FTX collapse leaves almost 30,000 Australians in limbo

Thousands of local FTX users have been locked out of their accounts after the cryptocurrency platform collapsed into administration.

Almost 30,000 local FTX users are locked out of their accounts after the cryptocurrency platform collapsed into administration.

KordaMentha – called in on Friday by FTX founder Sam Bankman-Fried – are yet to finalise how much money is owed by the company but said local staff had been “completely transparent, collaborative and co-operative”.

Shortly after FTX Australia entered administration, its global operations filed for US bankruptcy protection, wiping billions of dollars in equity value and leaving its investors facing large losses.

The collapse of FTX, one of the largest trading platforms before a run of withdrawals and the abrupt cancellation of a deal to sell the operation to rival Binance, has had a major impact on the sector.

On Monday, Singapore-based exchange AAX said it would suspend activity “to avoid fraud and exploitation” while crypto lender BlockFi late last week said it could not conduct business as normal.

Locally, KordaMentha administrators have spent the weekend meeting with FTX’s New York restructuring advisers, and with the Australian Securities and Investments Commission.

FTX founder and CEO Sam Bankman-Fried. Photo by SAUL LOEB / AFP.

The first creditors’ meeting is set for Wednesday, at which time the full extent of the losses is expected to be revealed. That figure will be into the tens of millions of dollars, The Australian is told.

“Our review of the companies is ongoing, and we will continue to provide customers with updates,” KordaMentha’s Scott Langdon said on Monday. Customers have been told not to deposit funds or execute any trades.

Customers using the FTX platform to trade derivatives and similar financial products – and buying cryptocurrency – used FTX Australia and its subsidiary. The purchase of cryptocurrency using other cryptoassets was facilitated by an Antigua-based company.

FTX’s Australian managing director Jamie Kennedy did not respond to requests for comment.

At least $US1bn ($1.5bn) in customer funds are thought to have vanished from the FTX platform and government investigators in the Bahamas are now investigating whether FTX executives committed any crimes, the Royal Bahamas Police said.

Mr Bankman-Fried transferred $US10bn of customer funds to his trading company Alameda Research, sources said, while creditors in Australia and globally have been left in limbo.

Mr Bankman-Fried, now being investigated by the Securities and Exchange Commission, has since lost virtually his entire $US16bn ($24bn) fortune, one of the swiftest ever losses of wealth.

He has been replaced as FTX chief executive by John J Ray III, a restructuring expert and lawyer who led failed energy giant Enron through its bankruptcy.

Just hours after it filed for bankruptcy, FTX told customers it had been hacked, with users reporting $0 balances in their account wallets. “FTX has been hacked. FTX apps are malware. Delete them. Chat is open. Don’t go on FTX site as it might download Trojans,” an account administrator wrote a Telegram chat.

Ryan McMillin, managing director of local cryptocurrency fund manager Merkle Tree Capital, said the FTX collapse was already being seen as an indictment on the entire industry, and that the impact in terms of crypto prices and sell-offs has been severe.

“To lose such a prominent exchange is particularly devastating for retails investors; exchanges are the on ramp to crypto and it is critical trust is re-established quickly, otherwise we could see a ‘bank run’ on another exchange,” Mr McMillin said on Monday.

“’Crypto’ is not at fault here, it is just the underlying asset, a corporate entity and its senior management have failed, currently we don’t know if it was fraud or just poor governance and risk management,” he added. “If there is a silver lining I would hope that this is the catalyst for crypto legislation to jump the queue and receive the action it requires. Minimum requirements for exchanges and custody should be implemented as soon as possible.”

“As an industry we need to push out those participants that are excessively using leverage, as a new asset class volatility will be high for some time as such no level of leverage is particularly safe. We also need to work on disclosure, the opaque relationship between FTX and Alameda was called out by a few but not enough (people) took this seriously.

“We have just reanalysed all of our holdings and all of our counterparties and I encourage everyone to do that same, another thing we say in crypto is ‘don’t trust, verify’.”

FTX was using billions of dollars of money deposited by customers to pay for trades at an affiliated business, known as Alameda Research, with the undisclosed loans leading to large withdrawals and a funding crunch.

“The collapse of FTX is a seismic event that has placed and will continue to place significant strain on the international cryptocurrency market,” said Asher Tan, the chief executive of Melbourne crypto exchange CoinJar.

“CoinJar held a small account balance with FTX to facilitate our OTC trading desk operations and client trades. This trading balance represented less than 1 per cent of our gross assets and did not include any customer funds.

“Appropriate hedging activities have been conducted to ensure that there is no further impact to our balance sheet.”

Mr Bankman-Fried, 30, wrote in a Twitter post that he was “really sorry, again, that we ended up here”. “Ultimately I’m optimistic that Mr. Ray and others can help provide whatever is best,” he said in a post on Monday.