The End of FTX Troubles... Hidden Debts Exceed 10 Trillion Won

Restructuring Process Likely to Face Challenges
Global Cryptocurrency Market Shrinks 22% Due to FTX Shock

(Photo by Reuters)

[Asia Economy Reporter Yujin Cho] Additional insolvency suspicions have emerged regarding FTX, one of the world's top three cryptocurrency exchanges that declared bankruptcy. The hidden debt exceeds 10 trillion won. This amount is equivalent to one-sixth of the debt reported by FTX to the court when filing for bankruptcy. As additional insolvency suspicions continue to surface amid an urgent need for liquidity injection, the bankruptcy shock triggered by FTX is rapidly escalating.

On the 13th (local time), Bloomberg News, citing sources familiar with the matter, reported that an additional $8 billion (approximately 10.552 trillion won) in debt was identified as "hidden and internally unclassified" items on the financial statements of FTX International, FTX's coin trading platform.

This amount corresponds to about 16% of the $50 billion (approximately 66 trillion won) debt reported when filing for bankruptcy protection under Chapter 11 for 134 affiliates at the Delaware court on the 11th. The amount of assets withdrawn due to panic selling and a coin run over the past weekend reached $5 billion (approximately 6.595 trillion won).

Concerns about FTX's chances of recovery are growing as additional insolvency issues arise even before the rehabilitation process has begun. Bloomberg pointed out that institutional and individual investors who had large sums invested in FTX are unlikely to recover any funds. The cash equivalents disclosed by FTX currently amount to only $900 million.

The upcoming rehabilitation process is also expected to face challenges. Criticism has arisen that the 23-page bankruptcy protection application submitted by FTX to the court lacks typically required content such as "background of the application, immediate judicial assistance needed, and company goals." John J. Ray, who served as the liquidator during the Enron accounting fraud scandal, has been appointed as the new CEO of FTX to oversee the bankruptcy proceedings. In a statement released that day, CEO Ray said, "Details regarding FTX's bankruptcy filing will soon be submitted to the court."

Separately from the court's rehabilitation process, regulatory authorities have launched investigations into possible legal violations, including management's awareness of insolvency. Foreign media reported that Sam Bankman-Fried, the founder and former CEO of FTX currently residing in the Bahamas, was investigated by Bahamian regulators on the 12th, the day after FTX filed for bankruptcy. Bankman-Fried is also suspected of misappropriating about $10 billion of users' funds deposited at the FTX exchange to cover debts of the affiliate Alameda Research, the epicenter of the crisis. According to The Wall Street Journal (WSJ), some executives were aware in advance that Bankman-Fried had diverted funds to repay Alameda Research's debts.

Following the U.S. Securities and Exchange Commission (SEC), the Department of Justice (DOJ) has also launched an investigation. The SEC holds civil prosecution authority, while the DOJ has criminal prosecution authority. Although the extent of the DOJ's investigation is unknown, criminal charges may be possible depending on the results.

Recently occurring "unauthorized asset outflows" are also expected to be investigated. After filing for bankruptcy, FTX experienced numerous unauthorized transactions from its hot wallets (cryptocurrency wallets connected to the internet), resulting in the disappearance of over $1 billion in customer assets. After the large-scale outflow of funds, the company froze all assets. FTX stated that it is investigating the incident with the possibility of hacking but some suspect internal management involvement.

The collapse of FTX has significantly contracted the global cryptocurrency market. The total market capitalization of cryptocurrencies, which was $1.0576 trillion on the 5th just before the coin run at FTX, shrank by 22% to $823.5 billion within about a week. During the same period, Bitcoin's price fell from $21,282 to $16,389 as of 5:15 PM on the 13th.

U.S. CNN expressed concerns that the collapse of FTX could trigger a liquidity crisis across the cryptocurrency industry, likening it to a "Lehman Brothers event in the crypto world." Jay Jog, co-founder of blockchain startup Say Labs based in California, said, "The rapid collapse of FTX, one of the most trusted platforms in the cryptocurrency market, suggests that it will take a long time to restore confidence in the crypto market."

This content was produced with the assistance of AI translation services.