Tag: Cryptocurrencies

By Dietrich Knauth

(Reuters) – Crypto exchange FTX filed for Chapter 11 bankruptcy protection in the United States on Friday following its precipitous collapse, saying it could owe money to more than 1 million creditors. Here is what likely awaits in the case:

WHERE DO THINGS STAND IN FTX’S BANKRUPTCY CASE?

FTX had an unusually slow start to its bankruptcy, taking nearly a week to file “first-day” papers that describe the company’s debts and how it ended up in bankruptcy.

The reason for that delay became apparent when FTX’s new CEO, John Ray, described the “unprecedented” chaos at the company in court filings on Nov. 17.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said Ray, a restructuring expert with decades of experience who oversaw the multiyear liquidation of energy firm Enron after its collapse in 2001.

Ray, who took over as CEO when FTX filed for bankruptcy protection, said his immediate priorities are locating and securing assets, investigating claims against insiders like former FTX CEO Sam Bankman-Fried, and cooperating with dozens of regulatory investigations in the United States and abroad.

The dire situation at FTX will make it difficult for the company to borrow new money that could be used to reorganize the company or buy time for a sale, according to University of Pennsylvania law professor David Skeel.

HAS FTX BEEN ABLE TO SECURE CUSTOMER ASSETS?

Bankman-Fried secretly used $10 billion in customer funds to prop up his trading company Alameda Research, and at least $1 billion of those deposits have vanished, sources have told Reuters.

Under its new management, FTX has located and secured $740 million in cryptocurrency, which represents “only a fraction” of the digital assets the company will seek to recoup for creditors.

Bankman-Fried claimed in 2021 that customers held $15 billion on FTX’s platform, but FTX has not verified that amount. FTX did not record customer deposits as balance sheet assets, and balance sheets prepared under Bankman-Fried’s leadership cannot necessarily be trusted, Ray wrote.

FTX is attempting to recover additional assets, including $372 million that was withdrawn without authorization on the day of the company’s bankruptcy filing. FTX believes the company’s co-founders and other insiders may have further information about additional crypto wallets that are unknown to the company’s restructuring team, according to the Nov. 17 filing.

WILL CUSTOMERS GET THEIR MONEY BACK?

Unlike deposits at banks, customer accounts at crypto platforms like FTX are not protected by the Federal Deposit Insurance Corporation. The U.S. government will not step in to cover customer deposits as they would in a traditional bank failure, so customers will have to rely on the bankruptcy process.

A Chapter 11 case halts attempts to recoup assets from a bankrupt company, so customers will have to wait for the bankruptcy court to determine how much, if anything, they will get back. One of the key questions for the court will be whether customers own the cryptocurrency they deposited or whether it is FTX’s property.

There is very little legal precedent for that question. In recent crypto bankruptcies, Celsius Network and Voyager Digital both claimed they owned all crypto held on their platforms. That means the crypto would be pooled with all of the bankrupt company’s assets and divided to pay all creditors. In that scenario, customers would have what are known as unsecured claims that would be relatively low in priority.

If customers are found to own the crypto, they stand a greater chance of recovering a larger portion of their deposits. But the recovery will still depend on how much FTX owes and what assets it has left.

Bankruptcy judges have so far accepted Celsius and Voyager’s arguments, although that could be subject to future court battles, said James Van Horn, a bankruptcy attorney in Washington, D.C.

WHAT ABOUT FTX CUSTOMERS WHO WITHDREW MONEY FROM FTX?

Customers who withdrew their assets from FTX before its collapse are not necessarily in the clear. The bankruptcy court might authorize FTX to claw back those withdrawals so that there can be a more equal payout for creditors who were unable to make withdrawals. In cases involving fraud, the clawback period can be extended for years.

“It’s risky to feel like you dodged a bullet, because sometimes you didn’t,” Harvard professor Jared Elias said.

WHAT OTHER RISKS DO FTX CUSTOMERS FACE?

The bankruptcy might result in the publication of FTX customers’ names, email addresses and transaction history.

Bankruptcy depends on transparency – at a minimum, the court needs to know who is owed money, how much they are owed, and how to contact creditors. The courts’ preference for transparency are at odds with crypto customers’ expectations of anonymity.

(Reporting by Dietrich Knauth in New York; Editing by Alexia Garamfalvi and Matthew Lewis)

By Nelson Renteria

SAN SALVADOR (Reuters) – El Salvador’s long-awaited bitcoin conference, which was in the limelight in 2021 after the small nation became the world’s first to adopt the cryptocurrency as legal tender, has lost its luster this time amid a deep rout in the digital currency universe.

The absence of big names from the bitcoin world and empty seats were noticeable at “Adopting Bitcoin: A Lightning Summit in El Salvador,” which began Tuesday and ends Thursday in the capital of San Salvador.

“The fact that prices are low, that there are problems elsewhere (…) causes an uncertain environment,” said Juan Fonseca, 41, a Guatemalan who traveled to the conference.

Like other cryptocurrencies, bitcoin fell sharply over the year as U.S. Federal Reserve interest rate hikes and ultra-high inflation prompted investors to ditch riskier assets.

Bitcoin, the world’s biggest and best-known cryptocurrency, has plummeted further following the spectacular collapse of crypto exchange FTX, now trading around $16,600, from an all-time high of nearly $69,000 in November last year.

Some enthusiasts see today’s problems as just a temporary blip.

Crypto exchange “Bitfinex will redouble its efforts to build a free, unstoppable, resilient and open bitcoin and technology infrastructure for El Salvador,” said Paolo Ardoino, the firm’s chief technology officer.

Ifinex, Bitfinex’s parent, has agreed to collaborate with El Salvador’s government to create a digital asset and securities regulatory framework.

“El Salvador will become the financial and tech center of Central America. The noise won’t distract the builders,” Ardoino added after meeting with El Salvador President Nayib Bukele.

Bukele, who championed the adoption of the cryptocurrency as legal tender alongside the U.S. dollar, said on Twitter on Wednesday night, “We are buying one Bitcoin every day starting tomorrow.”

So far, his government has acquired 2,381 bitcoins for about $107 million, according to private estimates.

(Reporting by Nelson Renteria, Writing by Carolina Pulice; Editing by Anthony Esposito and Richard Chang)

By Tom Hals

(Reuters) – John J. Ray III, the new chief executive of bankrupt cryptocurrency exchange FTX, on Thursday laid out his assessment of the failures that led to the biggest collapse in the world of digital assets.

LACK OF CONTROLS

– “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said in a declaration filed with the U.S. Bankruptcy Court in Delaware.

– FTX filed for bankruptcy on Nov. 11, with an estimated $10 billion to $50 billion in both liabilities and assets, after founder Sam Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business. At least $1 billion in client funds are thought to be missing.

– Ray said he had secured $740 million in cryptocurrency, a “fraction” of what he hopes to recover during the bankruptcy.

– At least $372 million in unauthorized transfers were initiated when FTX filed for bankruptcy and about $300 million in the company’s FTT tokens were minted after the filing, Ray said. Bankman-Fried and his co-founders failed to identify wallets that might contain FTX assets, he added.

– FTX used software to conceal the misuse of customer funds, according to Ray, and he said many senior executives were unaware of fund shortfalls or comingling of customer and company assets.

– Bankman-Fried communicated using apps that automatically deleted messages and he encouraged staff to do the same.

– Workers submitted payment requests in an online chat and supervisors approved them with personalized emojis and employees in the Bahamas used corporate funds to purchase homes and personal items without documentation, the filing says.

– Record keeping was so lax that Ray said he was unable to compile a complete list of FTX employees.

– Ray said FTX did not have an accurate list of its bank accounts and banks have been instructed to freeze cash and not accept instructions from Bankman-Fried or other signatories.

CORPORATE STRUCTURE

– Ray said he identified four “silos” in the FTX corporate family, each controlled by Bankman-Fried with minority investments by Zixiao “Gary” Wang and Nishad Singh.

– No outside investor owned more than 2% of any silo, according to Ray, who said he did not have confidence in the balance sheet information for each silo.

-The West Realm Shires Inc or WRS silo includes FTX US and subsidiaries that acted as a broker-dealer and offered custodial services and it had $1.36 billion in assets, which included a loan of FTT tokens to BlockFi Inc valued at $250 million.

– The second silo is Alameda Research LLC, which Ray described as a crypto hedge fund owned by Bankman-Fried and Wang with assets of $13.46 billion. The assets included a loan between one of Alameda’s subsidiaries to an entity controlled by Bankman-Fried, Wang and Singh and separate loans of $1 billion to Bankman-Fried, $543 million to Singh and $55 million to Ryan Salame, who is co-chief executive of FTX’s Bahamian business.

– The other silos were Ventures, which manages private investments and had around $2 billion in assets, and Dotcom, which owned non-U.S. exchanges with $2.25 billion in assets.

– Ray said the Dotcom silo’s financials were audited by Prager Metis, which touted itself as the first accounting firm to officially open headquarters in the Metaverse platform Decentraland.

(Reporting by Tom Hals in Wilmington, Del.; Editing by Matthew Lewis)

By Ross Kerber and Chris Prentice

BOSTON/ WASHINGTON (Reuters) – With the U.S. House of Representatives under their control, Republicans have a new pulpit to try to constrain President Joe Biden’s administrative oversight of business issues from consumer finance to climate rules.

Policy analysts said Wednesday’s projected win in the midterm elections will embolden Republicans who have alleged the Securities and Exchange Commission (SEC) and Consumer Financial Protection Bureau (CFPB) have overstepped their authority under Democratic leadership.

Republicans argue the agencies have written rules outside of the legal process and taken a hostile approach to industries they regulate, while Democrats say they are only fulfilling their mandate to protect investors and consumers.

Many expect Republicans to grill regulators like SEC Chair Gary Gensler and financial executives at public hearings, though the Democrats’ continued hold on the U.S. Senate means they can fend off many challenges to the agencies’ authority.

Jennifer Schulp, a director at the libertarian think tank Cato Institute, said the Republicans’ unexpectedly tight margin of control in the House will not prompt them to tone down their rhetoric.

“The key to the ability to make noise and to put up roadblocks in the form of oversight turns on which party has control of the House, no matter how slim the majority, because it comes with the ability to control the committees,” Schulp said.

An SEC spokesperson said: “Chair Gensler looks forward to continuing to work with Congress on the shared goal of protecting investors, maintaining fair, orderly and efficient markets, and facilitating capital formation.”

The CFPB did not respond to a request for comment.

‘REGULATORY EXUBERANCE’

Patrick McHenry, a North Carolina Republican in line to lead the House Financial Services Committee in the new Congress, said in an emailed statement to Reuters before the election that Biden’s administration “is pushing its agenda through financial regulators because they don’t have the votes to pass it in Congress.”

“Committee Republicans will work together to conduct appropriate oversight of activist regulators and market participants who have an outsized impact,” McHenry said.

Republicans have also pressed current Congressional leaders to have Gensler testify on issues like workforce matters recently highlighted by the agency’s internal watchdog.

At a minimum, House investigations and testimonies can take up hundreds of hours of staff time for the regulators and make the agencies more vulnerable to private litigation.

“There’s going to be a ton more accountability coming,” the chief legal officer of brokerage Robinhood Markets, Dan Gallagher, said at a recent industry event. “This irrational regulatory exuberance is nonsense.”

The hours lost could distract the regulators from finalizing rules, such as the SEC’s efforts to force more transparency on private equity firms or CFPB efforts to curb bank fees.

BEYOND THE FIREWORKS

What remains unclear is whether such investigations will lead to more than just fireworks at Congressional hearings. Democrats retained control of the Senate in the Nov. 8 midterm elections and its powerful Committee on Banking, Housing and Urban Affairs, to date chaired by Sen. Sherrod Brown of Ohio.

Bryan McGannon, managing director for sustainable investment group US SIF, said the power split will stop Republicans from using federal budget maneuvers to interrupt Democratic priorities.

Rather he expects Republicans will propose big changes with little chance of passage. “The appropriations process in the House will be a messaging exercise, and it’s less worrisome since the Democrats will have the Senate,” McGannon said.

To be sure, a separate avenue to undo business regulation could come via the legal system, where a 6-3 conservative majority on the U.S. Supreme Court has shown an appetite for aggressive action.

In June, for instance, the court curtailed the Environmental Protection Agency’s ability to restrict greenhouse gas emissions from power plants, and another dispute under deliberation could clear the way for a wave of new challenges to federal regulators.

ANTITRUST CONCERNS

Before the election, exploiting antitrust concerns was seen as an additional area of focus for Republicans, especially on investors’ growing concern for environmental, social and governance (ESG) matters that has led to some joint efforts by asset management companies.

On Nov. 3 five Republican senators warned corporate law firms Congress would “scrutinize the institutionalized antitrust violations being committed in the name of ESG.”

While those Senators will not be in the majority, House Republicans have also criticized companies on ESG-related matters. Companies including BlackRock Inc have defended their participation in trade groups meant to address topics like climate change, saying they still act solely for client fiduciary interests. But the high-profile Glasgow Financial Alliance for Net Zero recently relaxed a mandate that its members phase out fossil fuels because of antitrust concerns.

In addition, before the election there had been hopes for bipartisan legislation to regulate cryptocurrencies soon.

The collapse of the FTX exchange dashed those expectations, and Cato’s Schulp said any bills on the matter likely will have to wait until 2023.

Dante Disparte, chief strategy officer at Circle, the principal operator of one of the world’s largest stablecoins, a type of cryptocurrency, said the FTX saga could lead to comprehensive reforms in the same way the 2008 financial crisis led to wide-ranging banking rules.

“What I’m hearing, seeing and perhaps hoping, is that the collapse of FTX is met with the same kind of resolve,” Disparte said.

(Reporting by Chris Prentice in Washington and by Ross Kerber in Boston; Additional reporting by Hannah Lang and Diane Bartz in Washington and by John McCrank in New York; editing by Megan Davies and Deepa Babington)

By Isabel Woodford

(Reuters) – Brazilian crypto advocates are urging lawmakers to give final approval on a bill aimed at boosting oversight of the sector, after the collapse of FTX – once an industry darling – raised fresh concern about unregulated digital currencies.

Roberto Dagnoni, a top executive at SoftBank-backed exchange Mercado Bitcoin, said the law had been “kind of dormant” during the election period but now needed to be a priority.

“If there is a good side (to the FTX disaster), it would be that it gets the law prioritized,” he told Reuters on Tuesday. “The rules that currently exist have not been applicable to some players, so they can do whatever you want … This (law) would change a lot.”

The bill, passed earlier this year by the senate and now awaiting lower chamber approval, would force all locally active crypto providers to have a physical entity in the country, and mandatory disclosure of suspected money laundering and other criminal activities. The text outlines fines and even imprisonment for breaches.

Brazil is one of the top 10 active markets globally for crypto, according to 2022 Chainalysis data.

Fernando Furlan, the former president of the country’s blockchain association, also said he hoped the FTX saga would be “a push enough” to get the law passed.

Furlan added that while the law may make it harder for so-called ‘dot com’ crypto exchanges and smaller groups to operate due to higher reporting standards, this was a healthy trade-off.

“If it’s good for Brazilian investors, then it’s a good law,” he added.

The law could be passed sooner than previously expected.

Newspaper Folha de S. Paulo last week cited Lower House Speaker Arthur Lira as saying the chamber was ready to vote on the law before year-end.

The president of Brazil’s securities regulator said in a public panel that “it is important that we start to have rules” in crypto, and that the bill “is very close.”

Nonetheless, some key actors are skeptical the bill will pass so quickly, given 2023 budget issues that have taken priority following Luiz Inacio Lula da Silva’s victory in presidential elections.

Lira did not immediately reply to a request for comment.

FTX filed for bankruptcy last week and is facing scrutiny from U.S. authorities, amid reports that $10 billion in customer assets were shifted from the crypto exchange to FTX founder Sam Bankman-Fried’s trading company Alameda Research.

FTX did not have a large presence in Latin America.

Dagnoni told Reuters that Mercado Bitcoin, mainly active in Brazil and Portugal, had no exposure to FTX, having developed its own custody solution to store customer assets.

He added that his exchange had even seen “net positive” volume flows, despite mass withdrawals globally.

“I think people are separating between the asset and bad management,” he said.

(Reporting by Isabel Woodford in Mexico City; Additional reporting by Marcela Ayres in Brasilia and Stephen Coates)

By Jody Godoy

(Reuters) – A lawsuit by FTX account holders in the United States is likely the first of many that will be brought over billions of dollars in losses on the cryptocurrency exchange, though the cases will face obstacles including proving that U.S. securities law applies to FTX’s products, experts said.

The lawsuit, filed in Miami federal court on Tuesday, claims FTX founder Sam Bankman-Fried and celebrities including NFL quarterback Tom Brady and basketball Hall of Famer Shaquille O’Neal, engaged in deceptive business practices by promoting unregistered securities.

While some courts have ruled that certain cryptocurrencies fit the legal definition of securities, the issue remains unsettled.

Cases against FTX, which is based in the Bahamas, will be made more complex by the fact that U.S. securities laws generally apply only to domestic transactions, said Yuliya Guseva, a professor who heads the fintech and blockchain research program at Rutgers Law School.

“It is more complicated than your plain vanilla crypto exchange story,” she said.

Representatives for Bankman-Fried, O’Neal and Brady did not reply to requests for comment on the lawsuit.

FTX filed for bankruptcy on Nov. 11 and is facing scrutiny from U.S. authorities. Sources told Reuters that $10 billion in customer assets were shifted from FTX to Bankman-Fried’s trading company Alameda Research, and that more than $1 billion of customer funds is missing.

Tuesday’s lawsuit, a proposed class action brought on behalf of FTX yield-bearing account holders in the United States, claims the accounts were unregistered securities because they used investors’ pooled funds to engage in activities that generated the returns account holders received.

It is an open question whether U.S. securities laws apply to interest-bearing crypto accounts like those offered by FTX.

The U.S. Securities and Exchange Commission has recently alleged that other yield-bearing accounts constituted unregistered securities. Investors have made similar allegations in court against Voyager Digital Ltd and Celsius Network over their crypto accounts, but judges have yet to rule on those claims.

The lawsuit filed on Tuesday did not name FTX as a defendant but instead targeted individuals.

Other investors will likely bring more lawsuits as the details of FTX’s collapse come to light.

Guseva said a “wave” of litigation is the “expected result of a large debacle like this.”

FTX’s new CEO, John J. Ray III, said in bankruptcy filings on Thursday that the company’s situation was “unprecedented” and involved a “complete failure of corporate controls.”

Cases against FTX and related companies will be paused during bankruptcy proceedings, but cases against individuals who have not filed for bankruptcy may be allowed to go forward, said Guseva.

Several law firms have said they are considering bringing claims on behalf of investors in the FTX Token, or FTT, a cryptocurrency tied to the exchange whose value has plummeted from around $25 per token to less than $2 in the wake of the FTX liquidity crisis.

New lawsuits may also target celebrity promoters of FTX crypto products.

Tuesday’s complaint alleges that such promoters violated Florida consumer protection law by failing to disclose what they were paid to endorse the company.

Investors have brought similar claims against reality TV star Kim Kardashian over her promotion of EthereumMax tokens. A judge has not yet ruled on whether the case can go forward.

Kardashian has argued that the lawsuit should be dismissed because compensation details would not have mattered to investors in the token.

She settled similar claims earlier this year by the SEC for $1.26 million without admitting wrongdoing.

Future investor lawsuits over the FTX meltdown are likely to allege claims beyond securities registration and consumer protection violations, plaintiffs’ attorneys said.

Sean Masson, an attorney at law firm Scott+Scott who represents investors in the case against Kardashian, said there may be potential market manipulation claims based on Bankman-Fried’s activities at Alameda.

Masson did not provide specifics. Market manipulation involves a trader or company attempting to secretly move or maintain the market price of a security or commodity.

“We think that what has come out so far is just scratching the surface on what truly happened,” he said.

(This story has been refiled to fix typographical error in paragraph 13)

(Reporting by Jody Godoy in New York; Editing by Noeleen Walder and Matthew Lewis)

(Reuters) – Entrepreneur Mark Cuban-backed Dave Inc said on Thursday none of its customers were exposed to FTX and it has not launched any products in partnership with the beleaguered cryptocurrency exchange.

FTX had invested $100 million in the fintech in March, through FTX ventures, to expand Dave’s digital assets offerings and the company had said FTX US would be its exclusive partner for crypto.

“We have not launched any products in partnership with FTX and no customers are exposed through Dave,” the company spokesperson said in an emailed statement to Reuters.

FTX filed for bankruptcy protection in the United States on Friday in the highest-profile crypto blowup to date, after traders pulled billions from the platform in three days and rival exchange Binance abandoned a rescue deal.

(Reporting by Manya Saini in Bengaluru and Saeed Azhar in New York; Editing by Shailesh Kuber)

(Reuters) – Cryptocurrency lender Genesis was seeking an emergency loan of $1 billion from investors before it suspended withdrawals on its website, the Wall Street Journal reported on Thursday, citing a confidential fundraising document.

The document viewed by the Journal cites a “liquidity crunch due to certain illiquid assets on its balance sheet” at Genesis.

On Wednesday, Genesis Global Capital suspended customer redemptions in its lending business, citing the sudden failure of Sam Bankman-Fried’s crypto exchange FTX.

Genesis did not immediately respond to a Reuters request for comment on the WSJ report.

The implosion of FTX has rippled across the industry, hobbling liquidity at firms with exposure to what was once one of the world’s biggest crypto exchanges, and prompting investigations by regulators in several countries.

Last week, FTX filed for U.S. bankruptcy protection and its founder Sam Bankman-Fried resigned as chief executive, after rival exchange Binance walked away from a proposed acquisition.

(Reporting by Manya Saini in Bengaluru; Editing by Maju Samuel)

MADRID (Reuters) – Spain’s central bank has added European cryptocurrency exchange Bitstamp to its list of virtual exchange providers, it said.

Inclusion means Bitstamp must uphold a professional reputation and comply with procedures to prevent money laundering and terrorist financing, the Bank of Spain said on its website.

“It does not entail the supervision of the exchange provider,” it said.

Crypto assets are in focus worldwide following the collapse of crypto exchange platform FTX, which filed for bankruptcy protection on Friday.

The Bank of Spain now has 46 exchange providers registered on its list.

(Reporting by Jesús Aguado; editing by Inti Landauro and Nick Macfie)

(Reuters) – FTX, formerly one of the world’s largest crypto exchanges, is seeking new funding after a rush of customer withdrawals left it on the brink of collapse.

Regulators froze some assets of the digital currency exchange and industry peers are trying to limit losses, while former FTX Chief Executive Sam Bankman-Fried is coming under scrutiny.

Founded in 2019, FTX expanded rapidly and was valued at $32 billion in January 2022 during a fundraising exercise.

Here’s what investors in FTX are saying now:

SOFTBANK

The total investment of SoftBank Group Corp’s Vision Fund in the U.S. and international operations of FTX is less than $100 million, a source close to SoftBank said on Friday.

SoftBank is marking down its FTX investments to zero, the source said. The complications at FTX are the latest difficulty for the Vision Fund, hit in recent quarters by a global tech rout.

SEQUOIA CAPITAL

Sequoia Capital said on Wednesday it would mark down its total investments in FTX to $0.

On Twitter, Sequoia said its Global Growth Fund III invested $150 million in FTX.com and FTX US, which accounted for less than 3% of the fund’s committed capital, while the Sequoia Capital Global Equities fund invested $63.5 million.

“The fund remains in good shape,” it said.

ONTARIO TEACHERS PENSION PLAN

The Ontario Teachers Pension Plan (OTPP) said on Thursday it had invested a total of $95 million in FTX.

Any financial loss from the exposure will have limited impact on the pension plan, OTTP said.

TEMASEK

Singapore’s state investor Temasek Holdings said on Thursday it would write down the value of its full investment in collapsed cryptocurrency exchange FTX, irrespective of the outcome of its bankruptcy filing.

Temasek said it invested a total of $275 million for a minority stake of about 1% in FTX International and about 1.5% in FTX U.S.

In a statement, Temasek said that during eight months of due diligence in 2021, it had reviewed “FTX’s audited financial statement, which showed it to be profitable”. Temasek did not have a board seat, it said.

“It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced,” Temasek added.

CIRCLE

Fintech company Circle CEO Jeremy Allaire said on Twitter on Wednesday, “Circle is a tiny equity holder of FTX, and FTX is a tiny equity holder of Circle.”

PARADIGM

Crypto investment giant Paradigm, which raised a $2.5 billion investment fund in November 2021, told investors in a letter that it had invested $278 million in FTX, or 3.2% of the firm’s total assets.

“It is possible that other Paradigm portfolio companies could be impacted by these events, and we are actively partnering with founders to help,” it said in the Nov. 9 letter.

The firm has written the investment down to zero.

(Reporting by Elizabeth Howcroft; Additional reporting by Niket Nishant; Editing by Shounak Dasgupta and Clarence Fernandez)

SINGAPORE (Reuters) – The collapse of crypto exchange FTX has raised “very serious allegations that amount to potential fraud”, Singapore’s finance minister and deputy prime minister said on Thursday.

Lawrence Wong said recent developments in the crypto market reinforced the city-state’s position that it was “on the right track” in focusing on digital assets innovation, but also taking a strong stance against crypto speculation and trading by retail investors.

FTX was one of the largest exchanges in the world but had a spectacular collapse in recent weeks and has filed for bankruptcy. A Reuters report found that at least $1 billion of client funds were missing at the failed crypto firm.

FTX representatives did not immediately respond to an emailed request for comment.

FTX founder and former chief executive Sam Bankman-Fried has said he expanded the business too quickly and failed to notice red flags. He tweeted on Tuesday that his main goal was “to do right by customers” and was meeting with regulators to that end.

Singapore is in the midst of tightening rules around retail investment in cryptocurrencies, such as not allowing exchanges to offer incentives for referrals.

Singapore state investor Temasek Holdings has said it would write down the value of its entire investment of $275 million in FTX.

(Reporting by Chen Lin; Writing by Xinghui Kok; Editing by Kanupriya Kapoor and Mark Potter)

(Reuters) – The founder of collapsed crypto exchange FTX, Sam Bankman-Fried, said he regretted his decision to file for bankruptcy and, in an interview published by Vox, criticized regulators.

Bankman-Fried said later on Twitter that the basis of the interview, an exchange of messages on the same platform, was not supposed to be public.

The collapsed company, which filed for bankruptcy last week, has appointed five new independent directors at each of its main affiliated companies, including Alameda research. The five new directors and newly appointed Chief Executive John J. Ray are working to navigate through the bankruptcy process.

In the interview, Bankman-Fried said those in charge of FTX’s Chapter 11 bankruptcy process were “trying to burn it all to the ground out of shame,” and that he had two weeks in which to raise $8 billion and save the company.

“That’s basically all that matters (raising the money) for the rest of my life,” he said.

His single biggest mistake had been “Chapter 11. If I hadn’t done that, withdrawals would be opening up in a month with customers fully whole.”

Regulators make everything worse, he added. “They don’t protect customers at all,” he said.

In a statement published on Twitter, Ray said Bankman-Fried had no ongoing role at FTX, FTX US or Alameda Research and did not speak on their behalf.

FTX has said it is in contact with dozens of global regulators, including the U.S. Securities and Exchange Commission.

After Vox published the interview, Bankman-Fried said some of what he had said had been “thoughtless or overly strong” and that he was venting about something that was not intended to be public.

“It’s *really* hard to be a regulator. They have an impossible job: to regulate entire industries that grow faster than their mandate allows them to,” he wrote on Twitter, adding that the message exchange with Vox’s reporter was “not intended to be public.”

A Vox spokesperson said all communication with Vox reporters was on-the-record unless the subject and reporter had agreed otherwise.

“Our reporter is clearly identified as such in her Twitter bio, has previously interviewed Mr. Bankman-Fried, and in this instance, as an additional courtesy, notified him via email that she planned to write about their on-the-record exchange. He made no objection in his reply prior to publication.”

Bankman-Fried did not immediately respond to a Reuters request for further comment.

(Reporting by Shubham Kalia and Jahnavi Nidumolu in Bengaluru; Additional reporting by Jaiveer Shekhawat; Editing by Bradley Perrett)

SINGAPORE (Reuters) – Singapore state investor Temasek Holdings said it would write down the value of its entire investment of $275 million in collapsed crypto currency exchange FTX, in the latest move by FTX’s investors.

“In view of FTX’s financial position, we have decided to write down our full investment in FTX, irrespective of the outcome of FTX’s bankruptcy protection filing,” Temasek said in a detailed statement on Thursday.

FTX’s other backers such as SoftBank Group Corp’s Vision Fund and Sequoia Capital have also marked down their investment to zero after FTX, founded by Sam Bankman-Fried, filed for bankruptcy protection in the United States last week in the highest-profile crypto blowup to date.

Temasek said it had invested $210 million for a minority stake of about 1% in FTX International, and $65 million for a minority stake of about 1.5% in FTX US, across two funding rounds from October 2021 to January 2022.

“The cost of our investment in FTX was 0.09% of our net portfolio value of S$403 billion ($294.3 billion) as of 31 March 2022,” it said.

Temasek said its early stage investments made up about 6% of its total portfolio.

It said the thesis for its funding of FTX was to invest in a leading digital asset exchange that would provide it with “protocol agnostic and market neutral exposure” to crypto markets with a fee income model and no trading or balance sheet risk.

Temasek said it currently had no direct exposure in cryptocurrencies.

It said it had conducted an extensive due diligence process on FTX from February to October 2021, during which it had reviewed FTX’s audited financial statement, which showed it to be profitable.

“It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced,” it said.

($1 = 1.3693 Singapore dollars)

(Reporting by Anshuman Daga in Singapore; Additional reporting by Sameer Manekar in Bengaluru; Editing by Christopher Cushing)

(Reuters) – The full extent of the fallout on the crypto industry from the collapse of Sam Bankman-Fried’s FTX was yet to come out, Coinbase Global Inc Chief Financial Officer Alesia Haas told the Wall Street Journal on Wednesday.

“What we are seeing now is a fallout of FTX is becoming much more like the 2008 financial crisis where it’s exposing poor credit practices and is exposing poor risk management,” Haas told the WSJ in an interview.

It will take a few days or weeks to understand the full contagion of the event, Haas added.

FTX filed for bankruptcy protection in the United States on Friday in the highest-profile crypto blowup to date, after traders pulled billions from the platform in three days and rival exchange Binance abandoned a rescue deal.

The collapse has fanned fears about the future of the crypto industry after FTX outlined a “severe liquidity crisis”. Since then regulators have opened investigations and lawmakers have called for clearer rules on how the industry operates.

“We’re gonna see a drive towards regulation both in the U.S. and globally,” Haas told the Journal.

Coinbase, which many believe is poised to gain market share from FTX’s collapse, recently underwent a second round of job cuts this year.

Cryptocurrencies have been roiled as higher interest rates and worries of an economic downturn force investors to dump risky assets. Shares in Coinbase are down roughly 81% so far this year.

(Reporting by Manya Saini in Bengaluru; Editing by Maju Samuel)

WASHINGTON (Reuters) – The recent failure of a major cryptocurrency exchange and its impact on holders and investors of crypto assets demonstrate the need for more effective oversight of crypto markets, U.S. Treasury Secretary Janet Yellen said on Wednesday.

Treasury and othe regulators identified risks in crypto markets over the past year and some of them were “at the center of the crypto market stresses observed over the past week,” Yellen said in a statement, without directly naming collapsed crypto exchange FTX.

“The federal government, including Congress, also needs to move quickly to fill the regulatory gaps the Biden administration has identified,” Yellen added.

(Reporting by Katharine Jackson and Ismail Shakil; Editing by Caitlin Webber)

By Jody Godoy

(Reuters) – U.S. crypto investors sued FTX founder Sam Bankman-Fried and several celebrities who promoted his exchange including NFL quarterback Tom Brady and comedian Larry David, claiming they engaged in deceptive practices to sell FTX yield-bearing digital currency accounts.

The proposed class action filed on Tuesday night in Miami alleges that FTX yield-bearing accounts were unregistered securities that were unlawfully sold in the United States.

FTX filed for bankruptcy and is facing scrutiny from U.S. authorities amid reports that $10 billion in customer assets were shifted from FTX to Bankman-Fried’s trading company Alameda Research.

At least $1 billion in client funds are missing, sources have told Reuters.

When the crypto exchange faltered on liquidity concerns, U.S. investors sustained $11 billion in damages, the lawsuit says.

The lawsuit seeks damages from Bankman-Fried and 11 athletes and other celebrities who promoted FTX, including David, the creator of “Seinfeld” and “Curb Your Enthusiasm.”

David starred in a commercial for FTX that aired during the 2022 Super Bowl in which he portrayed fictional characters dismissing important innovations throughout history and ended with the message “Don’t Miss Out on Crypto.”

Brady, tennis star Naomi Osaka and professional basketball team the Golden State Warriors are also defendants in the lawsuit.

Representatives for Bankman-Fried, Brady, Osaka, David and the Golden State Warriors did not immediately respond to requests for comment on Wednesday.

John J. Ray III, FTX’s new chief executive who is not named as a defendant in the lawsuit, declined to comment on the allegations.

The lawsuit was brought on behalf of Edwin Garrison, an Oklahoma resident who had an FTX yield-bearing account which he funded with crypto assets to earn interest, and others like him.

Garrison alleges that while FTX lured U.S. investors to its yield-bearing accounts, it was a “Ponzi scheme” where investor funds were shuffled to related entities to maintain the appearance of liquidity.

Investors and the U.S. Securities and Exchange Commission have previously gone after celebrities for deceptively touting cryptocurrencies.

Reality TV star Kim Kardashian agreed in February to pay the SEC $1.26 million to settle claims that she failed to disclose she was paid to promote EthereumMax tokens. She did not admit wrongdoing.

Private investors also have sued Kardashian and others over their roles in promoting the tokens.

Garrison cited these cases in his lawsuit, as well as a February ruling by the 11th U.S. Circuit Court of Appeals that allowed BitConnect cryptocurrency investors to sue individuals who promoted the coin online.

His lawsuit alleges Bankman-Fried and FTX promoters engaged in a conspiracy to defraud investors and violated Florida state laws requiring securities to be registered and prohibiting unfair business practices.

Sean Masson, an attorney at Scott+Scott who represents crypto investors in the EMAX case, said investors have used the Florida unfair trade law to target crypto promoters in lawsuits that are pending.

“To be successful, they are going to need to establish a deceptive act or unfair practice, and that it caused actual damages,” Masson said.

(Reporting by Abinaya Vijayaraghavan in Bengaluru and Jody Godoy in New York; Editing by Noeleen Walder, Anna Driver and Matthew Lewis)

(Reuters) – Grayscale Bitcoin Trust, the world’s largest bitcoin fund, fell almost 7% on Wednesday, as investors dumped more digital assets after last week’s high-profile unraveling of crypto exchange FTX.

Crypto investment bank Genesis Global Trading said in a tweet it was temporarily suspending redemptions and new loan originations in the wake of FTX’s collapse, which has given cryptocurrencies another hammering this year.

Genesis, the latest company to be hit by FTX turmoil, is owned by Digital Currency Group (DCG), which is also the parent company of Grayscale.

DCG tweeted that freezing Genesis’ lending business had no impact on the firm and its wholly-owned subsidiaries.

Grayscale said it would be business as usual for its products and its underlying assets were unaffected.

Grayscale Bitcoin Trust’s discount to its net asset value, which hit an all-time low of 41% last week, is now at 37%. Shares have not traded at a premium since March 2021, Coinglass data showed.

The trust is a close-ended fund, whose short-term price is driven by supply, demand and market sentiment unlike an exchange traded fund that generally trades in line with its value.

In June, Grayscale sued the U.S. Securities and Exchange Commission for nixing the digital asset manager’s proposal to convert bitcoin trust into a spot bitcoin exchange traded fund.

Grayscale bitcoin fund, which has $10.7 billion worth of bitcoin under management, has slumped about 75% in the past 12 months.

Grayscale Ethereum Trust, which has $3.8 billion assets under management, shed 81% in the past year. By comparison, bitcoin, which was down 2% at $16,505 on Wednesday, has slumped 72% in the past year.

(Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru)

MADRID (Reuters) – The collapse of crypto exchange platform FTX should serve as a reminder for clients of the risks crypto assets entail, European Central Bank policymaker Pablo Hernandez de Cos said on Wednesday.

“We hope that the events we have recently experienced will make citizens aware of the risks associated with these cyrpto assets,” De Cos said when asked about FTX’s collapse.

The exchange, which had been among the world’s largest, filed for bankruptcy protection on Friday in one of the highest-profile crypto blowups after panicked traders withdrew $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a rescue deal.

(Reporting by Jesús Aguado and Emma Pinedo; editing by David Latona)

By Dietrich Knauth

(Reuters) – FTX’s Bahamas-based liquidators said they “reject the validity” of the crypto exchange’s U.S. bankruptcy proceedings, according to court documents filed in the U.S. late Tuesday.

FTX and 130 affiliates filed for bankruptcy in the U.S. on Nov. 11, leaving an estimated 1 million customers and other investors facing total losses in the billions of dollars. But its Bahamas subsidiary FTX Digital Markets entered liquidation proceedings first, and its court-appointed liquidators said late Tuesday that their case may “impact” FTX’s effort to reorganize in the U.S.

(Reporting by Dietrich Knauth)

WASHINGTON (Reuters) – The U.S. House Financial Services Committee plans to hold a hearing in December on the collapse of cryptocurrency exchange FTX.

The committee said it expects to hear from the companies and individuals involved, including FTX founder Sam Bankman-Fried, Alameda Research, Binance, FTX and related entities, among others. 

(Reporting by David Shepardson)