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Editorial Advisory Board

  • Professor Andrea M. Armani, University of Southern California
  • Ruti Ben-Shlomi, Ph.D., LightSolver
  • James Butler, Ph.D., Hamamatsu
  • Natalie Fardian-Melamed, Ph.D., Columbia University
  • Justin Sigley, Ph.D., AmeriCOM
  • Professor Birgit Stiller, Max Planck Institute for the Science of Light, and Leibniz University of Hannover
  • Professor Stephen Sweeney, University of Glasgow
  • Mohan Wang, Ph.D., University of Oxford
  • Professor Xuchen Wang, Harbin Engineering University
  • Professor Stefan Witte, Delft University of Technology

Update Regarding Entwistle & Cappucci LLP’s Investigation into FTX

This is a brief update on today’s legal developments relevant to Entwistle & Cappucci LLP’s ongoing investigation of FTX. We continue to speak with many Customers of FTX, Genesis and other platforms with frozen accounts, as well as various entities in which FTX and Alameda had investments. We focus only on this morning’s bankruptcy filings and leave the rest of the FTX reporting to others.

Today, FTX and its affiliates made various “First Day” filings in the U.S. Bankruptcy Court for the District of Delaware. The Declaration filed by new CEO, John J. Ray III, paints a bleak picture of abject financial, operational and corporate governance chaos. He describes financials that are wholly unreliable for each of the four “Silos” (read that to mean business groups) discussed. While records — such as they may be — are being gathered by the lawyers and accountants involved in the bankruptcy, a request has been made to the Court to extend the usual reporting and filing deadlines until late January 2023.

More significant for Customers is the fact that none of the internal financials made part of the filings show Customer account holdings/liabilities. The bankruptcy team reports it has retained forensic analysts to track these assets. Customers should expect a long and difficult process. Where records are in such disarray it is critical that Customers pull together and preserve their own records.

The Declaration also reveals the lack of records regarding investments by FTX and Alameda in other businesses, including the $1.5b of venture investments described. Records are so poor internally that a separate team is recreating files based on cash transactions “from the ground up.” This process will take some time. If you are a startup or other business in which FTX or Alameda invested, you should make sure you have preserved all records of those investments and any related materials. It is unclear what path the bankruptcy will take with regard to these investments, but for now they have been separately siloed with a separately appointed, new independent director, just as is the case for the exchange/trading entities.

Investors in FTX-related companies and other creditors should likewise be marshaling all documents and materials to support their claims. The lack of reliable records at the FTX entities will create meaningful issues here as well.

Regulators in the Bahamas filed an action in New York seeking recognition of those foreign proceedings (In re FTX Digital Markets Ltd., et al., No. 22-11516-mew (Bankr. S.D.N.Y.)), and the FTX estate has filed a motion to consolidate all proceedings in Delaware. Having all of this in one venue is clearly preferred as a matter of efficiency and keeping costs down. These proceedings are likely to generate a substantial additional amount of fees and costs before resolution, and venue fights will not help.

In other legal news, a suit was filed outside of bankruptcy against paid celebrity promoters of FTX earlier this week (Garrison v. Bankman-Fried, No. 1:22-cv-23752 (S.D. Fla.)). This filing mirrors a prior suit related to Voyager Digital.

This release is for informational purposes only and should not be construed as legal advice.

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