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Collapsed crypto exchange FTX could owe more than 1 million creditors

Sam Bankman-Fried, founder and chief executive of FTX Cryptocurrency Derivatives Exchange, spoke during the Institute of International Finance annual membership meeting in Washington, D.C., on Oct. 13.Ting Shen/Bloomberg

Collapsed crypto exchange FTX and its related businesses could owe money to more than 1 million people and organizations, according to documents filed in bankruptcy court Monday, illustrating the scope of a corporate meltdown that has drained traders’ accounts and plunged the crypto industry into crisis.

In FTX’s first substantive court filing since it filed for bankruptcy Friday, the company’s lawyers offered few details about the state of the business. But they said FTX was in touch with “dozens” of federal, state, and international regulators and law enforcement officials, including the Securities and Exchange Commission, the Justice Department, and the Commodity Futures Trading Commission.

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Those investigations began last week after a run on deposits left FTX with an $8 billion shortfall. In a stunning corporate drama, a company once regarded as among the safest and most reliable corners of the freewheeling crypto industry collapsed practically overnight.

The firm’s founder and chief executive, Sam Bankman-Fried, announced his resignation when the bankruptcy papers were filed Friday in federal bankruptcy court in Delaware. Bankman-Fried had agreed to step aside at around 4:30 a.m. that day, the new filing said, after consulting with his legal team.

He handed control to John J. Ray III, a veteran of corporate crises. Since then, Ray and other FTX officials have worked “around the clock” to get the company in order, according to the bankruptcy filing. The firm halted trading and responded to a “cyberattack” reported late Friday, the filing said.

Until last week, Bankman-Fried was considered a leader of the crypto industry. He was a frequent presence in the halls of Congress, where he tried to shape legislation governing the new and largely unregulated technology. He was also a prominent donor, contributing more than $5 million to President Biden’s election effort.

But his downfall was swift. A run on deposits last week left FTX unable to meet customer demand. Bankman-Fried struck a deal to sell his firm to its largest rival, Binance, a humbling capitulation after a lengthy online skirmish between Bankman-Fried and Binance’s chief executive, Changpeng Zhao. But a review of FTX’s finances turned up numerous problems, and Binance pulled out of the deal.

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Bankman-Fried scrambled to line up new finance but, unable to find a solution, filed for bankruptcy. Now the SEC and the Justice Department are investigating his management of FTX. They are focused on whether FTX improperly transferred customer funds to Alameda Research, a trading firm that Bankman-Fried also founded.

Alameda is among more than 100 related corporate entities that joined FTX in the bankruptcy filing Friday.