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FTX’s new boss says security was so weak that founders could ‘download half a billion dollars’ of crypto without detection

  • March 12, 2023
John J. Ray III and Sam Bankman-Fried.

John J. Ray III (left), the new CEO of FTX, and Sam Bankman-Fried, his predecessor.Nathan Howard/Getty Images; Michael M. Santiago/Getty Images

  • FTX’s new CEO berated the crypto exchange’s security in court testimony.

  • John J. Ray III said an FTX exec could have downloaded $500m of crypto and walked away.

  • Ray also described his first 48 hours in charge of FTX as “pure hell.”

FTX’s weak security meant its cofounders — who have both been charged with fraud — could easily have stolen hundreds of millions of dollars’ worth of crypto, the bankrupt firm’s new CEO said in court testimony.

John J. Ray III, who was drafted in to oversee FTX after its collapse and previously handled Enron’s liquidation, made the comments at the Delaware bankruptcy court Monday.

“Literally one of the founders could come into this environment, download half a billion dollars’ worth of wallets onto a thumb drive, and walk off with them,” he said in a recording of the hearing reviewed by Insider. “And there’d be no accounting for that whatsoever.”

Ray said FTX crypto wallets have now been moved into “cold storage,” adding that the crypto firm previously had “hot wallets in a system where multiple people had access to passwords.”

“Where we are today is pretty satisfying,” he added.

Then-CEO Bankman Fried resigned his position, and FTX filed for bankruptcy protection in the US on November 11. FTX lawyers later said the company ran out of assets partly because executives had a $65 billion line of credit to draw on customers’ funds.

Bankman-Fried was arrested in December and has pleaded not guilty to charges including fraud, money laundering, and campaign finance violations. When contacted by Insider, a spokesperson for Bankman-Fried declined to comment on Ray’s remarks.

Ray told the court Monday his first

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Celsius faces backlash after unveiling dull recovery plan to exit bankruptcy

  • March 6, 2023

Amid the ongoing bankruptcy hearing, the now-collapsed crypto lender Celsius Network has unveiled a plan to exit the process by rebranding it into a publicly traded recovery corporation.

Celsius lawyers shared that if the plan is approved, creditors with locked assets above an unspecified threshold will receive a token called the Asset Share Token (AST). Notably, the AST to be received will reflect the value of their assets, and holders would be entitled to earn dividends or sell them on the open market.

However, the plan has received backlash from the crypto community, with commentators terming it a potential scam. In particular, a Twitter user and commentator by the pseudonym Crypto_Tolkien suggested that the reorganization is a scam while questioning the issuance of a new token instead of the users’ originally deposited cryptocurrencies. 

“The fake reorganization is a scam to steal more of your funds locked on their platform and issue you a worthless “NEWCO” token instead of your Bitcoin, Eth, or Link. They are trying to block any other plan from being considered besides their own,” he said in a tweet on January 29. 

Controversy around payout threshold 

It is worth noting that the threshold for releasing the token has not been set, with Celsius lawyers stating that there are ongoing discussions around the matter with the Unsecured Creditors Committee (UCC). Consequently, Crypto_Tolkien alleged that the two entities are planning to steal more money.

“Celsius and the UCC are planning right now to steal your money that you withdrew 90 days prior to Celsius declaring bankruptcy through clawbacks. They don’tdon’t care if you used that money to pay taxes or for hospital bills. They will put a lien on your house and garnish your wages,” he said

Failure to get the right bids

Indeed, according to Celsius, the

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Gemini to put $100 million toward Genesis’ bankruptcy recovery plan

  • February 22, 2023

Crypto exchange gemini-to-contribute-100-million-to-genesis-bankruptcy-recovery-plan.html?&qsearchterm=gemini”Gemini will contribute $100 million in cash to a recovery plan for the bankrupt crypto lender Genesis Global Capital and its parent company, Digital Currency Group, the lender’s lawyers said in a court hearing Monday.

Gemini, founded by twins Cameron and Tyler Winklevoss, said it would keep aside the funds for users of its now-defunct Earn product. The 340,000 affected users had around $900 million of assets frozen when Genesis ceased withdrawals in November amid market volatility prompted by the bankruptcy of crypto exchange FTX. Genesis filed for bankruptcy last month.

“This plan is a critical step forward towards a substantial recovery of assets for all Genesis creditors,” Gemini told users in correspondence seen by CNBC. This shows “Gemini’s continued commitment to helping Earn users achieve a full recovery.”

The Winklevoss brothers had publicly blamed DCG’s Barry Silbert in the stranding of user funds. Gemini terminated Earn, a product that promised returns up to 8% on customer deposits, on Jan. 8. The Securities and Exchange Commission charged Genesis and Gemini with selling unregistered securities through Earn days later.

Gemini CEO Tyler Winklevoss, at the time, termed the SEC’s action “disappointing” and said it “does nothing to further our efforts and help Earn users get their assets back.”

The deal involving Genesis, DCG, Gemini, and all of Genesis’ creditors is aimed at refinancing the $500 million worth of cash and bitcoin that Genesis loaned to DCG to fund Silbert’s venture investments.

Genesis faced rough water since last July, when crypto hedge fund Three Arrows Capital defaulted on a $2.4 billion loan from the firm following the collapse of the Terra ecosystem. DCG issued a $1.1 billion promissory note to Genesis for 3AC’s collapse.

The Winklevoss twins criticized the move as “a complete gimmick that did

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FTX Bankruptcy Lawyers Say Independent Examiner Would Put Assets at Risk

  • February 8, 2023

The judge overseeing the FTX bankruptcy proceeding still hasn’t decided whether he will appoint an independent examiner after a 4-hour hearing that included testimony from FTX CEO John Ray III.

Judge John Doresey, who’s overseeing the bankruptcy proceedings, said Monday he’s asked the attorneys representing FTX, the unsecured creditor committee, U.S. Trustee and the Joint Public Liquidators of the Bahamas to discuss “a consensual resolution.” The next FTX court hearing is scheduled for Wednesday, but there’s no sign yet the judge will make a ruling then.

Ray was appointed when crypto exchange FTX filed for bankruptcy and founder Sam Bankman-Fried stepped down on November 11. The company, once an influential giant in the industry, is accused of having commingled client funds with those of its sister company, Alameda Research—a crypto trading firm also founded by Bankman-Fried.

Ray said during his testimony on Monday that he and his team have been fielding daily requests from state and federal investigators. Ray also testified that he did not find examiner’s reports helpful in two prior bankruptcies he’s overseen, Enron and Residential Capital, adding that “the reports were somewhat ambivalent in the conclusionary sense.”

The FTX legal team has been arguing that the cost of an independent examiner would be significant and duplicate a lot of the work that Ray’s team has been doing since November.

Between the day that he was appointed and the end of last year, Ray said that he has done $690,000 worth of work for the company.

But the U.S. Trustee assigned to the case, Juliet Sarkessian, argued that 18 states have voiced their support for an examiner to be appointed. The latest has been Texas, which filed its joinder last week along with 15 other states.

James Bromley, an FTX attorney, argued that “to allow anyone else

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