Founder quits as failure of FTX sends shockwaves through industry

The founder of the stricken cryptocurrency exchange FTX stopped in humiliation yesterday as his company collapsed.

Sam Bankman-Fried — once touted as the industry prodigy — resigned when the company filed for Chapter 11 bankruptcy in a Delaware court.

The submission will allow FTX to continue operating while it assesses its options.

But 30-year-old Bankman-Fried, better known by his initials SBF, will be replaced as chief executive by John J Ray III, a restructuring expert who previously oversaw the bankruptcy of infamous energy trading giant Enron. However, the now former chief executive will remain with FTX to help with an “orderly transition.”

The filing includes the company’s U.S. business, FTX.US, as well as Bankman-Fried Alameda Research’s trading arm and about 130 other affiliates. FTX’s collapse came after a last-ditch attempt to raise £8bn in bailout funding amid a flurry of customer withdrawals that backfired, sending shockwaves through the crypto industry.

Bitcoin, the world’s largest cryptocurrency, fell below $17,000 after falling below $16,000 for the first time in two years earlier in the week. Just a year ago, it peaked at $68,000.

The debacle forced Bankman-Fried to make another humiliating apology.

“I’m sorry, again, that we’ve ended up here,” the chief executive wrote on Twitter.

The confession came after Bankman-Fried admitted he “blew it up” earlier this week as the company rushed to save itself from bankruptcy.

It appeared to have been on the brink of rescue after arch-rival Binance, the world’s largest crypto exchange estimated to be worth around £255 billion, announced a shock takeover to save the company from a cash crisis.

But the planned purchase was quickly halted, with Binance concerned about FTX’s business practices and investigations by US regulators. The collapse of FTX marks a stunning fall from favor for Bankman-Fried, whose net worth earlier this year was estimated at around £22 billion.

Named the world’s richest person under 30 last year, the crypto entrepreneur has previously attracted Tony Blair and Bill Clinton to a crypto conference in the Bahamas.

Founded in 2019, FTX was once valued at £27 billion and was praised for trying to rescue other crypto firms when the market started to crash.

But those bailout deals are considered one of the main causes of FTX’s collapse.

Shares in other crypto-focused companies took a hit, with banking group Silvergate Capital falling 5.6 percent on Wall Street and bitcoin miner Riot Blockchain flat. Others likely to be thrust through bankruptcy include major FTX investors, including Japanese giant SoftBank, which reportedly drafted plans to write off its £85 million investment in the group.

One of the beneficiaries, however, was rival crypto exchange Coinbase, which rose 10.8 percent as investors believed the company was better able to weather the growing crisis in the crypto market.

There is increasing regulatory scrutiny of FTX’s activities and the possible causes of its collapse. Watchdogs in Australia, Japan and the Bahamas, where the exchange is based, have taken action before as concerns about the company’s condition mounted.

The U.S. Securities and Exchange Commission also recently expanded its own investigation into FTX, which is believed to include investigations into the company’s cryptocurrency-based lending products and client fund management.

Meanwhile, FTX’s rapid failure will heighten fears that contagion could spread across the £850 billion digital asset sector and potentially hit the broader financial system.

Earlier this week, Binance boss Changpeng Zhao warned that a “cascading” crisis could engulf the crypto sector and more companies will soon fail.