FTX was run as a “personal fiefdom” by former CEO Sam Bankman-Fried, lawyers for the collapsed crypto exchange said during its initial bankruptcy hearing, describing ongoing challenges such as hacks and substantial missing assets.

In the most high-profile crypto blowout to date, FTX has filed for protection in the United States after traders took $6 billion off the platform in three days and a rival exchange Binance has exited a rescue deal. The collapse leaves an estimated 1 million creditors with losses totaling billions of dollars.

An FTX lawyer said during a bankruptcy hearing on Tuesday that the company now plans to sell sound business units but has been subject to cyberattacks and is missing “significant” assets. FTX said on Saturday it has launched a strategic review of its global assets and is preparing to sell or reorganize some companies.

The hearing took place at U.S. Bankruptcy Court in Wilmington, Delaware, and was streamed live to approximately 1,500 viewers on YouTube and Zoom.

A lawyer also said the company was run as a “personal fiefdom” of Bankman-Fried, with $300 million spent on real estate such as homes and vacation properties for senior staff. FTX, led since filing for bankruptcy new CEO John Ray, has accused Bankman-Fried of working with Bahamian regulators to “undermine” the US bankruptcy case and move assets overseas.

Bankman-Fried did not immediately respond to an email requesting comment.

The Reuters news agency previously reported that Bankman-Fried’s FTX, his parents and senior executives of the failed cryptocurrency exchange have purchased at least 19 properties worth nearly $121 million in the Bahamas over the past two years, official ownership records show.

Lawyers also said there should be an investigation into Binance’s sale of FTX in July 2021. Binance purchased a stake in FTX in 2019.

A separate filing late Monday by Ed Mosley of Alvarez & Marsal, a consulting firm that advises FTX, showed that FTX’s $1.24 billion cash balance on Sunday was “significantly higher” than previously believed.

It includes about $400 million in accounts related to Alameda Research, the crypto trading company owned by Bankman-Fried, and $172 million in the Japanese arm of FTX.

Reuters has reported that Bankman-Fried was secretly using $10 billion in client funds to support its trading activities, and at least $1 billion of those deposits had gone missing.

Disclosure debate

At the hearing, FTX representatives argued that customer names should be kept secret because disclosing them could destabilize the crypto market and open customers up to hacks. FTX also argued that its customer list is a valuable asset, and that disclosing it could hurt future sales efforts or allow rivals to extort its user base.

A judge said those names could remain secret until a future court hearing.

FTX attorneys also described an uneasy truce with court-appointed liquidators overseeing the settlement of the Bahamas unit of FTXFTX digital markets.

The two sides reached an initial agreement to coordinate their US-based insolvency proceedings before Judge John Dorsey, avoiding the possibility of conflicting rulings from two different US bankruptcy judges. But both sides indicated they still have broader disagreements over how to coordinate the recovery and preservation of assets from different FTX affiliates.

Bankman-Fried, FTX and the Bahamas liquidators did not immediately respond to requests for comment.

Contamination fears

FTX’s fall from grace has sent the crypto world shuddering, sending Bitcoin to its lowest level in about two years and sparking fears of contagion among other companies already reeling from the collapse of the crypto market this year.

Major US crypto lender Genesis said Monday it was trying to stave off bankruptcydays after FTX’s collapse forced it to suspend customer redemptions.

“Our goal is to resolve the current situation by mutual consent without the need for a bankruptcy filing,” a Genesis spokesperson said in an emailed statement to Reuters, adding that it continues to hold talks with creditors.

A Bloomberg News report, citing sources, had said Genesis was struggling to raise new money for its lending unit.

The Wall Street Journal reported, citing sources, that Genesis had approached Binance looking for an investment, but the crypto exchange decided not to do so, fearing a conflict of interest. Genesis also approached private equity firm Apollo Global Management for capital support, the WSJ said.

Apollo did not immediately respond to a request from Reuters for comment on the WSJ report, while Binance declined to comment.

Crypto exchange Gemini, which runs a crypto lending product in partnership with Genesis, tweeted on Monday that it continued to work with the company to enable its users to redeem money from its revenue-generating “Earn” program.

Gemini said on its blog last week that there was no effect on its other products and services after Genesis paused shooting.

Since the implosion of FTX, some crypto players are moving to decentralized exchanges known as “DEXs” where investors trade peer-to-peer on the blockchain.

Total daily trading volumes on DEXs rose to their highest level since May on Nov. 10, when FTX imploded, according to data from market tracker DeFi Llama, but gains have since declined.





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