SBF Contests FTX Insolvency Allegations with New Report
By: Eliza Bennet
Sam Bankman-Fried, the former CEO of the now-defunct cryptocurrency exchange FTX, has issued a report from prison challenging the dominant narrative surrounding the collapse of his company in November 2022. In this 15-page document, he asserts that FTX's downfall was not due to insolvency, as widely reported, but rather a liquidity crisis triggered by a rapid $5 billion withdrawal by customers within two days.
Bankman-Fried claims that FTX and Alameda Research, its trading arm, held substantial assets valued at $25 billion and equity worth $16 billion, against liabilities amounting to $13 billion. He argues that under normal operating conditions, these figures would have enabled FTX to fully repay its customers and maintain significant equity value.
The report is part of a broader effort to reframe the collapse as a mismanaged liquidity problem rather than fraudulent insolvency. Bankman-Fried contends that lawyers and the new CEO, John J. Ray III, prematurely pushed FTX into Chapter 11 proceedings, halting a potential rescue operation.
While Bankman-Fried employs a speculative interpretation by valuing FTX's asset portfolio against the 2023-2025 market recovery, critics argue that such 'solvency by hindsight' does not align with bankruptcy law, which freezes claims at the date of filing and seeks recovery rather than risky speculation. The former FTX legal team holds that at the time of its collapse, the firm had a substantial asset-liability mismatch and was actively fabricating asset valuations.
Market observers emphasize that any supposed recovery is speculative given the circumstances at the time of bankruptcy, and decisions made by the bankruptcy estate have likely preserved creditor value more effectively than letting the exchange continue. Despite Bankman-Fried’s assertions, it remains evident that on the crucial November timeline, FTX was unable to satisfy its immediate obligations, marking a critical liquidity and trust crisis.
