The FTX debacle – Important for all

The sudden collapse of FTX, the world’s third-largest cryptocurrency exchange, underlines how important it is for any investor to learn about the risks they take when they park their money with a lightly regulated firm.

FTX and its affiliate companies filed for bankruptcy Nov. 11. The company’s founder, Sam Bankman-Fried, resigned his position as CEO and was replaced by John J. Ray III, a lawyer who has worked on the bankruptcies of Enron, Nortel Networks and many other companies.

Bankman-Fried is staying on with FTX “to assist with an orderly transition,” according to a press release.

TX, based in the Bahamas, held about $16 billion in customer assets but had lent about $10 billion of those funds to Alameda Research, a trading firm also run by Bankman-Fried and headquartered in Hong Kong, according to a Wall Street Journal report. Alameda, in turn, had lent out billions of dollars, with some loans secured by FTT, a cryptocurrency created by FTX, according to a Nov. 2 report from CoinDesk.

The value of FTT crashed as FTX faced $5 billion in customer withdrawal requests last weekend, which left FTX facing an $8 billion shortfall, according to Bankman-Fried. Binance, the world’s largest crypto exchange, had said it was selling its $500 million in FTT based on reports of FTX’s loans to Alameda.