FTX Trading Ltd – The FTX Group Files Chapter 11 with Over $10bn in Liabilities; Sam Bankman-Fried Resigns as CEO with John J. Ray III Stepping Into CEO Role

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[Developing Story] November 11, 2022 – FTX Trading Ltd. (dba FTX.com), West Realm Shires Services Inc. (dba FTX US), Alameda Research Ltd and approximately 130 other affiliated companies (together, the "FTX Group" or the "Debtors") have filed for bankruptcy in Delaware (Judge John T. Dorsey). The Debtors’ lead petition notes over 100,000 creditors; estimated assets between $10.0bn and $50.0bn; and estimated liabilities between $10.0bn and $50.0bn. The Debtors are represented by Adam G. Landis of Landis Rath & Cobb LLP. Other board-authorized engagements include Alvarez & Marsal as financial advisor.

According to an announcement released on Twitter, Sam Bankman-Fried has resigned as chief executive officer and John J. Ray III has been appointed to replace him.

In the Twitter statement, the Debtors noted that the bankruptcy filing was done in "order to begin an orderly process to review and monetize assets for the benefit of all global stakeholders.''

John J. Ray III commented: “The FTX Group has valuable assets that can only be effectively administered in an organized, joint process. I want to ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder that we are going to conduct this effort with diligence, thoroughness and transparency.”

The following subsidiaries are not included in the Chapter 11 proceedings: LedgerX LLC, FTX Digital Markets Ltd., FTX Australia Pty Ltd. and FTX Express Pay Ltd.

In a hastily drafted “Omnibus Corporate Authority” attached to the Debtors' lead Petition, Sam Bankman-Fried authorized the appointment of John J. Ray III as CEO… the appointment of Stephen Neal “(if willing to serve) as Chairman of the Board…and one to three other individuals chosen by the CEO and not affiliated with me or the CEO as new directors of Alameda Research Ltd.”

Events Leading to Chapter 11 Filings

A motion filed by the Debtors seeking approval to modify creditor list requirements [Docket No. 9], one of only two first-day requests filed as of November 15th, gives a preliminary summary of the days leading up to and just after the filing, providing, "The events that have befallen FTX over the past week are unprecedented. Barely more than a week ago, FTX, led by its co-founder Sam Bankman-Fried, was regarded as one of the rnost respected and innovative companies in the crypto industry. The Debtors operated the world's second largest cryptocurrency exchange (through its F-TX.us and FTX.com platforrns), operated one of the largest market-makers in digital assets (through Alarneda Research LLC and its affiliates), and conducted diverse private investment and other businesses.

FTX faced a severe liquidity crisis that necessitated the filing of these cases on an emergency basis last Friday. Questions arose about Ml. Bankman-Fried's leadership and the handling of FTX's complex array of assets and businesses under his direction. As the situation became increasingly dire, Sullivan & Cromwell and Ãlvarez & Marsal North America, LLC ('Alvarez & Marsal') were engaged to provide restructuring advice and services to FTX.

At approximately 4:30 a.m. on Friday, November 11, after consultation with his own legal counsel, Mr. Bankman-Fried ultimately agreed to step aside, resulting in the appointment of John J. Ray III, an experienced restructuring executive, as Chief Executive Officer. Mr. Ray was delegated all corporate powers and authority under applicable law, including the power to appoint independent directors and commence these cases on an emergency basis. These cases were commenced soon thereafter early Friday morning, instituting the worldwide automatic stay codifìed in I I U.S.C. Section 362.

The statutory stay and its enforcement are critical to ensuring that FTX, under the leadership of Mr. Ray, can secure and marshal its assets, and conduct an orderly process under centralized management to reorganize or sell FTX's complex array of businesses, investments and property around the world for the benefit of its stakeholders.

Immediately upon appointment, Mr. Ray began working with FTX's external legal, turnaround, cybersecurity and forensic investigative advisors to secure customer and debtor assets around the world, including by removing trading and withdrawal functionality on the exchanges and moving as many digital assets as possible to a new cold wallet custodian while simultaneously responding to a cyberattack that occurred on the Petition Date.

In addition to Mr. Ray. new independent directors with appropriate experience have been appointed at each of the main parent companies in the FTX group to ensure proper governance throughout the Chapter 1l process, as follows:

  • The Honorable Joseph J. Farnan, Jr. at FTX Trading Ltd., who will serve as Lead Independent Director;
  • Matthew A. Doheny at FTX Trading Ltd.;
  • Mitchell I. Sonkin at West Realm Shires Inc.;
  • Matthew R. Rosenberg at Alameda Research LLC; and
  • Rishi Jain at Clifton Bay Investments LLC.

The appointment of Mr. Ray and the independent directors ensures that the Debtors can navigate the chapter I I process independent of any conflicts and involvement in FTX's prepetition activities.

The Debtors have engaged Alvarez & Marsal as proposed financial advisor. An Alvarez & Marsal team on the ground is reviewing the Debtors' books and records and assisting with the preparation of bankruptcy disclosures. In addition, the Debtors have engaged investigative, forensic and cybersecurity experts to work with the team at Sullivan & Cromwell, which includes lawyers with expertise in regulated financial institutions, cybercrime and related investigations. There is substantial interest in these events among regulatory authorities around the world. The Debtors' representatives have been in contact over the past 72 hours with the U.S. Attorney's Office, the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, and dozens of Federal, state and international regulatory agencies.

As stabilization of the business continues, Mr. Ray and the FTX professionals are moving to the next phase. The Debtors are preparing requests for necessary relief from the Court in order to move these cases forward in the most organized and effrcient manner possible under the unprecedented circumstances. This will necessarily require some additional time. but the Debtors are committed to maximizing value for stakeholders and determining the future of FTX. Facts are still developing and future filings will update and supplement this information."


On Wednesday November 9th Changpeng Zhao's ("CZ") Binance announced that that it was pulling out of a deal to acquire the Debtors which it had only announced 24 hours earlier, with Binance claiming in the interim period to have progressed its diligence to the point where it had lost confidence in the Debtors’ business practices and claims as to assets. It also cited previously public investigations by US financial regulators (SEC and CFTC, with the SEC apparently showing renewed interest in FTX after the Binance offer was announced on Tuesday). “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance said in a statement on Wednesday. 

As to that diligence, many will be shaking their heads as to the extraordinary pace of developments and the decision of Binance CEO Changpeng Zhao to pull the trigger on an offer for his rival. Reports have Changpeng Zhao reaching an agreement to buy FTX and backstop FTX's customer deposits following just a few hours of negotiations on Tuesday. “Before that, I had very little knowledge of the internal state of things at FTX,” Zhao provided in an internal memo to his staff on Wednesday.

Voyager Sale Agreement

FTX’s Chapter 11 filing is likely to have a significant impact on the Voyager Digital Holdings cases, as the Court hearing the Voyager cases issued an order on October 20, 2022 authorizing those Debtors to enter into an $1.4bn asset purchase agreement (“APA”) with West Realm Shires Inc. (“FTX US” or “Purchaser”) in respect of the sale of substantially all of the Debtors’ assets [Docket No. 581]. An amended APA dated as of October 20, 2022 is attached at Docket No. 582.

On November 11, 2022, Voyager said in a press release: "Voyager Digital Ltd. ('Voyager' or the 'Company') (OTC Pink: VYGVQ) (FRA: UCD2) and the Voyager Official Committee of Unsecured Creditors (UCC), which represents the interests of the general unsecured creditors, today announce that the company is evaluating strategic options as a result of the Chapter 11 filing by FTX Group. The no-shop provisions of the Asset Purchase Agreement between Voyager and FTX US are no longer binding.

For this reason, Voyager has reopened the bidding process for the company, and is in active discussions with alternative bidders. Voyager and the UCC are moving with all due care and deliberate speed to identify an alternative plan of reorganization consistent with the core objective throughout this process: maximizing the value returned to customers and other creditors.

It is important to note that Voyager did not transfer any assets to FTX US in connection with the previously proposed transaction. FTX US previously submitted a $5 million "good faith" deposit as part of the auction process, which is held in escrow."

The purchase price under the West Realm Shires APA is largely comprised of value ascribed to the Debtors' cryptocurrency "which at current market prices is estimated to be $1.311 billion.” FTX US’s bid is valued at approximately $1.422 billion, comprised of (i) the fair market value of all Voyager cryptocurrency at a to-be-determined date in the future, plus (ii) additional consideration that is estimated as providing approximately $111 million of incremental value.

The approval of the actual sale to FTX was conditioned on confirmation of Voyager's Plan.

Missing Funds Investigation

The Wall Street Journal reported on November 13th, "Bankrupt cryptocurrency exchange FTX is probing a potential hack and asked customers to stay off the FTX website, the company said. More than $370 million worth of crypto funds appears to be missing, according to crypto analytics firm Elliptic Enterprises Ltd.

A rival crypto exchange said Saturday it knew the identity of the alleged hacker and would help authorities in their investigation.

The potential hack occurred Friday after FTX filed for bankruptcy. Ryne Miller, FTX US's general counsel, said in a Saturday tweet that FTX and FTX US had started moving all digital assets to cold storage – crypto wallets that aren't connected to the internet – after the bankruptcy filing.

FTX is 'investigating abnormalities with wallet movements related to the consolidation of FTX balances across exchanges,' Mr. Miller said on Twitter. He called the movements unauthorized transactions and said the facts are still unclear. FTX will 'share more info as soon as we have it,' he said.

A post in the exchange’s official Telegram channel called the fund flows a hack.

'An active fact review and mitigation exercise was initiated immediately in response,' said John Ray, chief restructuring officer and chief executive of FTX. 'We have been in contact with, and are coordinating with law enforcement and relevant regulators.'”

About New CEO John J. Ray III

Ray, a Chicago lawyer, was brought in as a director at Enron in the midst of that company’s woes in the early 2000s.

A November 4, 2007 Chicago Tribune article gives more background on the new FTX CEO, stating, “Ray grew up in western Massachusetts. He graduated from the University of Massachusetts before attending law school at Drake University in Des Moines.

After a brief stint at an accounting firm he landed at the Chicago law firm of Mayer Brown in 1984. From there Ray went to the corporate world, first to Waste Management and then to Fruit of the Loom.

At the apparel company Ray got schooled in the rough-and-tumble world of bankruptcy. Less than two years after he was hired in 1998, Fruit of the Loom filed for bankruptcy.

As general counsel Ray orchestrated legal action against Bill Farley, the company's former chairman and CEO, in connection with a $65 million bank loan Farley obtained that the company had guaranteed. Farley fought the litigation but ultimately agreed to a multimillion-dollar settlement, Ray said….

As Fruit of the Loom was close to completing a deal to sell its assets to Warren Buffett for nearly $1 billion, creditors asked Ray to oversee the distribution of the money.

In 2002 he formed Avidity Partners and launched a new career. On the back of his business card he printed the definition of avidity: "characterized by enthusiasm and vigorous pursuit."

Since Fruit of the Loom, Ray has taken post-bankruptcy roles at Burlington Industries, another apparel-maker, and Hayes Lemmerz International, an auto-parts company, among other clients.

The experience helped him land the seat on Enron's board. And unlike some of his competitors in his niche in the insolvency industry, Ray has few ties to Wall Street.”

In addition to Enron, Ray has served as senior managing director at Greylock Partners, LLC and held chief restructuring officer and plan administrator positions at Overseas Shipholding Group Inc. and Nortel Networks Inc.

A November 15, 2022 WSJ article provides further information on Ray's background, stating, "Mr. Ray was also retained in 2014 as an independent board member for GT Advanced Technologies Inc., which filed for chapter 11 protection after the end of its supply deal with Apple to mass-produce sapphire for iPhones screens. In 2016, Mr. Ray was appointed to manage a trust liquidating the assets of Residential Capital LLC, once one of the largest U.S. subprime mortgage services before entering chapter 11 in 2012."

The November 15th article notes that Ray "currently manages a restructuring firm located in Naples, Fla. named Owl Hill Advisory LLC, according to state business records."

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