FTX creditors may number over 1 million as regulators seek answers

The Wall Street Journal reported that BlockFi was considering layoffs and filing for bankruptcy, and the collapsed cryptocurrency exchange FTX described a "severe liquidity crisis" in its U.S. bankruptcy documents, which claimed the group may have more than 1 million creditors. Regulators began looking into the situation, and the pain in the crypto market spread.

In a late-Monday petition to a U.S. bankruptcy court, FTX stated that it had recruited five new independent directors at each of its principal companies, including its sister trading firm Alameda Research, and that it was in contact with numerous international regulators.

The exchange, which had once been among the biggest in the world, declared bankruptcy on Friday in one of the most publicized cryptocurrency meltdowns after users withdrew $6 billion in three days and rival exchange Binance abandoned a rescue plan.

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According to the court petition, "FTX experienced a serious liquidity situation that required the filing of these cases on an emergency basis last Friday."

More than 100,000 creditors are involved in FTX's bankruptcy action, and there may be more than 1 million, according to the documents. The figures were made public because FTX asked that all FTX group firms submit a single, consolidated list of important debtors rather than several individual lists.

Additionally, the records showed that FTX had responded to a cyber assault on November 11 after claiming on Saturday that it had discovered "unauthorized transactions" on its network.

FTX hired Alvarez & Marsal to serve as its financial counsel and claimed to have spoken with American authorities. during the last 72 hours, including the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and several national, international, and state regulatory organizations.

The consequences have so far only affected cryptocurrency exchanges and dealers, but they are now being discussed in mainstream policy debates.

On Tuesday, Michael Barr, the head of the Federal Reserve's Wall Street division, expressed concern about threats coming from the nonbank sector, which is difficult to monitor for the U.S. central bank and other regulators.

"That obviously involves cryptocurrency activity, but it also broadly refers to dangers in areas of the financial system where we lack excellent sight, good openness, and good data. According to what he said to the Senate Banking Committee, this can lead to dangers that affect the financial system that we do oversee.

Although some, like American cryptocurrency broker Genesis Trading, have disclosed they are exposed to FTX, either by having held tokens on the exchange or by owning FTX's native token, FTT, other crypto industry peers and partners have been quick to distance themselves from FTX and tout their sound financials.

Last week, FTT fell by about 94% while bitcoin fell by 22%.

The Wall Street Journal reports that cryptocurrency lender BlockFi, which has already disclosed it has large exposure to FTX, aims to lay off staff as it gets ready to file for bankruptcy. According to persons familiar with the case, the newspaper stated that BlockFi had collaborated with Kenric Kattner, a bankruptcy partner at Haynes & Boone. Requests for response from BlockFi and Kattner were not immediately entertained.

Separately, according to Bloomberg, insolvent cryptocurrency lender Voyager Digital no longer intends to sell itself to FTX, and Canadian cryptocurrency exchange Bitvo announced it has canceled its agreement to be acquired by FTX.

Sam Bankman-Fried, the founder and former CEO of FTX, stated in a tweet on Tuesday that his major objective is "to do right by clients."

"I'm doing everything I can to help with it. I'm meeting with regulators in person and collaborating with the teams to provide the best service to customers, he wrote on Twitter.

According to Bloomberg, American and Bahamian authorities have discussed extraditing Bankman-Fried to the US for questioning.

Even after the business had applied for bankruptcy protection and Bankman-Fried had resigned as CEO, he attempted to solicit money from investors over the weekend to pay back FTX customers, according to the Wall Street Journal.

In an interview with the New York Times that was published late on Monday, Bankman-Fried claimed that he overgrew his company and neglected to see warning signs at the exchange.