In a notable development, Sam Bankman-Fried, the ex-CEO of cryptocurrency exchange FTX, took to the social media platform X on Tuesday to assert that FTX was never in a state of bankruptcy. His statement contested the widely publicized Chapter 11 bankruptcy filing, which he contends was not initiated by him but rather by legal representatives who he alleges executed it to divert funds for their own benefit.
Bankman-Fried’s post specifically accused the law firm Sullivan & Cromwell of submitting the bankruptcy petition just four hours after assuming control of the company, labeling the act as bogus. This claim stands in contrast to court proceedings that documented an $8 billion shortfall of customer funds, which was integral to his subsequent conviction on a 25-year sentence for fraud.
The former CEO's social media commentary detailed that he himself never filed for bankruptcy. Instead, he placed responsibility for the filing on Sullivan & Cromwell lawyers, implying their actions were self-serving.
Supporting the controversy surrounding the filing, Bankman-Fried cited court documents that spotlighted the position of a previous executive of FTX.US. This individual contended that FTX.US should not have been enveloped in the bankruptcy proceedings because its wallets had not been impacted by the customer liabilities of FTX International.
The documents highlighted a tension wherein the executive, named Miller, reportedly pushed for inclusion of FTX.US in bankruptcy. His motivation was allegedly the presence of available cash within FTX.US, which was needed to cover Sullivan & Cromwell’s retainer fees. The filings further divulged that Miller asserted the law firm had positioned their appointed manager across FTX’s companies to control and potentially direct more than $200 million from the LedgerX subsidiary into legal fees, effectively rendering the legal expenditures a negligible concern.
Contrary to the allegations made by Bankman-Fried, the publicly available court records and regulatory filings painted a starkly different picture of FTX’s financial health during late 2022. They documented that the company was profoundly insolvent once an undisclosed deficit linked to FTX’s sister trading firm, Alameda Research, was uncovered. The deficit was significant enough to raise serious questions about the integrity of FTX’s operations and its ability to uphold customer obligations.
Judicial authorities and prosecutors concluded that Bankman-Fried had illicitly transferred more than $8 billion belonging to customers, a factor central to his conviction and the length of sentencing he received. Despite later improvements in asset recoveries and a surge in cryptocurrency markets, judges have been explicit in stating that any recovery or positive market movements after the collapse do not negate the insolvency or fraudulent behavior at the critical time of failure.
In response to a commentary by cryptocurrency analyst Alex Wice, Bankman-Fried’s public statements also aimed to challenge the fairness of his trial proceedings. Wice criticized the presiding judge for limiting Bankman-Fried’s ability to present evidence pivotal to his defense, such as his reliance on lawyers, assurances that customers would be repaid, and the risk disclosures embedded in FTX’s terms regarding margin lending.
Wice’s argument hinged on the assertion that only a small portion of customer funds went missing at the time, primarily as a result of Alameda Research’s collapse within the margin lending framework after a market downturn. He also suggested that had Bankman-Fried not authorized the bankruptcy filing, customer repayments might have been expedited.
This unfolding narrative highlights ongoing debates surrounding the governance, financial transparency, and legal controversies attached to one of the most dramatic collapses in the cryptocurrency sector. The intricate dispute involving allegations of fraudulent legal filings, disputed insolvency claims, and contested judicial procedures underscores the complexity of the case as it continues to attract attention within financial and legal communities.