[Just filed. Developing Story.] November 11, 2022 – FTX Trading Ltd. (dba FTX.com), West Realm Shires Services Inc. (dba FTX US), Alameda Research Ltd and approximately 130 other affiliated companies (together, the "FTX Group" or the "Debtors") have filed for bankruptcy in Delaware. The Debtors’ lead petition notes over 100,000 creditors; estimated assets between $10.0bn and $50.0bn; and estimated liabilities between $10.0bn and $50.0bn. The Debtors are represented by Adam G. Landis of Landis Rath & Cobb LLP.
According to an announcement released on Twitter, Sam Bankman-Fried has resigned as chief executive officer and John J. Ray III has been appointed to replace him.
In the Twitter statement, the Debtors noted that the bankruptcy filing was done in "order to begin an orderly process to review and monetize assets for the benefit of all global stakeholders.''
John J. Ray III commented: “The FTX Group has valuable assets that can only be effectively administered in an organized, joint process. I want to ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder that we are going to conduct this effort with diligence, thoroughness and transparency.”
The following subsidiaries are not included in the Chapter 11 proceedings: LedgerX LLC, FTX Digital Markets Ltd., FTX Australia Pty Ltd. and FTX Express Pay Ltd.
In a hastily drafted “Omnibus Corporate Authority” attached to the Debtors' lead Petition, Sam Bankman-Fried authorized the appointment of John J. Ray III as CEO… the appointment of Stephen Neal “(if willing to serve) as Chairman of the Board…and one to three other individuals chosen by the CEO and not affiliated with me or the CEO as new directors of Alameda Research Ltd.”
Background
On Wednesday November 9th Changpeng Zhao's ("CZ") Binance announced that that it was pulling out of a deal to acquire the Debtors which it had only announced 24 hours earlier, with Binance claiming in the interim period to have progressed its diligence to the point where it had lost confidence in the Debtors’ business practices and claims as to assets. It also cited previously public investigations by US financial regulators (SEC and CFTC, with the SEC apparently showing renewed interest in FTX after the Binance offer was announced on Tuesday). “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance said in a statement on Wednesday.
As to that diligence, many will be shaking their heads as to the extraordinary pace of developments and the decision of Binance CEO Changpeng Zhao to pull the trigger on an offer for his rival. Reports have Changpeng Zhao reaching an agreement to buy FTX and backstop FTX's customer deposits following just a few hours of negotiations on Tuesday. “Before that, I had very little knowledge of the internal state of things at FTX,” Zhao provided in an internal memo to his staff on Wednesday.
Voyager Sale Agreement
FTX’s Chapter 11 filing is likely to have a significant impact on the Voyager Digital Holdings cases, as the Court hearing the Voyager cases issued an order on October 20, 2022 authorizing those Debtors to enter into an $1.4bn asset purchase agreement (“APA”) with West Realm Shires Inc. (“FTX US” or “Purchaser”) in respect of the sale of substantially all of the Debtors’ assets [Docket No. 581]. An amended APA dated as of October 20, 2022 is attached at Docket No. 582.
On November 11, 2022, Voyager said in a press release: "Voyager Digital Ltd. ('Voyager' or the 'Company') (OTC Pink: VYGVQ) (FRA: UCD2) and the Voyager Official Committee of Unsecured Creditors (UCC), which represents the interests of the general unsecured creditors, today announce that the company is evaluating strategic options as a result of the Chapter 11 filing by FTX Group. The no-shop provisions of the Asset Purchase Agreement between Voyager and FTX US are no longer binding.
For this reason, Voyager has reopened the bidding process for the company, and is in active discussions with alternative bidders. Voyager and the UCC are moving with all due care and deliberate speed to identify an alternative plan of reorganization consistent with the core objective throughout this process: maximizing the value returned to customers and other creditors.
It is important to note that Voyager did not transfer any assets to FTX US in connection with the previously proposed transaction. FTX US previously submitted a $5 million "good faith" deposit as part of the auction process, which is held in escrow."
The purchase price under the West Realm Shires APA is largely comprised of value ascribed to the Debtors' cryptocurrency "which at current market prices is estimated to be $1.311 billion.” FTX US’s bid is valued at approximately $1.422 billion, comprised of (i) the fair market value of all Voyager cryptocurrency at a to-be-determined date in the future, plus (ii) additional consideration that is estimated as providing approximately $111 million of incremental value.
The approval of the actual sale to FTX was conditioned on confirmation of Voyager's Plan.
About New CEO John J. Ray III
Ray, a Chicago lawyer, was brought in as a director at Enron in the midst of that company’s woes in the early 2000s.
A November 4, 2007 Chicago Tribune article gives more background on the new FTX CEO, stating, “Ray grew up in western Massachusetts. He graduated from the University of Massachusetts before attending law school at Drake University in Des Moines.
After a brief stint at an accounting firm he landed at the Chicago law firm of Mayer Brown in 1984. From there Ray went to the corporate world, first to Waste Management and then to Fruit of the Loom.
At the apparel company Ray got schooled in the rough-and-tumble world of bankruptcy. Less than two years after he was hired in 1998, Fruit of the Loom filed for bankruptcy.
As general counsel Ray orchestrated legal action against Bill Farley, the company's former chairman and CEO, in connection with a $65 million bank loan Farley obtained that the company had guaranteed. Farley fought the litigation but ultimately agreed to a multimillion-dollar settlement, Ray said….
As Fruit of the Loom was close to completing a deal to sell its assets to Warren Buffett for nearly $1 billion, creditors asked Ray to oversee the distribution of the money.
In 2002 he formed Avidity Partners and launched a new career. On the back of his business card he printed the definition of avidity: "characterized by enthusiasm and vigorous pursuit."
Since Fruit of the Loom, Ray has taken post-bankruptcy roles at Burlington Industries, another apparel-maker, and Hayes Lemmerz International, an auto-parts company, among other clients.
The experience helped him land the seat on Enron's board. And unlike some of his competitors in his niche in the insolvency industry, Ray has few ties to Wall Street.”
In addition to Enron, Ray has served as senior managing director at Greylock Partners, LLC and held chief restructuring officer and plan administrator positions at Overseas Shipholding Group Inc. and Nortel Networks Inc.
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