Case Study
FTX Bankruptcy and Technical Diligence
FTX official Committee of Unsecured Creditors retained FTI Consulting as financial advisors.
Situation
The bankruptcy of FTX (including FTX.com and FTX US), once the third-largest global crypto exchange, and Alameda, a crypto trading firm, brought unprecedented challenges to traditional bankruptcy and restructuring proceedings with the need for technical and operational understanding of digital assets. The FTX Unsecured Creditors Committee retained FTI Technology’s Blockchain & Digital Assets practice based on a deep understanding and world-class expertise in the digital assets ecosystem, combined with the award-winning traditional bankruptcy expertise from FTI Consulting’s Corporate Finance segment.
The UCC sought a financial advisor with extensive competencies in traditional bankruptcy advisory services, digital assets and the cryptocurrency industry. This decision was made to protect assets and maximize the recovery potential for all creditors while concurrently investigating the spectrum of fraud allegations.
This prominent case was characterized by a highly complex set of circumstances, compounded by involvement with multiple jurisdictions, fraud allegations and a series of crypto hacks perpetrated the same day the bankruptcy was filed. Given these intricate circumstances, there was a pressing need for professional assistance to safeguard assets and facilitate their recovery, investigate crypto activity and, most importantly, maximize value for the creditors.
Our Role
The FTX case required the full capabilities of FTI Consulting’s core bankruptcy and restructuring expertise, enhanced by FTI Technology’s unique expertise in blockchain and digital assets. The UCC was confronted with a plethora of complex and technical challenges that demanded thorough analysis and advisory oversight, all while maintaining an ongoing fiduciary responsibility to the creditors and the bankruptcy court.
The engagement included:
- As advisors, FTI Consulting provided the UCC with guidance and advice that covered a wide range of disciplines, including digital asset custody solutions, insight into digital asset management and security best practices, monetization and risk analysis of a large variety of digital assets, staking and lending programs, and investigations related to various fraud allegations.
- Advising on methods and solutions for customer claims distribution. This involved review of the claims process and recommendations for custody and distribution providers.
- As an outcome of the engagement, FTI Consulting has assisted the UCC in identifying locations of crypto assets and wallets across a portfolio of millions of accounts, selecting providers for secure custody, assessing risks and monetization opportunities for thousands of unique crypto tokens, recognizing additional creditor value in claims against the debtor.
- Support for the UCC with regard to bids for FTX assets, equity and intellectual property, including a considered relaunch. This included a thorough evaluation of various proposals, technical analysis and operational due diligence of the interested parties.
Our Impact
Secure digital assets
Located assets through on-chain tracing. Advised on optimal ways to secure assets held in defi protocols, bridges and other complex locations. Evaluated custody providers on corporate controls and digital asset custody procedures to prevent bad actors from depleting asset pool.
Monetize assets
Evaluated potential monetization strategies for valuable non-debtor subsidiaries, hundreds of venture capital investments and billions of dollars’ worth of crypto assets. This included risk analysis of the digital asset portfolio and staking analysis.
Digital asset identification, investigation and testimony
FTI Technology’s blockchain and digital assets experts provided valuable testimony that was cited in the ruling to help protect customer identities and account information. Additionally, the investigation identified digital asset fund flows and patterns that were critical to the investigation process for claims against the debtor directors and officers. The team performed asset tracing in order to accurately identify all debtor assets and bring them into the estate.
Monetization of intellectual property
The work resulted in enablement for customers to date to receive 100% of their dollarized claims in the case. The team also assisted with bid analysis for intellectual property, equity and assets and feasibility analysis to discern execution risks, business maturity and technical compatibility for a potential sale or relaunch of the exchange with an outside party.