx held in Robinhood, a share-trading platform, insisting ftx had put them up as collateral for borrowing.

So far, Mr Ray III has pieced together just a few billion dollars of assets. And finding assets is only half the battle—getting at them is harder still. In an early fracas, American and Bahamian authorities spent months sniping at one another, before agreeing to bring tokens worth at least $3.5bn into American proceedings. Mr Ray III is also hunting ftx’s donations. Mr Bankman-Fried gave freely to politicians and effective-altruist charities. ftx’s new boss has said he will sue for the money.

American courts are yet to complete a significant crypto restructuring. This poses problems. Crypto has been around for 15 years, but nobody can agree on what it is. Token swaps are recorded on virtual ledgers by software on a blockchain, which no single person controls. This does not fit with property law, which assumes people own things because the law says they do or they physically have them in hand. Stocks have certificates of ownership; chairs are sat on by their owners. In contrast, the law does not enforce crypto ledgers and recording something on a blockchain does not conjure a physical coin.

Thus even creditors that do come forward may not be compensated. When an exchange trading stocks goes under, customers are protected by the Uniform Commercial Code, a law that governs commercial transactions in America. ftx’s terms of use explicitly disregard this law. On January 4th the judge in another crypto bankruptcy ruled that some of the customers lack ownership rights over their deposits. ftx’s customers may have to wait years to find out what they will receive.

If a settlement is agreed upon, depositors face a final danger. Most of ftx’s recoverable value will probably be in crypto tokens. The one thing such tokens are not—lawyers and politicians agree—is currency, since money must be backed by a government. It seems that when the time comes to carve up ftx’s assets the court will have to dish out claims in dollars. This raises the question of which day’s exchange rate to use. ftx’s estate holds so many tokens that auctioning them could spark a firesale, burning the tokens’ market value.

Another route would be to sell accounts to a solvent exchange. That would avoid the need to squeeze cash out of tokens no one wants, but would keep debris from the worst embarrassment in crypto’s history floating around the industry for years to come—and require a buyer to be found. On January 5th American regulators intervened to stall a deal that would have seen Binance, the world’s largest exchange, take on $1bn in assets from Voyager, another bankrupt firm. There is one certainty from the proceedings to come. ftx will go down as it lived: in breathtaking chaos.

https://www.economist.com/finance-and-e ... ing-riches

I don't think you could have created a bigger mess if you had tried.

When the CEO could have been mistaken for a used toilet brush, you had to ask questions.

Buying the dip. #YOLO

I think one of the more interesting revelations is the one about the top 50 creditors getting anonymity. I wonder who is on that list and how much money they have spaffed up the wall?

Where can one buy BTC or eth in cambodia?
And not on an exchange

The internet?

[edit1:]
(and yes that's my facetious answer and typical of what you'll get from anyone in crypto, thus explaining why it can never be a currency, but instead just crap*. And yes I own some.)

* Charlie Munger's choice words.

[edit2: Actually I bought most of mine on Coinbase & then transferred to a hard wallet, which is totally safe**]

** Yarly

Just an update:

Bitcoin on december 22: 16'825 $ (date thread was created)
Bitcoin today March 15: 24'821

a 50% return in less than 3 months.

And no, I dont have any Bitcoins or similar.

Interesting story about a scam-firm called "iEarn Bot" ...

Seems the site's FB page was being run from Vietnam and Cambodia...

Any friends of you guys involved with this? Lol...

https://www.bbc.com/news/technology-64939146

A further charge against Sam Bankman Fried of FTX fame, but an interesting one.

It appears that wallets containing big money were frozen in China by their authorities (I didn't know they actually allowed any crypto).

These accounts must have contained an awful lot of money because the allegation is that SBF bribed Chinese officials $40 Million to unfreeze the accounts. This followed months of trying to do everything from using identification documents not related to SBF or Alameda, and also hiring lawyers to lobby for them. In the end, he had to pony up $40 million and get the money back.

This is going to be an interesting element of the trial when they name the officials involved.

The article is here in full which includes new bail conditions. It appears he has been misbehaving.

The US has accused former FTX chief executive Sam Bankman-Fried of paying a $40mn bribe to one or more Chinese government officials in a revised indictment filed in federal court in Manhattan on Tuesday.

Prosecutors allege Bankman-Fried sent the bribe in cryptocurrency to Chinese officials in order to regain access to trading accounts that had been frozen by law enforcement in the country. The accounts were linked to Alameda Research, FTX’s sister company.

The bribery charge was added to 12 counts already faced by the former FTX chief, whose exchange collapsed in November last year after it was unable to meet a wave of withdrawal demands from customers.

Bankman-Fried was initially charged with eight criminal counts in December, after being extradited from his home in the Bahamas, over what prosecutors called “one of the biggest financial frauds in American history”.

Last month, the government broadened its case against Bankman-Fried to include charges of securities fraud and conspiracy to commit bank fraud.

According to the latest indictment, Bankman-Fried repeatedly tried to unfreeze the accounts linked to Alameda Research, including hiring attorneys to lobby on the company’s behalf in China.

In addition, Bankman-Fried tried to use personal identifying information of several individuals that were not affiliated with FTX or Alameda in an attempt to transfer funds and circumvent the freeze orders put in place by Chinese authorities, prosecutors allege.

The indictment alleges that after months of failed attempts to unfreeze the accounts, Bankman-Fried directed the multimillion-dollar bribe.

On Bankman-Fried’s instruction, one Alameda employee sent crypto payment instructions for at least a portion of the bribe payment to other Alameda employees, according to the indictment.

By about November 2021, the indictment alleges, Bankman-Fried caused a bribe payment then worth roughly $40mn to be transferred from Alameda to a private crypto wallet.

At or around the time of the payment, the accounts were unfrozen, prompting Bankman-Fried to transfer additional tens of millions of dollars worth of cryptocurrencies.

Alameda then used the unfrozen accounts to fund additional trading activity.

A spokesperson for Bankman-Fried declined to comment.

The charge comes after a third former colleague, Nishad Singh, reached a plea deal with prosecutors last month.

Singh, a former head of engineering at FTX, joined former Alameda boss Caroline Ellison and FTX co-founder Gary Wang in agreeing to help the government build its case against the former CEO.

Bankman-Fried is on bail at his parents’ home in California, awaiting a trial provisionally set for October.

Separately on Tuesday, Judge Lewis Kaplan, who is overseeing the case, ordered Bankman-Fried’s bail conditions be changed, restricting him to the use of a monitored laptop and a phone that does not connect to the internet. The government had previously accused Bankman-Fried of attempting to contact a former FTX employee as well as John Ray, the new chief executive of FTX, and of using a virtual private network.

https://www.ft.com/content/738b22ff-168 ... ddc2966883

[quote]Sam Bankman-Fried convicted of fraud over FTX’s collapse[/quote]

His trial looked like a very one-sided affair and his evidence made him look like a krank. The FT have been providing good coverage of this.

FTX founder Sam Bankman-Fried was convicted of fraud and money laundering by a New York jury in a landmark criminal verdict that is likely to condemn the former crypto tycoon to decades in prison and bolster US authorities’ attempts to bring an unruly financial sector to heel.

The decision in the highest-profile cryptocurrency-related trial to date was delivered just after 7:40pm on Thursday, following less than five hours of deliberation by the jury’s nine women and three men over seven charges including wire fraud on FTX customers and conspiracy to commit securities fraud and money laundering. He was convicted on all counts.

A solemn Bankman-Fried stood motionless, facing the jury, and showed little emotion as the verdict was read out in the packed federal courtroom in Manhattan, while his parents Joe Bankman and Barbara Fried embraced each other in the gallery and lowered their heads, despondent.

Bankman-Fried, who will appeal against the verdict, will be sentenced on March 28. He would face 110 years in prison if he receives the maximum penalty on all counts on which he was convicted, although most defendants receive a lesser sentence.

https://www.ft.com/content/24d153b0-0c2 ... 93329bca52
https://www.theguardian.com/business/20 ... tx-alameda