FTX owes a lot of real money to a lot of people who, thanks to recent events, likely won’t be accepting any sort of tokens to settle their claims.
Last week, a filing suggested Sam Bankman-Fried’s collapsed pyramid may have more than a million creditors in bankruptcy.
Over the weekend, new court papers showed FTX and associated entities owe their largest unsecured creditors more than $3 billion. They weren’t named, but were all identified as customers.
The largest unsecured claim is $226,280,579. I’m not sure how useful the filing is in redacted form, but for whatever it’s worth, you can view the list here. The simple figure (below) shows you the amounts owed to the top 10 creditors.
If you’re keeping score at home, that’s almost $1.5 billion FTX and associated parties owe to 10 customers.
“There are over one hundred Debtors in these Chapter 11 Cases, many of which have overlapping creditors,” John J. Ray III’s team wrote, in a motion filed Saturday. Ray, for anyone still unfamiliar, is the man in charge of sorting through the wreckage of FTX, Alameda and everything to do with them.
The filing went on to explain that (abridged),
The exercise of compiling separate creditor matrices for each individual Debtor would consume an excessive amount of the Debtors’ limited time and resources. Compounding the problem here… the Debtors historically did not keep appropriate books and records, and the Debtors are currently working to access certain sources of data and records that are currently unavailable. Creditor information, and in particular customer information, is not clearly labeled or identifiable by Debtor. As a result, presenting the information on a consolidated basis will ensure the most relevant and known information can be promptly disclosed. Relatedly, because the Debtors have hundreds of thousands, if not over one million, creditors and other parties-in-interest, converting the Debtors’ computerized information to a format compatible with the matrix requirements at the individual debtor level would be a burdensome task and would greatly increase the risk of error with respect to information on computer systems maintained by the Debtors or their agents.
I quote the motion at length here to underscore the sheer scope of the disarray left by Bankman-Fried. Consistent with Ray’s remarkable filing detailing what he described as “a complete failure of corporate controls and a complete absence of trustworthy financial information,” it doesn’t sound as though FTX kept adequate records such that discerning who owes what and to whom, is possible, or, if it is, it’s going to be an exceedingly laborious task.
Fortunately for Ray, people relieved of their money by FTX are probably keen to get it back. Anyone owed a material sum will make Ray’s team aware of that debt. And, again, I’d emphasize that there could be more than a million such persons and entities.
In explaining the decision to redact the names of the creditors, Ray’s team cited 11 U.S.C. §§ 107(b)(1), which stipulates that bankruptcy courts, on request of a party in interest, “protect an entity with respect to a trade secret or confidential research, development, or commercial information.”
“The Debtors operate a global financial-services platform catering to investors in various forms of cryptocurrency,” the filing continued, adding that, “The Debtors’ customer list, and related customer data, is an important and valuable asset of the Debtors and the Debtors maintain their customer list in strict confidence.”
The names of the large creditors will almost surely be leaked. Obviously, the unredacted version of the creditor matrix and Top 50 list is available to the court, counsel and could, upon court order, be made available to anyone else. Given insatiable interest in FTX’s downfall, information about the case will continue to trickle in on a weekly (and probably daily) basis for the foreseeable future.
Meanwhile, the financial media continues to wash its hands of the ordeal by claiming, implicitly, that fawning coverage of Bankman-Fried was something other than obsequious pandering to an ostensible crypto magnate, while big-name FTX investors are engaged in an effort to emphasize the small size of their investments relative to the size of their funds.
The truth was captured succinctly by Fidelity veteran Matt Walsh, who helped found crypto VC firm Castle Island Ventures. (I’d be remiss not to note that, according to its website, Castle Island counts BlockFi among its portfolio companies. BlockFi is knee-deep in the FTX fiasco.)
“As far as I can tell, the extent of the [due] diligence was ‘The kid went to MIT, talks fast [and] sleeps on a beanbag chair,'” Walsh said.
What else did you need to know? Not much, apparently. Or at least not if you’re the largest VC funds on Earth or a mainstream financial news outlet.
This is such a crazy story. One million creditors. Ray has his work cut out for him
Maybe the safest place on Earth for SFB is solitary confinement
Finally looked at Friday’s FT only to be greeted with a front-page article proclaiming, “Son owes SoftBank $ 4.7bn after value of his stake in Vision Fund 2 collapses.”
So it’s not just some silly crypto players racking up major losses. In this case, the FT suggests that “the world’s biggest tech investor was hammered by plunging tech stocks and valuations in private companies over the past year.”
Plunging values “in private companies over the past year.” Once one big holder writes down the value of their stake in a private equity or credit vehicle, it’s hard for other holders to continue to pretend there has been no diminution of the value of their holdings.
No problem for the Taylor Rule fans until/unless those managers need to raise money to meet margin calls and/or redemption notices. What can they sell? Probably more their liquid investments because of the egregious discounts potential buyers would demand for the private positions.
This is what I find is the scariest part of this whole story:
“‘As far as I can tell, the extent of the [due] diligence was ‘The kid went to MIT, talks fast [and] sleeps on a beanbag chair,’” Walsh said
Maybe Walsh was referring to Sequoia Capital, Softbank, Tiger and BlackRock. Then Ontario Teachers Pension Plan came along and thought, “we don’t need to do any due diligence because if FTX was good enough for Sequoia, then we are “in”! And so on.
Then, by the time an “ordinary” person did transactions with FTX, such ordinary person said to themselves “what could go wrong, given the reputation of the big name investors?”
And here is where it gets even scarier (for those invested in crypto), the due diligence dude at Sequoia was also doing the due diligence on all crypto investments. The next few weeks should be informative.
H, can you write an article entitled “How To Talk To Your Uncle This Thanksgiving After You Convinced Him To Buy $100,000 Worth of Bitcoins Last Thanksgiving” ?
I’ve been patiently waiting for Softbank to go to zero for years….
It’s Jimmy Buffet that will really suffer with $55k unpaid bar tab at Margaritaville Nassau https://twitter.com/sadvalueinvestr/status/1597323574800711680?s=61&t=SfhQXFBZRY2nJVAaQBiPNw
“Dealing bitcoins with the young men in the clubcar, ain’t no one keeping score”