FTX has recovered $7.3 billion, tells court “the dumpster fire is out”

FTX's new leadership has recovered $7.3 billion in assets and is considering whether to restart the cryptocurrency exchange, a company lawyer reportedly said during a hearing at US Bankruptcy Court in Delaware yesterday. The "$7.3 billion in cash and liquid crypto assets" is "an increase of more than $800 million since January," Reuters reported.

"The situation has stabilized, and the dumpster fire is out," FTX attorney Andy Dietderich said at the hearing. Dietderich was also paraphrased as saying that "FTX is negotiating with stakeholders about options for restarting its crypto exchange, and it may make a decision on that in the current quarter."

FTX founder and former CEO Sam Bankman-Fried, who is facing 13 criminal charges, is accused of improperly diverting billions of dollars of FTX customer funds to sister company Alameda. Bankman-Fried received about $2.2 billion in payments and loans from FTX entities, FTX said last month. Three other former executives have already pleaded guilty to criminal fraud charges.

Accounting mess

The difficulty of tracking down assets was detailed a few days ago in an interim report filed in court.

"We sometimes find $50m of assets lying around that we lost track of; such is life," Bankman-Fried wrote in an internal message quoted in the report. Bankman-Fried called Alameda "unauditable" because "we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history."

The FTX Group had 56 entities that "did not produce financial statements of any kind," while other parts of the corporation "relied on a hodgepodge of Google documents, Slack communications, shared drives, and Excel spreadsheets and other non-enterprise solutions to manage their assets and liabilities," the interim report said.

The report also detailed security failures such as storing private keys to over $100 million in ethereum assets in plaintext.

Reboot details up in the air

FTX's new leadership has said it's trying to figure out how much money it can return to creditors. But in court yesterday, Dietderich "offered few details on what a reboot [of the crypto exchange] might mean for FTX customers whose crypto deposits have been locked up during the bankruptcy case," Reuters wrote.

There are several questions to be answered before FTX can restart. Reuters wrote:

FTX would need significant capital to restart its crypto exchange, because the existing customer interface had little connection to the movement of money behind the scenes, the lawyer said.

"The app worked beautifully, but in truth it was a facade," Dietderich said.

It is not clear whether FTX should use its own funds to restart the exchange, rather than using the money to repay customers, Dietderich said. Restarting the exchange might require outside funding or a sale of the exchange's assets.

In January, FTX's new CEO, John Ray, discussed possibly restarting the exchange. "Everything is on the table," he told The Wall Street Journal. "If there is a path forward on that, then we will not only explore that, we'll do it."

FTX would examine whether it can return more money to creditors by reviving the exchange than by liquidating or selling all the assets. "There are stakeholders we're working with who've identified what they see is a viable business," Ray said during the January interview.