Bankrupt cryptocurrency exchange FTX was run as founder Sam Bankman-Fried’s “personal fiefdom,” with one of its divisions spending $300 million on Bahamas real estate for use by its executives, a court heard on Tuesday.
The hearing in Delaware bankruptcy court is the first since FTX filed for bankruptcy earlier this month.
A “substantial portion” of the FTX Group’s assets “have been stolen or are missing,” James Bromley, co-head of the restructuring practice at law firm Sullivan & Cromwell, told Judge John Dorsey.
“FTX was in the hands of inexperienced and unsophisticated individuals, and some or all of them were compromised individuals,” Bromley said.
News of the Bahamas real estate boom follows a Reuters report that Bankman-Fried’s FTX, his parents and senior executives of the cryptocurrency exchange have bought at least 19 properties worth nearly $121 million in the Bahamas over the past two years , according to official ownership records.
Bromley told the court that Congress had requested — “some would say demanded” — that FTX’s new CEO, John Ray III, appear before them in December. Any hearing is likely to be politically charged. FTX was a major donor to Democratic politicians.
“Will Joe Biden and the Democrats who cashed Bankman-Fried’s checks give that money to the people of SBF? [Sam Bankman-Fried] sewn?” Republican Senator Ted Cruz wrote on Twitter as the hearing took place.
Bromley said FTX was in “constant contact” with the Justice Department and the US Attorney’s Office in New York, which has opened a criminal investigation.
According to court documents, the failed cryptocurrency platform’s 50 largest clients owe nearly $3.1 billion following its sudden collapse. The court was told that FTX’s clients were mostly located offshore in the Cayman Islands and the Virgin Islands, which together accounted for a third of its clients. The next two largest customer bases were China and the UK.
The company has so far found about $1.4 billion in cash it says belongs to the company, more than double the figure reported to the court last week.
Dorsey agreed to edit the names of clients with credits on the exchange for now, but said he would review that decision.
Ray, who has overseen some of the biggest bankruptcies ever, including the collapse of energy giant Enron, described FTX’s failure as “unprecedented”. Its failure has shocked the entire cryptocurrency market.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information as here,” he said in court documents filed last week.
A lawsuit has been filed against Bankman-Fried, the company and the celebrities, including Larry David, Naomi Osaka, Gisele Bündchen and Tom Brady, who promoted it. Prosecutors and regulators have also launched an investigation into the company.
The next hearing on FTX’s bankruptcy will take place on December 16.