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FTX bankruptcy case stalls as lawyers confront crypto chaos

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The multi-billion dollar FTX bankruptcy lawsuit stalled at the starting line last week, reflecting turmoil and turmoil within the crypto platform before seeking US court protection from creditors.

FTX has not filed a so-called first-day motion to formally begin proceedings as of Monday, according to court records. Businesses typically quickly file documents describing their circumstances leading up to bankruptcy and seek court approval for emergency loans to pay employees and vendors during litigation.

Dozens of Crypto Exchanges and Their Subsidiaries submitted FTX sought bankruptcy protection in a Delaware court on Friday after it said it was unable to meet customer withdrawal requests. Had less than a dollar of liquidity, the FT says report.

Delaware’s bankruptcy court has appointed Judge John Dorsey to oversee the case, but a regular first hearing to consider such a motion is not yet scheduled.

“This is unfolding in a much slower and more opaque way than usual,” said one of the restructuring advisers who has responded to calls from people seeking help. , has become an obstacle to giving advice to creditors, the person said.

Sam Bankman-Fried, founder and CEO of FTX © Saul Loeb/AFP/Getty Images

FTX has announced that John Ray III will take over as CEO following the resignation of founder Sam Bankman-Fried. Ray is an experienced restructuring executive, having held supervisory positions in the bankruptcies of Residential Capital, Overseas Shipholding Group, Nortel Networks, and Enron.

The company has also appointed Silicon Valley attorney Stephen Neal to chair FTX’s board of directors. However, Neil later said he decided not to take the position.

FTX is looking to quickly secure a new director experienced in bankruptcy cases who will be responsible for making decisions for FTX’s stakeholders, according to a person familiar with the company.

In the past, Bankman-Fried appeared to have had almost unfettered control over the company, despite the nominal board of three people, said one person approached to join FTX’s board. described its internal governance as the “Wild West.”

The person also said the company’s current liquidity is “low” and it’s unclear how it will pay for legal and administrative costs in the event of bankruptcy.

FTX’s longtime legal counsel, Sullivan & Cromwell, has advised the company on the bankruptcy process and has worked with FTX’s general counsel Ryne Miller, a former Sullivan attorney. Miller did not immediately respond to a request for comment.

Sullivan’s lead partner in the case, Andrew Dieterich, is a restructuring attorney and most recently helped FTX win a bankruptcy auction for its assets. voyager digitalanother crypto exchange that went bankrupt this year after Terra and Luna digital tokens collapsed.

Jay ClaytonA former chairman of the U.S. Securities and Exchange Commission and now an adviser to Sullivan, Bankman-Fried is being personally represented by law firm Paul, Weiss, according to a person familiar with the matter.

Jay Clayton, Former SEC Chairman
Former SEC Chairman Jay Clayton is working with FTX in its bankruptcy case © Andrew Harrer/Bloomberg

A restructuring adviser told the FT that the court has the option of appointing an independent “Chapter 11 Trustee” to replace Ray to manage FTX. appointed when it decides that control of the company should be taken away from the company itself.

The Trustees have since hired their own advisors to manage the case, replacing lawyers and advisors who would otherwise pay tens of millions of dollars in fees. FTX is looking for experienced directors in an attempt to demonstrate to the court that the company has the ability to manage the process itself to maximize creditor collections, explains reasons for the move said an official who received the

When litigation begins, the U.S. Trustee’s Office, the Department of Justice’s bankruptcy agency, appoints a panel of unsecured creditors. His FTX bankruptcy filing last week said he has assets and liabilities of around 100,000 creditors and between $10 billion and $50 billion.

“The whole thing looks messed up. First, there will definitely be a lot of allegations of wrongdoing and a long process of figuring out what legal action will be taken from that wrongdoing – MF Global, Think Enron, Worldcom, Corporate Lawyer, Mentions Previous Blockbuster Bankruptcy: “Second, I think a lot of time and energy is spent finding assets and values ​​and undoing transfers. .”

Another observer speculated that creditors may recover some money through lawsuits against Bankman-Fried and others.

“The real recovery here will come from the impending litigation storm. With billions of potential priority lawsuits, SBF and his crew will likely be sued at Wazuo,” said Gordian. Adam Levitin, a cryptography expert who works for Crypto Advisors and a Georgetown law professor, said.

Priority action refers to payments made immediately prior to filing for bankruptcy that can be collected by creditors to satisfy their claims

Still, the information gap has not prevented some trading activity from revitalizing. On Cherokee Acquisition, a marketplace that trades bankruptcy bonds, bidders are already offering FTX account holders 10-14 cents on the dollar.

“FTX does not appear to be ready for bankruptcy and the state of internal records seems chaotic,” said Vladimir Jelisavcic, founder of Cherokee Acquisition. “I think his large team of attorneys and financial advisors are struggling to compile data for the first day of hearings.”

Additional report from James Fontanella-Khan, New York

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