FTX Faces 1M Creditors as Investigators Close In

The downfall of crypto trading platform FTX has triggered a worldwide regulatory investigation and could leave the company dealing with more than one million creditors.

That’s according to a court filing Monday (Nov. 14) in the company’s Chapter 11 bankruptcy case before a federal court in Delaware.

It says that FTX has been in touch with federal prosecutors in the U.S., the Securities and Exchange Commission (SEC), along with “dozens of federal, state and international regulatory agencies” since seeking bankruptcy protection for itself and its affiliated companies last week.

The document also says FTX and its associated companies are facing more than 100,000 creditors and that “[in] fact, there could be more than one million creditors.”

FTX filed for bankruptcy last week following revelations that it had used customer money to shore up its sister company, Alameda Research.

Soon after, Changpeng Zhao (CZ), the founder and CEO of the world’s largest cryptocurrency exchange Binance, began to unload his almost $2 billion equity stake in FTX held chiefly through FTT, the FTX token.

This led to a liquidity crisis for FTX. Zhao had initially shown interest in acquiring his rival company but walked away from the deal following two days of due diligence. A run on FTX ensued, crashing the price of FTT by 72%.

“The events that have befallen FTX over the past week are unprecedented,” the filing says.  “Barely more than a week ago, FTX, led by its co-founder Sam Bankman-Fried, was regarded as one of the most respected and innovative companies in the crypto industry.”

But that reputation masked a shakier reality, PYMNTS’ Karen Webster wrote recently in an analysis of Bankman-Fried’s rise and fall.

“The FTX business was great if the spreads were favorable, and the value of FTT tokens reflected that dynamic,” she wrote. “The bankruptcy filing that reports $900M in liquid assets against $14B in liabilities suggests that not all was champagne and roses in FTT token land. Even less so as news of their liquidity crisis was made public a week ago today.”