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FTX lawyer calls this case ‘a different sort of animal’ in first bankruptcy hearing

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Lawyers for collapsed crypto exchange FTX said on Tuesday, in the company’s first bankruptcy hearing, that regulators from the Bahamas, where FTX was headquartered, have agreed to consolidate proceedings in Delaware.

FTX’s lawyers, who were brought in by new leadership to handle restructuring, filed an emergency motion last week to secure the move to the U.S. The hearing on Tuesday was the initial step in the resolution of the largest cryptocurrency bankruptcy on record.

“What we are dealing with is a different sort of animal,” said FTX counsel James Bromley. “Unfortunately, the FTX debtors were not particularly well run, and that is an understatement.”

FTX lawyers confirmed earlier reports that the Southern District of New York’s Cyber Crimes unit has begun an investigation into the matter. FTX lawyers have also made reference to cyberattacks, suggesting there were multiple attacks beyond the $477 million hack that occurred shortly after the company entered bankruptcy on Nov. 11. In that attack, hackers extracted ether out of FTX wallets.

The central challenge for the new team is “working to bring order to disorder,” Bromley told the court. After introducing his fellow counsel, Bromley dove into what FTX has been doing to understand the complex morass of data and finances left behind by FTX and founder Sam Bankman-Fried, who was replaced by restructuring expert John Ray III.

FTX had been valued by private investors at $32 billion earlier this year, and Bankman-Fried was making himself out to be an industry savior during the crypto winter.

“The FTX situation is the latest and the largest failure in this space,” Bromley said. “There was effectively a run on the bank, both with respect to the international exchange […] as well as the U.S. exchange. At the same time that the run on the bank was occurring, there was a leadership crisis […] The FTX companies were controlled by a very small group of people, led by Mr. Sam-Bankman-Fried. During the run on the bank, Mr. Fried’s leadership frayed, and that led to resignations.”

FTX has just begun to implement “standard” risk and data management practices, he said. As part of the process, lawyers had earlier to approve roughly $1 million in salary expenses for existing FTX employees.

FTX lawyers said they’ve established four silos for the company’s assets and various entities. They are:

  • The WRS (West Realm Shires) silo, which controls and encompasses U.S. holdings.
  • The Alameda silo, which includes Alameda Research, Bankman Fried’s now defunct hedge fund.
  • The venture silo, which invested in crypto companies and startups.
  • The dot-com silo, which encompasses the international business, the bulk of FTX’s deposits.

Bromley said the asset recovery and protection efforts encompass not just crypto assets and currency, but “information.” The company has also brought on independent directors for the first time ever.

“A substantial amount of assets have either been stolen or missing,” Bromley said.

This is a developing story. Please check back for updates.

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