FTX’s local users to lose ‘very significant’ sums

The collapsed exchanges receivers warn it is unlikely many will see their money, with emails showing some customers claiming to be owed more than $1m.

Administrators of collapsed cryptocurrency exchange FTX’s local arm have warned some Australian customers have lost “very significant” sums of money and that many are unlikely to see the return of their investment, as the company’s failure roils the sector.

KordaMentha’s Scott Langdon has asked for more time to convene a first creditors’ meeting, and in legal filings said 29,234 separate customers have been identified as having lost significant property, and “recoverability and current value are yet to be determined”.

“The major constituent stakeholders are a broad range of customers who have spent funds (in many cases very significant sums) purchasing cryptocurrencies,” Mr Langdon wrote in an affidavit.

FTX Express has $39m in its accounts and FTX Aust has $3m, the administrators have so far found.

“I am informed by the directors and believe that the companies have little else in the way of assets other than the funds in the bank accounts,” Mr Langdon wrote.

“The administrators are continuing to conduct investigations into the affairs of the companies. We have not yet been able to determine who has the beneficial entitlement to the funds that were held in the bank accounts.”

Emails sent to the administrators show customers claiming to be owed as much as $US1m.

Chaos in the sector has continued to spread, with crypto lender Genesis approaching Binance – the same platform which reneged on a deal to acquire FTX – for an investment and to bid for its loan book, the Wall Street Journal reported. Genesis, which had sought an $US1bn ($1.5bn) loan, said on Tuesday that it had no plans to file for bankruptcy “imminently”.

Separately, Australian bitcoin miner Iris Energy, which is listed in New York and counted among its backers Platinum Asset Management and Mike Cannon-Brookes’ Grok Ventures, said it was being asked to repay $US107.8m in debt.

On Tuesday, the organisation representing Australian crypto exchanges said its members – which include Binance, Swyftx, Independent Reserve, Coinbase and CoinJar – had committed to holding customer balances on a 1:1 basis, providing regular financial audits.

“There’s going to be a period now between FTX’s collapse and the arrival of regulation, which immediately needs to be filled with concrete commitments to transparency,” Swyftx chief executive Alex Harper said.

“We have no intention of leaving our customers with any uncertainty as to how seriously Swyftx takes the protection of their assets. FTX isn’t the first business to treat its customers with contempt and … won’t be the last.

“But it is an imperative that no cryptocurrency exchange on our own shores ever exercises such a total failure of corporate controls,” he added.

“Our priority now is to support the Australian government to develop fit for purpose regulations that allow Aussies to use domestic exchanges and don’t force them to use unregulated or unsafe offshore exchanges.”

Documents lodged in court by FTX’s local administrators, Korda Mentha, also disclosed more than 280 emails have been received from customers, some using colourful language to demand their funds back.

“How do I get back my stolen etherium (sic) money?” one creditor wrote to the administrators. “Following the news this morning about FTX in voluntary Administration, I would like my eighty-three thousand Au $ back Please,” another wrote.

The collapsed cryptocurrency exchange owes its 50 biggest global creditors nearly $US3.1bn, according to a separate US bankruptcy court filing.

FTX owes an estimated 1 million creditors, after the company led by Sam Bankman-Fried filed for bankruptcy on November 11 in one of the largest collapses in corporate history.

“Representatives of KordaMentha will this week meet with the FTX Group bankruptcy advisers Alvarez & Marsal and Sullivan & Cromwell in New York,” a KordaMentha spokeswoman said. “Maximising the return for Australian customers and creditors remains our priority. We have empathy for those many thousands of FTX customers in Australia seeking clarity.”

Until a short time ago one of the world’s largest cryptocurrency exchanges, FTX’s downfall has stunned the crypto industry and drawn comparisons to similar corporate failures like Enron and Lehman Brothers.

John Ray, a veteran restructuring executive, has been appointed FTX’s chief executive, and compared FTX unfavourably to that of Enron, whose bankruptcy he also oversaw.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” he said.

Amid FTX’s collapse, web traffic data from Similarweb provided to The Australian shows investors are abandoning centralised exchanges in favour of decentralised, user-controlled crypto wallets and “cold” hardware USB wallets.

Daily visits to ledger.com, one of the leading makers of hardware wallets, tripled in the days following FTX’s collapse. And over the past month, search activity related to “crypto wallets” in general and hardware wallets has increased dramatically.

Bitcoin prices are trending overwhelmingly negative and have sunk to multi-year lows, with many investors selling their holdings, while local crypto companies are attempting to pick up the pieces left in the wake of FTX’s collapse and deteriorating investor sentiment.

High-profile US sports stars and personalities have been named in a lawsuit over deceptive practices targeting investors who became victims of the stunning collapse of cryptocurrency exchange FTX. Picture: Stefani Reynolds/AFP