Week In Crypto: FTX ’Locates’ Over $5bn, Subpoenas Target Binance, More Coinbase Job Cuts

January 13, 2023
FTX “locates” more than $5bn in liquid assets, US investment firms that have worked with Binance receive subpoenas and Coinbase announces another round of layoffs, its second in two years.

FTX “locates” more than $5bn in liquid assets, US investment firms that have worked with Binance receive subpoenas and Coinbase announces another round of layoffs, its second in two years.

An attorney representing FTX has said that progress has been made in locating assets that were unaccounted for in previous public statements, but the full extent of FTX customer losses is still unclear.

"We have located over $5bn of cash, liquid cryptocurrency and liquid investment securities measured at petition date value,” said FTX attorney Andy Dietderich, speaking at a bankruptcy hearing in Delaware on Wednesday (January 11).

This is a significant improvement on the $1bn or so of liquid assets that FTX held on its balance sheet at the time of its bankruptcy filing in November last year, as previously reported by VIXIO.

Dietderich added that FTX continues to hold other illiquid crypto-assets, but is not currently factoring these into its financial health during bankruptcy.

“[FTX] does not ascribe any value to holdings of dozens of illiquid cryptocurrency tokens, where our holdings are so large relative to the total supply that our positions cannot be sold without substantially affecting the market for the token," he said.

In FTX’s final balance sheet prior to bankruptcy, it held about $5.5bn worth of what it called “less-liquid assets”, namely crypto tokens that are linked to FTX such as Serum, Solana and the FTX Exchange Token (FTT).

Also on Wednesday, Judge John Dorsey granted a request for FTX to sell four of its 134 affiliates to raise funds, and to seal the names of FTX’s creditors and customers on privacy grounds for at least three months, although this can be extended upon expiry.

The request to seal the names of creditors was objected to by media companies Bloomberg, Dow Jones, the New York Times and Financial Times, who were present at the hearing.

The media also objected to sealing the names of customers, but not their addresses and contact information. Dorsey said that future hearings must explore overlaps between FTX creditors and customers.

Elsewhere in the hearing, Dorsey dismissed a letter from four senators that had called for an new independent examiner to be appointed to the FTX bankruptcy case.

In a letter signed by Elizabeth Warren (D-MA), John Hickenlooper (D-CO), Thom Tillis (R-NC) and Cynthia Lummis (R-WY), the senators raised concerns about the impartiality of the current examiner, Sullivan & Cromwell.

Prior to the FTX bankruptcy, Sullivan & Cromwell had served as an advisor to FTX for several years, making $8.5m in legal fees in the process.

At one point, a partner of Sullivan & Cromwell served as FTX’s general counsel, and it was Sullivan & Cromwell who recommended that FTX appoint new CEO John Ray to handle its bankruptcy.

"Given their longstanding legal work for FTX, they may well bear a measure of responsibility for the damage wrecked on the company’s victims," the letter said.

Judge Dorsey, who dismissed the letter as “inappropriate”, responded that “I will make my decisions on the matters based only upon admissible evidence and the arguments presented in open court”.

Separately, this week the Southern District of New York published a statement inviting FTX customers to join its criminal case against former FTX CEO Sam Bankman-Fried, who is accused of wire fraud, securities fraud and conspiracy to commit money laundering, among other charges.

Binance partners hit by subpoenas

Meanwhile, on the west coast of the US, several hedge funds that have previously worked with Binance have received subpoenas from a district attorney’s office.

According to two people who spoke with the Washington Post on condition of anonymity, several investment firms in the Western District of Washington in Seattle have had their communications with Binance subpoenaed.

These subpoenas, which were sent out in “recent months”, have not previously been reported, and will add to speculation that the US Department of Justice (DOJ) is currently building a case against Binance.

In December last year, for example, Reuters said it had been told that DOJ officials are split over whether to issue criminal charges to Binance executives, including CEO Changpeng Zhao, for money laundering and sanctions violations.

According to Reuters, the ongoing inquiry into Binance involves three DOJ prosecutors’ offices: the Money Laundering and Asset Recovery Section (MLARS); the National Cryptocurrency Enforcement Team; and the district attorney’s office of the Western District of Washington.

A spokesperson for Binance US dismissed Reuters' article as "fueled with false insinuations".

In the meantime, in other jurisdictions, these enquiries seem not to have troubled Binance. This week, the Swedish Financial Supervisory Authority (FSA) granted Binance registration as a financial institution for management and trading in virtual currency.

This is the seventh such authorisation granted to Binance by an EU member state, alongside France, Italy, Lithuania, Spain, Cyprus and Poland.

Nexo raided - the next crypto lender to fall?

Elsewhere in Europe, this week regulators moved in on crypto lending platform Nexo. After many of its rivals, including Celsius, BlockFi and Voyager, have filed for bankruptcy in the past year, Nexo was one of the few solvent crypto lenders still standing.

However, following an investigation in its home country of Bulgaria, its offices in Sofia were raided, and the company has been accused of facilitating money laundering, tax crimes, fraud and unlicensed banking activities.

“For the last five years, more than $94bn have passed through the platform,” said Bulgarian attorney general Siika Mileva.

“Evidence has been gathered that a person who used the platform and transferred cryptocurrencies has been officially declared a financier of terrorism.”

Coinbase to cut 950 staff

Finally, US crypto exchange Coinbase announced this week that it is downsizing again. After cutting 18 percent of its staff in June last year, Coinbase said it has informed another 950 of its staff that they too will be laid off.

In a statement, Coinbase CEO Brian Armstrong said the job cuts were necessary to achieve its goal of reducing operating expenses by 25 percent quarter over quarter.

“In 2022, the crypto market trended downwards along with the broader macroeconomy. We also saw the fallout from unscrupulous actors in the industry, and there could still be further contagion,” he said.

“Coinbase is well capitalised, and crypto isn't going anywhere. In fact, I believe recent events will ultimately end up benefiting Coinbase greatly (a large competitor failing, emerging regulatory clarity, etc.), and they validate our long term strategy.

“But it will take time for these changes to come to fruition and we need to make sure we have the appropriate operational efficiency to weather downturns in the crypto market, and capture opportunities that may emerge.”

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