A week after makeup brand Morphe announced on Twitter that it would be closing all U.S. stores, its parent company, Forma Brands, has filed for Chapter 11 bankruptcy.
Forma Brands is the incubator and holding company behind cosmetic labels such as Morphe, Jaclyn Cosmetics, Playa, Lipstick Queen and Ariana Grande‘s R.E.M. Beauty. In an official statement, Forma confirmed that its assets would be acquired by a group of lenders including Jefferies Finance LLC, Cerberus Capital Management LP and Intermediate Holdings LLC. Forma was given roughly $33 million dollars from creditors to support business operations through the sale process.
The bankruptcy news isn’t exactly unexpected: Forma is among the many brands facing significant challenges post-pandemic, and it’s seen a string of controversies with influencers, supply chain woes and the recent store closures.
Revenue began to fall short of ambitious targets in 2021, and around the same time, the brand became plagued with controversies surrounding collaborations with mega influencers like Jeffree Star and James Charles, who were the subjects of public scrutiny for multiple questionable statements and actions.
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At the same time came a string of business missteps. In 2020, Forma acquired Playa, a hair-care line, and Lipstick Queen, a lipstick brand, and introduced its own skin-care and supplement lines. All of these projects failed to meet projected sales, per reporting by Business of Fashion; in December of 2022, Playa’s founder sued Morphe and General Atlantic, Forma’s owner, for mishandling the brand after it was acquired.
By October of 2022, Business of Fashion confirmed that Forma was exploring emergency options amid financial insecurity. Reorg Research also estimated the company was roughly $600 to $700 million in debt.
Forma isn’t the only influencer-driven beauty company experiencing uncertainty at the moment; on Tuesday came news that influencer-led brands Selfless by Hyram (helmed by Hyram Yarbro) and Item Beauty (fronted by Addison Rae) would be exiting their Sephora retail partnerships. Together, these developments signal a shifting tide and a loosening grip in the hold influencer brands once had on the industry as consumers turn to the time-tested expertise of professional-backed brands.
The naming rights deal between FTX and Miami-Dade County was terminated Wednesday by a federal bankruptcy court, a move that allows the collapsed cryptocurrency exchange’s brand to be stripped from the arena where the NBA’s Miami Heat play.
The order means that before long — and probably starting very soon — all FTX signage and advertising at the arena will be removed. There was no immediate word from the Heat or the county on when the process will begin.
That will be a massive undertaking. There is FTX branding on the arena’s roof, on the basketball court, over many of the entrances, on the polo shirts worn by security personnel and even on many of the electronic cards employees use to gain access to the facility.
Terminating the rights deal “shall be effective immediately upon entry of this order,” U.S. Bankruptcy Judge John T. Dorsey wrote.
The FTX sign at FTX Arena on Dec. 8, 2022 in Miami, Florida.
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The county asked for the naming rights deal to be terminated in November, saying at the time that continuing to refer to the building as FTX Arena will only add to the “enduring hardships” brought on by the collapse of the cryptocurrency exchange.
The county owns the arena and negotiated what was to be a 19-year, $135 million naming rights deal with FTX. The Heat were to receive $2 million annually as part of that deal, which went into effect in June 2021.
FTX’s next payment due to the county was to have been $5.5 million on Jan. 1.
FTX was the third-largest cryptocurrency exchange, though it ended up with billions of dollars’ worth of losses — estimates range from $8 billion to $10 billion — before seeking bankruptcy protection after a spectacular crash that took only a few days.
Its founder, Sam Bankman-Fried, 30, was arrested last month in the Bahamas and extradited to the U.S. to face criminal charges in what U.S. Attorney Damian Williams has called “one of the biggest frauds in American history.” Bankman-Fried has been released on bail and is scheduled to go on trial in October.
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Voyager Digital Ltd. won court approval to sell its crypto platform to Binance.US for $20 million as part of Voyager’s plan to liquidate in bankruptcy.
Under terms of the deal, about $1 billion worth of assets that Voyager holds on behalf of customers would be taken over by Binance, which will then give account holders the option to cash out. The deal cannot close until U.S. Bankruptcy Judge Michael E. Wiles approves the related bankruptcy liquidation plan.
Customers will have the right to vote on the Binance deal in the coming weeks when they are asked to consider supporting the liquidation plan, Voyager lawyer Christine A. Okike said during a court hearing held by telephone Tuesday.
Wiles overruled objections from federal regulators and a handful of states, which questioned whether Binance was financially stable enough to close the proposed transaction and how the company would fulfill its pledge to cash out customers. Once minor wording changes are made, Wiles said he would sign a final order allowing Voyager to enter a contract with Binance and to send creditors an outline of the deal and the liquidation plan for a vote.
The approval brings Voyager one step closer to shutting down after it became an early victim of the severe drop in crypto currency values that began earlier this year.
Voyager was founded in 2018 as a crypto trading platform and grew rapidly, reaching a peak of 3.5 million users and more than $5.9 billion of cryptocurrency assets, according to court records. It currently has about 1.2 million customer and $1 billion in assets, which are frozen on the platform until the bankruptcy case ends.
The company originally had a deal to sell its platform to FTX that would have brought Voyager about $51 million in cash, before that crypto firm filed its own bankruptcy amid fraud allegations. After the FTX deal fell apart, Binance made its offer, which would bring in $20 million.
The bankruptcy is Voyager Digital Holdings Inc., 22-10943, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).
Coinbase Chief Executive Brian Armstrong does not mince words.
Nearly two months after rival Sam Bankman-Fried’s empire went bankrupt, he’s just delivered a massive blow to what until recently was the institutional face of crypto.
Bankman-Fried’s empire consisted of the FTX cryptocurrency exchange. Before its rout, it was the third largest cryptocurrency exchange based on volume after Binance and Coinbase. FTX last February was valued at around $32 billion.
Besides FTX, Bankman-Fried also founded Alameda Research, a hedge fund that also serves as a cryptocurrency trading platform for institutional investors.
The two companies had to file for Chapter 11 bankruptcy on Nov. 11 after they were unable to meet the massive withdrawals of funds requested by their customers and investors.
Armstrong: ‘Dark Times Weed Out Bad Companies’
The Department of Justice and the Securities and Exchange Commission have filed a series of civil and criminal charges including fraud and conspiracy to defraud FTX clients and investors.
“Bankman-Fried was orchestrating a massive, yearslong fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the SEC alleges in its civil complaint.
Bankman-Fried, known in the crypto space by his initials, SBF, was extradited to the U.S. on Dec. 21 by the authorities of the Bahamas, where he lived and where FTX is headquartered.
He was released after his parents, both law professors at Stanford University, signed a $250 million recognizance bond pledging their California home as collateral. Two other friends with significant assets also signed, according to news reports.
During a Jan. 3 hearing in U.S. District Court in New York, Bankman-Fried pleaded not guilty to the charges against him. Bankman-Fried’s trial is scheduled for Oct. 8.
Like many in the crypto industry, Coinbase’s Armstrong appears persuaded that Bankman-Fried is guilty.
“In 2022, the crypto market trended downwards along with the broader macroeconomy,” he wrote to Coinbase employees on January to announce a new wave of layoffs. “We also saw the fallout from unscrupulous actors in the industry, and there could still be further contagion.”
“Dark times also weed out bad companies, as we’re seeing right now. But those of us who believe in crypto will keep building great products and increasing economic freedom in the world.”
Armstrong Stays Optimistic About Crypto Future
Unlike FTX, Coinbase (COIN) – Get Free Report is a public company. This means that it is more transparent, particularly vis-à-vis investors, and is closely monitored by regulators, including the SEC.
The company’s books are also published at the end of each quarter, which enables everyone to examine them closely and get a good idea of the health of the platform.
This was not the case of FTX, which was a private company. The fallen crypto exchange did not have to open its books to investors or anyone else. As a result, investors and customers had to believe everything its leaders wanted to tell them.
After these blows against Bankman-Fried and his empire, Armstrong wants to be optimistic about the future of the crypto industry, which has been weakened by repeated scandals.
“Despite everything we’ve been through as a company and an industry, I’m still optimistic about our future and the future of crypto,” he wrote.
“Progress doesn’t always happen in a straight line, and sometimes it can feel like we’re taking two steps forward and one step back.
“But just like we saw with the internet, the most important companies not only survive but thrive during down markets by being rigorous with cost management, and continuing to build innovative products.”
Coinbase has, in less than a year, cut 38% of its workforce, or nearly 2,000 people. The company saw its stock plummet: When it went public in April 2021, Coinbase stock had risen to $341. It is currently trading around $43, a fall of 88% in less than two years.
Bed Bath & Beyond said in a filing with the Securities and Exchange Commission (SEC) on Thursday that it is doubtful it could continue operating the business — i.e., the company is staring down bankruptcy.
Bloomberg / Contributor I Getty ImagesBloomberg store closing sale in September.
Based on “recurring losses and negative cash flow from operations… as well as current cash and liquidity projections, the Company has concluded that there is substantial doubt about the Company’s ability to continue,” it wrote in the filing.
Still, the company is trying to get out of the hole.
But according to Insider, there’s another problem: Inventory levels are low, with stock at 53% for the end of last month, compared to 61% at Kohl’s for example, per DataWeave, an e-commerce analytics company.
This was due to Bed Bath & Beyond’s lack of credit to purchase inventory, said Bobby Griffin, an analyst at Raymond James, per Insider.
It’s a vicious cycle — low inventory could mean lower sales.
After 27 years of positive growth, Bed Bath & Beyond began to have problems in 2018, per a podcast from The Wall Street Journal. The chain was founded in 1971.
A new CEO, Mark Tritton, who took over the chain in 2019, focused on “private label” brands made by the store itself and hurried a host of them to market. During the home goods boom of 2020, sales were up, seeming to advocate for his strategy.
Then, later in 2021, sales began to tank. The products, as the podcast noted, were not well thought out nor of high quality. Tritton was pushed out in June.
Bed Bath & Beyond now has some $3 billion in debt on its balance sheet as of March, per The New York Times, and is low on cash and time for new CEO, Sue Gove, to make large-scale changes.
The company also announced in September it would cut 20% of jobs and close 150 stores. The holiday season didn’t provide hoped-for capital to rescue the business, one expert told the paper.
“Before Christmas, there was just a glimmer of hope,” said Neil Saunders, managing director of GlobalData, per the outlet. But, he added, “things have just got worse.”
The company in its preliminary quarterly data said it expected to report a $385.8 million loss for the quarter ending in November 2022.
The company also had a meme stock moment, where renegade investors take on a stock that is not performing well and kick Wall Street in the process, in August 2022 and in 2021, but the company’s stock is way back down to earth, trading at just $1.31 a share Friday afternoon, compared to $13.80 around this time last year.
And things in stores are not looking good, as Insider noted. The company has just 39% inventory availability in lighting and kitchen. The company also cited inventory issues as a reason it is considering bankruptcy in its SEC filing.
Bankruptcy, however, could still mean the chain sticks around. The process often gives companies a chance to restructure.
“What we’ve seen many times is that it ends up being a stay of execution,” Michael Baker, who studies retail at investment banking firm D.A. Davidson, told The New York Times.
“Sometimes that works, but oftentimes you see an announcement of scaling back and having fewer stores, and then that’s followed by a complete liquidation,” he added.
Bed Bath & Beyond is considering declaring bankruptcy. The home goods store announced plans last summer to lay off about 20% of its corporate employees and close around 150 stores.
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The Democratic-controlled House Ways and Means Committee released six years of former President Donald Trump’s tax returns, ending Trump’s years-long legal battle to keep them secret. Meanwhile, the Jan. 6 committee has released another round of witness transcripts. Scott MacFarlane reports.
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Three months after taking control of Twitter, Elon Musk is adopting a less pessimistic tone about the future of the social network, which he defines as the Town Square of our time.
A few weeks ago, the billionaire was worried about the financial health of the platform, which saw an exodus of advertisers, while advertising revenue constituted 91% of Twitter’s revenue in the second quarter. The rest was subscriptions.
The company has not posted its third quarter results. As a private company now, it was delisted and therefore no longer has a legal or regulatory obligation to publish its results.
In the midst of the advertiser exodus, Musk said “the company is losing over $4M/day.” He reiterated that pessimistic view during a Twitter Spaces on December 20. He said that the platform was on track to hit $3 billion in negative cash flow before the drastic cost cuts he made. At least 5,000 of the company’s 7,500 employees, when he arrived, have been fired or left.
Like most social networks, advertising is bread and butter for Twitter, but many brands shunned the platform, waiting to see where Musk was going in terms of content management policy.
Major Changes
The billionaire, who defines himself as a “free speech absolutist,” believes that any message is acceptable on the platform as long as it does not violate the law. As a result, he reactivated most of the accounts, often extremist, banned by the old management because they violated the safeguards put in place to prevent the social network from turning into a “hellscape.”
For many advertisers, Musk’s laissez-faire approach risks spouting hate and xenophobia on the platform, a risk they don’t want to take, having their brands associated with such messaging.
Musk, however, has said there has been a sharp drop in hate speech since he took over, but some groups argue otherwise.
“There are about 500M tweets per day & billions of impressions, so hate speech impressions are
To limit the weight of advertising in Twitter’s income, Musk, who must also pay considerable interest on the debt of $13 billion that he contracted personally to finance the Twitter deal, wanted to reinvent Blue, the platform’s subscription service.
He integrated the checkmark, which means that an account has been verified, to Blue and increased the price to $7.99 per month, also adding other features. The problem is that these changes were disrupted by the appearance of numerous impostor accounts, which forced Musk to suspend new signups to Blue for many weeks. Companies, like pharmaceutical giant Eli Lilly and defense company Lockheed Martin, have seen impostor accounts posting messages impersonating them.
‘Twitter Isn’t Secure Yet’
According to Bloomberg News, the Techno King layered a significant amount of high-interest debt on Twitter’s balance sheet as part of his buyout. The company’s debt load swelled to about $13 billion — up from $1.7 billion pre-deal — and it’s now facing annual interest payments approaching $1.2 billion.
Its borrowing could get even more expensive because the interest rates on about half of that debt aren’t locked in and will rise with the market.
But Musk, who announced his resignation as CEO of Twitter, now says things aren’t so dire financially. The financial situation of the social network is improving, the billionaire has just said.
But the specter of bankruptcy is not completely ruled out.
“We’ve gotten the expenses (of Twitter) under control, so the company’s not like on the fast lane of bankruptcy anymore,” the billionaire said during the All-In Podcast on December 24. “And we’re releasing features faster than Twitter’s history, at the same time as having contained the costs and, and reduced the cost structure by a factor of 3, maybe, maybe 4.”
He subsequently reiterated this cautious optimism with a similar message posted on the platform a little later.
“Twitter isn’t secure yet, just not in the fast lane to bankruptcy,” the serial entrepreneur said. “Still much work to do.”
The situation is getting worse for Sam Bankman-Fried, whose crypto empire went bankrupt just days after being at the center of the crypto sphere.
The regulators, who are trying to piece together what happened, and especially how the FTX cryptocurrency exchange, which was valued at $32 billion in February, could implode overnight.
In addition to FTX, Bankman-Fried, known by the initials SBF, also founded Alameda Research, a hedge fund that also served as a trading platform for cryptocurrencies and other crypto-related financial products for institutional investors.
The regulators filed a series of criminal and civil charges against Bankman-Fried, whom they accuse of alleged fraud. They now have the testimonies of two lieutenants of the former crypto king, who agreed to cooperate in exchange for the leniency from the regulators.
Zixiao (Gary) Wang, 29, FTX co-founder and former Chief Technology Officer, and Caroline Ellison, 28, the former CEO of Alameda Research, pled guilty, on Dec. 19, to multiple federal fraud charges and agreed to cooperate with prosecutors.
‘I Knew That It Was Wrong’
The first testimonies of Ellison to the investigators are real bombs launched against Bankman-Fried. She states, in particular, that she and her former boss and boyfriend knowingly enabled and concealed Alameda’s level of borrowing from FTX.
“I knew that it was wrong,” Ellison said about her actions, according to a transcript of her plea hearing released on Dec. 23. This is what she told a federal judge in Manhattan on Monday in entering her guilty plea, according to a transcript of the hearing that was unsealed on Friday.
“From 2019 through 2022, I was aware that Alameda was provided access to a borrowing facility on FTX.com, the cryptocurrency exchange run by Mr. Bankman-Fried,” she added. “In practical terms, this arrangement permitted Alameda access to an unlimited line of credit without being required to post collateral, without having negative balances and without being subject to margin calls on FTX.com’s liquidation protocols.”
Ellison also said that: “If Alameda’s FTX accounts had significant negative balances in any particular currency, it meant that Alameda was borrowing funds that FTX’s customers had deposited on the exchange.”
Ellison, who appears to be a formidable witness for investigators to build and solidify their case against Bankman-Fried, said she was fine with hiding the close relationship between Alameda and FTX from investors. She also went along with Bankman-Fried’s decision to divert FTX clients’ funds to pay off Alameda loans.
‘I Agreed With Others’
“I agreed with others to borrow several billion dollars from FTX to repay those loans,” Ellison said.
Ellison’s testimony completely sweeps away SBF’s defense line, who had asserted in several media interviews that he had no intention of defrauding FTX customers.
“I made a lot of mistakes,” Bankman-Fried said during his first interview with the New York Times/DealBook on Nov. 30. “There are things I would give anything to be able to do over again. I didn’t ever try to commit fraud on anyone.”
SBF was extradited to the United States on Dec. 21 by the authorities of the Bahamas, where he lived and where FTX is headquartered. He was released after his parents, both law professors at Stanford, signed a $250 million recognizance bond pledging their California home as collateral. Two other friends with significant assets also signed, according to news reports.
Such a bond doesn’t require full payment up front, but comes into effect if a defendant misses a court hearing, or skips town.
Bankman-Fried will live at his parents’ house and will be required to wear an ankle bracelet to monitor his whereabouts during the pre-trial period, which could be lengthy, given the size and scope of the FTX collapse.
Justice Department prosecutors filed eight criminal counts against Bankman-Fried, according to the indictment unsealed on Dec. 13. Four of the charges, including conspiracy to commit wire fraud on customers and lenders and wire fraud, indicate that the alleged acts began as early as 2019. This is the year FTX was founded.
“Bankman-Fried was orchestrating a massive, yearslong fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the SEC alleges in its civil complaint.
Gary Wang
Gary Wang, the co-founder of FTX, said, during his plea hearing, that he was “directed” to make changes to FTX’s platform code in order to benefit Alameda. He also claimed that he was aware of misrepresentations being made to clients and investors.
“I knew what I was doing was wrong,” Wang said, according to the transcript.
As a crypto exchange, FTX executed orders for clients, taking their cash and buying cryptocurrencies on their behalf. FTX acted as a custodian, holding the clients’ crypto.
FTX then used its clients’ crypto assets, through its sister company’s Alameda Research trading arm, to generate cash through borrowing or market-making. The cash FTX borrowed was used to bail out other crypto institutions in summer 2022.
At the same time, FTX was using the cryptocurrency it was issuing, FTT, as collateral on its balance sheet. This was a significant exposure, due to the concentration risk and the volatility of FTT.
The insolvency of FTX stemmed from a liquidity shortfall when clients attempted to withdraw funds from the platform. The shortfall appears to have been the result of Bankman-Fried allegedly transferring $10 billion of customer funds from FTX to Alameda Research.
John Ray, FTX’s new CEO in charge of the restructuring, said there was a software which allegedly allowed the company to hide these transfers from third parties.
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Celebrities can get rich, but that doesn’t necessarily mean that they’re good with money or that they’ll always have wealth at their fingertips. Many well-known stars have had to declare bankruptcy.
Sonja Morgan of “Real Housewives of New York City” (seen here on “Watch What Happens Live with Andy Cohen”) is one of the many stars who has experienced financial trouble.
Which actors, musicians, comedians, athletes, and other entertainers have had fame without the fortune? Quite a few. For the record, we only counted celebrities who filed for personal bankruptcy, so celebrity-fronted businesses aren’t included here.
Alex Jones
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InfoWars founder Alex Jones filed for Chapter 11 bankruptcy protection in December 2022, citing nearly $1.5 billion worth of debt. A court had ordered Jones to pay hundreds of millions in damages to the parents of children killed in the Sandy Hook Elementary School massacre in 2012. Jones had repeatedly referred to the mass shooting as a “hoax.”
Attorneys for the Sandy Hook families called the bankruptcy filing “cowardly,” but Jones says he will prove that he doesn’t have any money. According to the filing, his assets are between $1 million and $10 million.
Todd Chrisley
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Todd Chrisley of “Chrisley Knows Best” may not know best when it comes to finances. In August 2012, the business executive filed for bankruptcy, claiming $49.4 million in debt.
Two years later, his family got a reality show about its lavish lifestyle.
In 2019, Chrisley and wife Julie were indicted on tax evasion, bank fraud, and wire fraud charges. They were convicted and sentenced to 12 and 7 years in prison, respectively, in November 2022. “Chrisley Knows Best” was canceled.
Teresa and Joe Giudice
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Teresa and Joe Giudice were first featured on “The Real Housewives of New Jersey” in 2009, the same year they filed for bankruptcy. They claimed they were nearly $11 million in debt. In 2013, they were charged for attempting to defraud lenders and hiding income during their bankruptcy. They both served prison time.
Today, the Giudices are divorced. Joe was deported to his native Italy, and Teresa is remarried to Luis Ruelas.
Sonja Morgan
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Teresa Giudice isn’t the only member of the “Real Housewives” family with financial issues. RHONY cast member Sonja Morgan filed for Chapter 11 bankruptcy in 2010 after divorcing her husband. She reportedly stated that she owed $19.8 million to creditors and had $13.5 million in assets.
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Paul “PK” and Dorit Kemsley of “The Real Housewives of Beverly Hills” fame also ran into financial (and legal) troubles. PK filed for personal bankruptcy in 2012 in the U.K., but a New York court ordered that his case be transferred to the U.S., since it’s his primary residence.
He married Dorit in 2015. The drama has been ongoing. Fellow RHOBH castmate Camille Grammer confronted Dorit about her husband’s debts in one contentious 2019 episode.
Abby Lee Miller
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Lifetime’s show “Dance Moms” centered around Abby Lee Miller, the owner and instructor at a popular Pennsylvania dance studio. Miller had applied for personal bankruptcy in 2010, citing debts of $400,000.
However, in 2017 she was convicted of bankruptcy fraud after federal investigators found over $775,000 in hidden bank accounts. Miller was released from prison in early 2018.
Aaron Carter
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The late Aaron Carter once filed for personal bankruptcy in 2013, claiming to be $2 million in debt. Most of what he owed involved back taxes from when his parents controlled his finances during his teen pop star years.
The singer tried to build back his career before he was found dead at age 34 in November 2022.
Francis Ford Coppola
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Director Francis Ford Coppola has declared bankruptcy three times. His financial troubles stemmed from the production of his 1982 musical film “One From the Heart,” which was a flop. Coppola had funded the movie with his own money.
He eventually paid off his debts, but Coppola is still funding his own projects, like the drama “Megalopolis” for which he spent $100 million.
Toni Braxton
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Toni Braxton filed for bankruptcy twice: once in 1998 and again in 2010, when she claimed debts between $10 million and $50 million.
In an interview, Braxton said her her first bankruptcy was due to a spending addiction, but that the second occurred when she canceled her self-funded Vegas show after receiving a diagnosis of microvascular angina, which causes chest pain.
Burt Reynolds
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Burt Reynolds has been a successful star, but after his marriage to actress Lori Anderson ended in an expensive divorce (combined with an extravagant lifestyle) he declared bankruptcy in 1996 with $11.2 million in debt.
The actor got himself out of bankruptcy two years later, but had ongoing financial issues. Reynolds died from cardiac arrest in September 2018, at the age of 82.
50 Cent
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Curtis Jackson, better known by stage name 50 Cent, rose to fame with his album “Get Rich or Die Tryin’.” He certainly got rich, but in July 2015, the rapper filed for personal bankruptcy for debts between $10 million and $50 million.
The hip-hop star owed money to not only to G-Unit Records, but also its co-founder, Curtis “50 Cent” Jackson. Brown has blamed Jackson for his bankruptcy.
Dina Lohan
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Dina Lohan, mom to actress Lindsay Lohan, filed for bankruptcy in 2018 to save her family home. She reported being $1.7 million in debt.
Dina is seen here in 2022 with Lindsay in New York City.
Michael Vick
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Former NFL quarterback Michael Vick was convicted for being part of a dog-fighting ring in 2007 and spent 19 months in prison. In 2008, he also filed for bankruptcy with debts of $17.6 million.
Vick eventually paid back $17.4 million of that debt, saying “I didn’t want to stiff people who never stiffed me.”
Mike Tyson
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Former heavyweight champion Mike Tyson was a top earner during his boxing career. But thanks to a lavish lifestyle, he was forced to file for bankruptcy in 2003 with a debt of around $23 million.
Tyson has since recouped his losses, thanks in part to taking on Hollywood film roles and a successful cannabis brand, Tyson 2.0.
Cyndi Lauper
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Before she was a solo artist, Cyndi Lauper was in a band called Blue Angels. In 1980, the band’s manager, Steve Massarsky, sued Lauper for $80,000. The singer filed for bankruptcy.
Lauper’s hit album “She’s So Unusual” came out in 1983, and thanks to subsequent success, she was able to settle the case in 1984.
Gary Busey
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In 2012, actor Gary Busey declared bankruptcy with less than $50,000 in assets and between $500,000 and $1 million in debt.
He emerged from bankruptcy later that year. In 2022, Busey was charged with sex offenses for alleged misconduct with fans during a convention.
Lil’ Kim
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Rapper Kimberly “Lil’ Kim” Jones filed for Chapter 11 bankruptcy in 2018 in an attempt to not lose her New Jersey mansion. She reportedly owed nearly $4 million.
By 2019, thanks to her appearance on the VH1 reality show “Girls Cruise,” she was in the clear and asked a judge to dismiss her bankruptcy case.
Janice Dickinson
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Former supermodel Janice Dickinson filed for bankruptcy in 2013, owing around $1 million to the IRS and to various plastic surgeons.
Dickinson later received a large settlement from Bill Cosby’s insurance company when she sued him for defamation. Cosby denied allegations he had raped her in 1982.
Kim Basinger
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In 1989, actress Kim Basinger purchased most of the privately owned land in Braselton, Georgia, for $20 million with the intent of turning it into a tourist town, but the project largely failed. In 1993, she pulled out of starring in “Boxing Helena” and was successfully sued by the producers for $8.1 million.
Basinger filed for bankruptcy the same year, which she settled in 1995.
Stephen Baldwin
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Kim Basinger was famously married to Alec Baldwin during her financial crisis, but she wasn’t the only member of his family with money problems. His brother Stephen Baldwin filed for Chapter 11 bankruptcy in 2009, owing about $2.3 million to the IRS, creditors, and mortgage lenders.
Musician David Crosby has had a long and eventful life in the public eye. He filed for bankruptcy in 1985, two years after a publicized arrest for drug and weapon possession.
In March 2021, facing financial setbacks amid the pandemic, Crosby sold off his music and publishing rights and paid off his house.
Wayne Newton
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Longtime Las Vegas performer Wayne Newton has had a long history of financial problems, which began with him filing for Chapter 11 bankruptcy protection in 1992 over $20 million in debt from bad investments.
When the NFL defensive lineman retired in 2008, the Hall of Famer made a series of bad business decisions and ended up $6.7 million in debt.
Sapp filed for Chapter 7 bankruptcy in 2012, which meant that his assets were liquidated to pay back his lenders. He’s seen here in June 2022 training the Washington Commanders.
Meat Loaf
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Michael Aday, better known by his stage name Meat Loaf, was successful in the 1970s. But in 1983, he had to file for personal bankruptcy after years of money mismanagement and lawsuits from former managers. To pay off his debts, he sold the rights to all of his music.
Comedian Sinbad filed for bankruptcy in 2009 after he was named one of the 10 worst tax debtors in the state of California — owing $2.5 million in personal income tax. He sold his home to cover the costs.
As of 2022, Sinbad was still recovering from an ischemic stroke he had two years earlier.
Tom Petty
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The late musician Tom Petty didn’t declare bankruptcy in 1979 because he was broke — he did it as a legal maneuver after his label, Shelter Records, was sold to the much larger MCA, which refused to change the terms of Petty’s meager recording contract despite his growing success.
After Petty financed his own record and declared bankruptcy, MCA agreed to let the singer-songwriter out of the deal, and then re-signed him with a more favorable contract.
La Toya Jackson
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Entertainer La Toya Jackson (older sister of the late Michael Jackson) had to declare bankruptcy in 1995 after being sued for $650,000 by the Moulin Rouge club in Paris, which said Jackson failed to stay for her full six-month contract with the famous club.
Former center fielder Lenny Dykstra didn’t exactly hit a home run after filing for bankruptcy in July 2009, claiming less than $50,000 in assets to his name. Two years later, he was indicted on bankruptcy fraud and embezzlement charges.
A documentary about her life called “Dionne Warwick: Don’t Make Me Over” was expected to premiere on CNN in 2023.
Anna Nicole Smith
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Model Anna Nicole Smith (born Vickie Hogan) married billionaire J. Howard Marshall in 1994. She was 26 and he was 89, and he died a year later without leaving Smith in his will. In 1996, she declared bankruptcy.
There were many contentious court battles over the estate among Marshall’s children and Smith, going all the way up to the Supreme Court. Smith died from an overdose in 2007.
Drake Bell
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Former teen star Drake Bell of “Drake & Josh” fame filed for Chapter 7 bankruptcy in 2014. While he had more than $1 million in assets, he declared $2.17 million in debt on court documents.
Funk singer George Clinton filed for bankruptcy in 1984 over $2 million he owed his manager and recording company. He lost the rights to his music over it in 2001.
He eventually got the rights back to four albums he recorded at Warner Bros., but others still own the bulk of his catalog with his two bands, Parliament and Funkadelic.
Mick Fleetwood
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Mick Fleetwood of Fleetwood Mac filed for bankruptcy in 1984, owing nearly $3.7 million. He blamed his financial problems on severe drug and alcohol addiction. Fleetwood reportedly sobered up by the ’90s.
Actor Joey Lawrence declared bankruptcy in 2017, stating he was $355,000 in debt. His income decreased dramatically after his show “Melissa & Joey” ended in 2015.
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Stanley Burrell, better known by his stage name MC Hammer, was one of the most popular rappers of the early ’90s. By 1996, however, he filed for bankruptcy. His assets were listed at $1 million while his debts totaled $10 million.
Actress Teri Polo, known for her role in “Meet the Parents” and “The Fosters,” filed for bankruptcy in 2014.
She listed her assets as being less than $50,000, while her debts totaled $809,000.
Gary Coleman
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Actor Gary Coleman made millions for his role on “Diff’rent Strokes,” but after years of costly legal and medical battles, he filed for bankruptcy in 1999.
Jose Canseco was an MLB star, though he later admitted to using performance-enhancing drugs. By 2012, he was out of money.
The Chapter 7 bankruptcy filing listed that Canseco had less than $21,000 in assets, with $1.7 million in liabilities.
Mekhi Phifer
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Actor Mekhi Phifer filed for bankruptcy in 2014, stating that he had $1.3 million in debt due to back taxes, lawyer bills and child support back pay.
Phifer is known for his roles in “ER,” 8 Mile” and the “Divergent” film series.
Tionne “T-Boz” Watkins
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Tionne “T-Boz” Watkins is the “T” in the R&B group TLC. In 2011, she declared bankruptcy twice: once in February and again in October, only a month after the February case had been dismissed.
Watkins owed nearly $769,000, mostly from mortgages and medical issues.
Randy and Evi Quaid
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Actor Randy Quaid and his wife, Evi, filed for bankruptcy in 2000. They owed around $619,000 in taxes.
But their story doesn’t end there. In October 2010, the couple fled to Canada, claiming that they feared for their lives. They didn’t go back to the U.S. until 2015.
Suge Knight
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Former Death Row Records CEO Marion “Suge” Knight is known as one of the leading figures of gangsta rap. Due financial mismanagement and civil litigation against Knight, he declared bankruptcy in 2006.
The case went on for two years, and Knight eventually lost Death Row Records and its catalog, his mansion and many of his personal items. He was sentenced to 28 years in prison in 2018 after he fatally hit someone with his car during a confrontation.
Dorothy Hamill
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Former professional figure skater Dorothy Hamill took home the gold medal at the 1976 U.S. Olympics. Twenty years later, she filed for bankruptcy, saying that she was $1.7 million in debt.
She faulted her ex-husband, Kenneth Forsythe, for giving her bad financial advice.
Nadya Suleman
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Nadya Suleman lived in a three-bedroom apartment with her mother and six children when she used IVF to get pregnant with octuplets in 2008. Dubbed “Octomom” by the media, she was living on government assistance at the time.
In 2012, she filed for bankruptcy with $1 million in debt from living and schooling expenses. Two years later, she pleaded no contest to welfare fraud charges after failing to report payments from her media appearances.
Kelly Rutherford
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“Gossip Girl” actress Kelly Rutherford faced money problems after a complicated child custody case. She wanted to raise her children in the U.S., while her German ex-husband, entrepreneur Daniel Giersch, wanted to raise them in France and Monaco after his American visa was revoked.
Ronald Isley, founding member of the Isley Brothers singing group, declared bankruptcy twice: once in 1984 and again in 1997. After those bankruptcies were filed, however, Isley failed to pay taxes.
In 2008, an appellate court upheld a ruling that sentenced Isley to three years in prison for tax evasion.
Gary Dourdan
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Gary Dourdan of “CSI” fame has filed for bankruptcy twice, first in 2011 and again in 2015. In the first bankruptcy, he listed $1.73 million in debts and $1.8 million in assets.
For the second bankruptcy, he claimed he was down to $904 in his bank account and owed more than $14,000.
Antoine Walker
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Antoine Walker amassed $108 million in his 13-year-career as a Boston Celtics player. But in 2010, he had to declare bankruptcy with $4.3 million in assets and $12.7 million in liabilities.
Mario Lavandeira Jr., known as Perez Hilton professionally, wrote in his book “TMI: My Life in Scandal” that he declared bankruptcy in 2005 after racking up credit card debt as a student at NYU.
Shortly afterward, Lavandeira reinvented himself as the acerbic celebrity blogger. In 2019, he uploaded an explainer video about saving money to avoid bankruptcy.
Core Scientific has officially filed for bankruptcy.
The filing followed a decline in the firm’s operating performance and liquidity.
The giant bitcoin miner said it plans to continue operating as it navigates the restructuring.
Nasdaq-listed Core Scientific filed for bankruptcy in the U.S. early Wednesday, confirming late Tuesday reports that the miner would seek Chapter 11 protection on the following day.
The company said in a statement that the decision followed “a comprehensive review of potential alternatives and exhaustive discussions with various company stakeholders.” Core Scientific added that it expects to enter into a restructuring support agreement with the Ad Hoc Noteholder Group, representing more than 50% of the holders of its convertible notes.
“The filing of these cases was necessitated by a decline in the Company’s operating performance and liquidity suffering from the prolonged decrease in the price of bitcoin, the increase in electricity costs necessary to power the Company’s data centers, and the failure by certain of its hosting customers to honor their payment obligations,” per the statement. “In response to these factors, the Company has actively taken steps to decrease monthly costs, delay construction expenses, reduce and delay capital expenditures and increase hosting profitability.”
Core Scientific said it is “committed to operating normally” as it moves “swiftly through the process” of restructuring.
“During this process and upon emergence, the Company will continue to operate its existing self-mining and hosting operations, which remain significantly cash flow positive on a debt-free basis,” per the statement. “The Company remains dedicated to providing hosting services and self-mining in its state-of-the-art data centers.”
According to a press release, Voyager Digital Ltd. announced that Binance.US, an American licensed entity independent of Binance international, will acquire the assets of the failed cryptocurrency firm. The deal will be for $1.022 billion, as the firms seek “the core objective of maximizing the value returned to customers and other creditors on an expedited timeframe.”
Voyager Digital’s claim against Three Arrows Capital remains within the bankruptcy estate and any claims awarded will be directed towards that estate’s creditors.
Back in July of 2022, Voyager Digital commenced restructuring processes after they announced they had a loan to Three Arrows Capital for 15,250 BTC and $350 million USDC. Three Arrows Capital faced bankruptcy in July as well, as a result of cascading contagion from the LUNA/Terra collapse prior. Bitcoin Magazine PRO also reported that Voyager Digital had loaned $376 million to the now bankrupt Alameda Research fund, owned by FTX exchange co-founder Sam Bankman-Fried.
A bid for bankruptcy court approval of the asset buyout is set to take place on January 5, 2023.
The press release states that “The Binance.US bid aims to return crypto to customers in kind, in accordance with court-approved disbursements and platform capabilities,” and that the firm will make a $10 million good-faith deposit up front. Should the deal not close by April of 2023, the agreement allows Voyager to begin returning value to customers.
In a moment of self-reflection after the collapse of his cryptocurrency exchange FTX Trading, Sam Bankman-Fried tweeted on December 9 that he considered himself a “model CEO” who nevertheless “made a lot of big mistakes this year.”
Regulators now allege that the former FTX CEO is far from a well-meaning corporate leader, instead claiming that he “willfully and knowingly” defrauded investors. Bankman-Fried was arrested on Monday in the Bahamas on federal charges filed in the U.S., which include multiple counts of wire fraud and conspiracy related to the collapse of FTX.
The rise and stunning fall of Bankman-Fried combines the get-rich-quick allure of cryptocurrencies with the breathless hype that formerly surrounded the 30-year-old MIT graduate, whom Fortune magazine once called possibly the “next Warren Buffett.” And in wake of FTX’s bankruptcy, the entrepreneur has left investors reeling and FTX owing its creditors at least $3 billion.
“Everybody loved the idea of a politically progressive entrepreneur … who was going to change the world, all while making them gobs of money,” said Rep. Bill Huizenga, a Republican from Michigan, in a congressional hearing on Tuesday about the FTX collapse.
Here’s what to know about the charges facing Bankman-Fried.
Why was Sam Bankman-Fried arrested?
Bankman-Fried was arrested in the Bahamas Monday based on federal charges that were unsealed Tuesday morning, which include eight counts of wire fraud, money laundering, violations of securities laws and other financial crimes.
The charges, which were filed by the U.S. attorney’s office for the Southern District of New York, allege that he knowingly defrauded customers by using their cryptocurrency assets to pay for debts and expenses from Alameda Research, FTX’s hedge fund.
The charges allege that the fraud started as early as 2019, or the year that FTX was founded.
Is Bankman-Fried facing other charges?
Yes, the U.S. Securities and Exchange Commission — the agency that regulates the financial markets — also filed charges against Bankman-Fried on Tuesday.
In that case, the agency is accusing Bankman-Fried of commingling FTX customers’ funds with Alameda to make undisclosed venture investments, expensive real estate purchases and big political donations.
The Commodity Futures Trading Commission on Tuesday announced similar fraud charges against Bankman-Fried and FTX, alleging in a lawsuit that the company caused customers to lose $8 billion.
How much money did FTX lose?
John Ray III, who stepped in as FTX CEO after Bankman-Fried’s resignation on Nov. 11 after a long career that included overseeing the Enron bankruptcy, said in a House hearing on Tuesday that about $7 billion was lost in the collapse. Ray alleged that Bankman-Fried and others at FTX misused customer funds, contributing to the losses.
“It’s really just the unlimited ability of those in control positions to borrow customer funds or take customer funds and then deploy them for their own use,” Ray said in the hearing. “That use involved margin trading, which is inherently risky.”
He claimed, “This is really old-fashioned embezzlement — it’s not sophisticated at all.”
Bankman-Fried had been expected to testify at the hearing, but he was removed from the witness list following his arrest.
What did FTX tell customers it was doing?
FTX’s customers used the exchange to buy, store and trade hundreds of different cryptocurrencies, including bitcoin, ether, solana, litecoin and dogecoin. At one point, $840 million worth of crypto assets were exchanged on its platform each day, according to CoinMarketCap.
FTX gained national attention with its expensive Super Bowl ads this year featuring quarterback Tom Brady and comedian Larry David. In the Larry David ad, when the comedian is told that FTX is a “safe and easy way to get into crypto,” he responds, “Eh, I don’t think so — and I’m never wrong about this stuff.”
FTX portrayed itself as being able to help people interested in crypto safely navigate the complexity of what is a notoriously risky asset class. But the company had very few internal controls to protect customer assets, with investor money transferred to Alameda and customer funds co-mingled into “one pot of crypto,” Ray testified on Tuesday.
What led to FTX’s collapse?
Ray and regulators are examining the internal workings of FTX to get to the bottom of the failure, but the company unraveled in early November after finding itself billions of dollars in debt due to speculative investments, including in the company’s own digital coin, that turned sour and a series of other miscalculations.
Bankman-Fried has said he mistakenly believed FTX had enough cash on hand to pay 24 times the amount of money users typically withdraw in a day. In actuality, the firm had a much thinner capital cushion, with only enough cash to pay 0.8 times that amount.
When customers sought to withdraw their money amid fears about the company’s solvency, there was “a run on the bank,” Ray said on Tuesday.
Ray highlighted other issues with FTX, such as its misuse of customer funds and what he alleged was Bankman-Fried’s decision to make investments without properly valuing the assets.
“By definition I don’t trust a single piece of paper in this organization,” Ray said on Tuesday.
What happens now?
The U.S. is expected to ask authorities in the Bahamas to extradite Bankman-Fried, which experts said is likely within the scope of a 1931 treaty between the two countries.
Because of that existing legal framework, “This would be a moment where one could strike while the iron is hot,” Michael Parker, head of anti-money laundering and sanctions practice at law firm Ferrari & Associates, told CBS News. “If Mr. Bankman-Fried, for instance, went to another jurisdiction, it could be more difficult, and so the Bahamas may have been seen as a friendlier jurisdiction from which jurisdiction could take place.”
In pursuing the case against Bankman-Fried, Parker said prosecutors will have to show that he knowingly committed the alleged crimes outlined in their indictment beyond a reasonable doubt.
WASHINGTON — Sam Bankman-Fried, founder and former CEO of the failed cryptocurrency exchange FTX, helped 1,500 Bahamian investors remove $100 million from their accounts while other customers around the world were locked out of the exchange, according to the company’s new CEO, who testified before a House committee Tuesday
FTX CEO John Ray III, who has guided dozens of companies, including Enron, through bankruptcy restructuring, called FTX’s collapse one of the worst business failures he has seen — a “paperless bankruptcy,” fueled by an “unprecedented lack of documentation.”
For nearly four hours, without a break, Ray told lawmakers about the lack of oversight and financial controls that he discovered since taking over FTX a month ago. He found a loan where Bankman-Fried was both the issuer and the recipient. There were expenses approved by emoji. FTX didn’t have accountants. For record-keeping, employees used QuickBooks, pre-packaged software typically used by small and medium-sized businesses, to manage FTX’s finances.
“Nothing against QuickBooks,” Ray said. “It’s a very nice tool, just not for a multibillion-dollar company.”
At its peak, FTX’s market value topped $30 billion.
Notably absent from the hearing before the House Financial Services Committee was Bankman-Fried, who was arrested in the Bahamas just hours before he was scheduled to testify. The arrest was made at the request of the U.S. government, which on Tuesday announced criminal charges against Bankman-Fried including wire fraud and money laundering.
The timing of Bankman-Fried’s arrest frustrated many committee members. Republican Rep. William Timmons, of South Carolina, called the timing “bizarre” and added that, as a former prosecutor, he couldn’t imagine why any prosecutor wouldn’t want “hours of congressional grilling for the target of an investigation” to help make a case.
FTX filed for bankruptcy protection on Nov. 11, when the firm ran out of money after the cryptocurrency equivalent of a bank run. The collapse of crypto’s second-largest exchange has garnered worldwide attention, and prompted worries in the crypto industry that the pain could become widespread. Ray estimated that about $8 billion of customer funds are missing.
Some customers in the Bahamas, where FTX was based, were able to recover some money, Ray said. That’s because the Bahamian government and Bankman-Fried agreed to let them get their money out of FTX while customers in other countries were blocked from doing so, Ray said.
Ray, who took over FTX on Nov. 11, told the committee that the problems at FTX were a cumulation of months or even years of bad decisions and poor financial controls.
“This is not something that happened overnight or in a context of a week,” he said.
However, Ray didn’t answer numerous questions about what regulations could have stopped the collapse of FTX. Instead, he focused on how unusual FTX was — having no board of directors, having no real structure that prohibited money invested by consumers in FTX to be shifted to Bankman-Fried’s hedge fund Alameda Research for other investments or lavish purchases, without the original investors’ knowledge.
In his prepared remarks, Ray painted a picture of a company acting with little to no oversight.
“FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets,” Ray said.
In interviews since FTX filed for bankruptcy protection, Bankman-Fried acknowledged that the company lacked proper financial controls and corporate governance, but denied any fraud had been committed.
U.S. prosecutors and financial regulators disagreed with that assessment. An indictment unsealed Tuesday charged Bankman-Fried with a host of financial crimes and campaign finance violations, alleging he played a central role in the rapid collapse of FTX and hid its problems from the public and investors. The Securities and Exchange Commission said Bankman-Fried illegally used investors’ money to buy real estate on behalf of himself and family.
Ray’s comments supported those allegations.
“This is just old fashion embezzlement, taking money from others and using it for your own purposes,” he said. “This is not sophisticated at all.”
A lawyer for Bankman-Fried, Mark S. Cohen, said Tuesday he is “reviewing the charges with his legal team and considering all of his legal options.”
John J. Ray III, the new C.E.O. of FTX, described the collapse of the company as a “paperless bankruptcy” in his testimony to the House Committee on Financial Services.
Infowars host Alex Jones filed for personal bankruptcy protection Friday in Texas, citing debts that include nearly $1.5 billion he has been ordered to pay to families who sued him over his conspiracy theories about the Sandy Hook school massacre.
Jones filed for Chapter 11 bankruptcy protection in Houston. His filing listed $1 billion to $10 billion in liabilities and $1 million to $10 million in assets.
Jones acknowledged the filing on his Infowars broadcast, saying the case will prove that he’s broke, and asking viewers to shop on his website to help keep the show on the air.
“I’m officially out of money, personally,” Jones said. “It’s all going to be filed. It’s all going to be public. And you will see that Alex Jones has almost no cash.”
FILE – Conspiracy theorist Alex Jones takes the witness stand to testify at the Sandy Hook defamation damages trial at Connecticut Superior Court in Waterbury, Conn. Thursday, Sept. 22, 2022.
Tyler Sizemore/Hearst Connecticut Media via AP
Jones, who sells dietary supplements and other items on his Infowars site, and promotes them during his shows, said he would not be commenting further on the bankruptcy.
For years, Jones described the 2012 massacre as a hoax. A Connecticut jury in October awarded victims’ families $965 million in compensatory damages, and a judge later tacked on another $473 million in punitive damages. Earlier in the year, a Texas jury awarded the parents of a child killed in the shooting $49 million in damages.
The bankruptcy filing temporarily halted all proceedings in the Connecticut case. A judge was forced to cancel a hearing scheduled for Friday on the Sandy Hook families’ request to secure the assets of Jones and his company to help pay the more than $1.4 billion in damages awarded there.
Chris Mattei, an attorney for the Sandy Hook families in the Connecticut case, criticized the bankruptcy filing.
“Like every other cowardly move Alex Jones has made, this bankruptcy will not work,” Mattei said in a statement. “The bankruptcy system does not protect anyone who engages in intentional and egregious attacks on others, as Mr. Jones did. The American judicial system will hold Alex Jones accountable, and we will never stop working to enforce the jury’s verdict.”
An attorney representing Jones in the bankruptcy case did not immediately return a message seeking comment.
In the Texas and Connecticut cases, some relatives of the 20 children and six adults killed in the school shooting testified that they were threatened and harassed for years by people who believed the lies told on Jones’ show. One parent testified that conspiracy theorists urinated on his 7-year-old son’s grave and threatened to dig up the coffin.
Photos of Sandy Hook Elementary School massacre victims sits at a small memorial in Newtown, Connecticut, just a month after the 2012 shooting.
John Moore / Getty Images
Erica Lafferty, the daughter of slain Sandy Hook principal Dawn Hochsprung, testified that people mailed rape threats to her house.
Jones has laughed at the awards on his Infowars show, saying he has less than $2 million to his name and won’t be able to pay such high amounts. Those comments contradicted the testimony of a forensic economist at the Texas trial, who said Jones and his company Free Speech Systems have a combined net worth as high as $270 million. Free Speech Systems is also seeking bankruptcy protection.
In documents filed in July in Free Speech Systems’ bankruptcy case in Texas, a budget for the company for Nov. 26 to Dec. 23 estimated product sales will total nearly $3 million, while operating expenses will be nearly $739,000. Jones’ salary is listed at $20,000 every two weeks.
Sandy Hook families have alleged in another lawsuit in Texas that Jones hid millions of dollars in assets after victims’ relatives began taking him to court. Jones’ lawyer denied the allegation.
A third trial over Jones’ comments on Sandy Hook is expected to begin within the next two months in Texas, in a lawsuit brought by the parents of another child killed in the shooting.
The U.S. Department of Justice is calling for an independent investigation into the collapse of cryptocurrency exchange FTX, and has asked a bankruptcy judge for the green light.
FTX Trading, once the world’s second-largest crypto exchange, declared bankruptcy last month amid an $8 billion shortfall. In court documents filed Thursday, DOJ officials requested that the bankruptcy judge approve the appointment of an independent review, citing the need for “a true neutral” probe into the collapse.
The crypto exchange’s new CEO, John Ray III, is undertaking an internal investigation into FTX’s meltdown, but the DOJ argued that a separate, independent examination is still needed. The DOJ’s Office of the U.S. Trustee said in the papers that while it doesn’t question Ray’s “qualifications, competence or good faith,” his role is as a fiduciary for the firm’s debtors and therefore the internal examination may not represent all stakeholders.
“But the questions at stake here are simply too large and too important to be left to an internal investigation,” U.S. Trustee Andrew Vara wrote in the court document.
He added, “An examiner could — and should — investigate the substantial and serious allegations of fraud, dishonesty, incompetence, misconduct and mismanagement.”
FTX didn’t immediately respond to a request for comment on Friday.
Ray, a bankruptcy expert who oversaw Enron’s liquidation, last month said he had never seen problems as severe as FTX’s.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said in November court documents.
FTX filed for bankruptcy days after the platform experienced crypto’s version of a bank run. Customers last month withdrew about $5 billion in crypto assets in a single day amid rising concerns about FTX’s solvency. FTX had hoped rival platform Binance would save it from destruction, but that never came to pass.
During a New York Times Dealbook Summit this week, former CEO Sam Bankman-Fried said FTX’s financial health was too closely tied to the company’s trading firm Alameda Research. Bankman-Fried, who stepped down as CEO on November 11, said he should have appointed someone to oversee the co-mingling of funds between FTX and Alameda.
FTX owes at least $3.1 billion to its top 50 creditors, according to court documents, which also show that FTX had $1.3 billion in assets and owed $102 million to customers the day the company declared bankruptcy.
Those figures, combined with Ray’s statement and the increased news coverage of the company’s downfall “provide reasonable grounds to suspect that Bankman-Fried and others participated in actual fraud, dishonesty or criminal conduct in the management of” FTX, Vara wrote in the court document.
FTX needs an independent probe just like Lehman Brothers did years ago, Vara suggested. Considered one of the defining moments of the financial crisis, the collapse of Lehman Brothers in 2008 has gained notoriety as a case study in poor management and lack of oversight.
“Like the bankruptcy cases of Lehman, Washington Mutual Bank, and New Century Financial before them, these cases are exactly the kind of cases that require the appointment of an independent fiduciary to investigate and to report on the Debtors’ extraordinary collapse,” Vara wrote.
FTX’s failure has captivated the finance world and renewed calls from Washington to regulate the crypto industry. Democratic Rep. Maxine Waters of California, chair of the House Financial Services Committee, invited Bankman-Fried to discuss what happened during an upcoming congressional hearing.
“We appreciate that you’ve been candid in your discussions about what happened at FTX,” she tweeted to him on Friday. “Your willingness to talk to the public will help the company’s customers, investors, and others. To that end, we would welcome your participation in our hearing on the 13th.”
Khristopher J. Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports.
Just hours after filing for Chapter 11 bankruptcyin New Jersey on Monday, cryptocurrency lender BlockFi filed a lawsuit against a holding company by FTX founder Sam Bankman-Fried over his shares in trading platform Robinhood, the Financial Times reported.
The suit was filed against Bankman-Fried’s vehicle Emergent Fidelity Technologies, of whom BlockFi is seeking to recover unpaid collateral.
The filing – also lodged in New Jersey – says BlockFi entered into a pledge agreement with Emergent on Nov. 9 stating that an unnamed borrower was obliged to pledge “certain shares of common stock” and has breached the agreement by failing to comply with its payment obligations.
The Financial Times reports the collateral in question is Bankman-Fried’s 7.6% stake in Robinhood which he bought earlier this year.
“Emergent has defaulted on its obligations under the pledge agreement and failed to satisfy its obligations thereunder despite written notice of default and acceleration,” the lawsuit filing says.
The lawsuit also named London-based brokerage ED&F Man Capital Markets for refusing to “transfer the collateral” to BlockFi.
“This is a highly complex matter,” a spokesperson for ED&F Man Capital Markets told MarketWatch in an emailed statement.
“We cannot comment on matters that are subject to legal proceedings but will of course comply with any direction given by the judge,” they added.
On Monday, BlockFi, who was once valued at $3 billion, filed for bankruptcy protection after becoming the latest company to be pushed over the edge from the collapse of crypto exchange FTX.
The lawsuit is the latest headache for Bankman-Fried, who is already the subject of a number of investigations in the U.S. and the Bahamas – where FTX was based. The downfall of FTX has triggered a chain reaction of crypto-casualties including crypto financial-services firm Genesis.
According to the filing, BlockFi has over 100,000 estimated creditors and an estimated $1-10 billion in liabilities. The filing confirms that the firm has $256.9 million cash in hand.
A released statement on BlockFi’s Twitter explained: “As part of our restructuring efforts, we will focus on recovering all obligations owed to BlockFi by counterparties, including FTX.
Acting in the best interest of our clients is our top focus and continues to guide our path forward. Chapter 11 is a transparent process and we will continue to communicate with our clients to ensure they hear directly from us.”
This filing is yet another example of lenders facing insolvency in recent months in the wake of industry-wide collapse. In July of this year, Celsius filed for bankruptcy, and just recently, Genesis halted withdrawals, forcing Gemini Earn to as well.
According to a source that spoke with Decrypt, alongside the bankruptcy proceedings, BlockFi will also be laying off a “large portion” of its staff.
With the recent implosion of FTX and the connected Alameda Research hedge fund, questions about BlockFi’s ability to cover customer assets began to surface. These only increased after BlockFi confirmed they did not have further clarity on the situation surrounding FTX and began limiting customers on their platform, including halting withdrawals.
In a blog post, BlockFi included additional resources for customers with questions about the proceedings.
The abrupt and rapid collapse of the FTX cryptocurrency exchange has caused a shock in the crypto space.
The fall, in a few days, of a company valued at $32 billion in February, ended up casting suspicion on the entire young industry of financial services, based on the Blockchain technology.
Confidence in the industry is at an all-time low. Retail investors have fled, while institutional investors, linked to FTX and its sister company Alameda Research, are still determining their losses from their exposure to Sam Bankman-Fried’s empire.
While there are lessons to be learned from this disaster which threatens the entire sector, it is an understatement to say that it will take a long time to regain the lost confidence.
‘A Lot of Mistakes’
Billionaire Mark Cuban has not lost faith, though. He continues to believe in the industry and assures that there is still a lot of value in the sector, despite the fall of FTX. He believes that crypto has its place and that you just have to look at the big picture.
“Separate the signal from the noise,” Cuban told TMZ. “There’s been a lot of people making a lot of mistakes, but it doesn’t change the underlying value.”
Cuban said that, as long as consumers have viable options in the crypto world, he doesn’t foresee the currency going in the tank.
The Dallas Mavericks owner is currently the subject of a class action lawsuit related to the bankruptcy of crypto lender Voyager Digital, which he had promoted in a partnership signed in October 2021. This partnership between Voyager Digital and the Dallas Mavericks had one mission: to promote cryptocurrencies by making coins more accessible through educational and digital programs.
“Cuban and Ehrlich, as will be explained, went to great lengths to use their experience as investors to dupe millions of Americans into investing — in many cases, their life savings — into the deceptive Voyager platform and purchasing Voyager earn program accounts (“EPAs”), which are unregistered securities,” the class action lawsuits said, also referring to Stephen Ehrlich, who was CEO of Voyager.
“As a result, over 3.5 million Americans have now all but lost over $5 billion in cryptocurrency assets.”
Voyager filed for bankruptcy as collateral damage of a credit crunch caused by the sudden collapse of sister cryptocurrencies Luna and UST on May 9.Millions of customers have lost their savings. Assets of Voyager Digital had been purchased by FTX, as part of the mortgage lender’s liquidation process.
“A basic question. Why have I invested in crypto?” Cuban wrote on Twitter on November 13. “Because I believe smart contracts will have a significant impact in creating valuable applications. I have said from day 1, the value of a token is derived from the applications that run on its platform and the utility they create.”
Smart Contract
A smart contract is a piece of computer code that determines the terms of a transaction (loans, trading, etc.) and doesn’t rely on any third party.
“What has not been created is an application that is ubiquitous. One that is obviously needed by everyone and they are willing to go through the learning curve to use. Maybe it never comes. I hope and think it will,” Cuban continued.
The billionaire then compared the crypto industry to the streaming industry, implying that bad ideas are likely to perish while good ones will prevail.
“The best analogy I can use is the early days of streaming. The shit people had to do to listen to a 16k stream of music was insane. An internet subscription for your dial up modem. Download the provider client. Download a tcp/ip client. Download the streaming client,” he argued. “Click on a batch file on a website. Make sure it all worked together. All while being laughed at for just not turning on your radio or tv.”
He concluded on a note of optimism.
“But for in office or out of market it was worth it. It started as niche in 1995. Now realize that Smart Contracts are about 5 years old.”
Cuban is involved in several crypto projects, including the very select Bored Ape Yacht Club, which represents a collection of over 10,000 online images of monkeys striking funny poses. Bored Apes are the most expensive non-fungible tokens (NFTs).
He is what many called in the crypto space an Ethereum maximalist, which means that he strongly believes in the potential of the second largest crypto ecosystem after Bitcoin. Ethereum is considered the internet of the crypto industry which aims to disrupt traditional financial services.
