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On Winners & Losers In The FTX Bankruptcy


Image Source: Photograph by Spencer Heyfron via Fortune Magazine

This guy – jeez!

Warren Buffett must be spitting up his Cherry Coke after being compared to Sam Bankman-Fried (SBF)!

For those who may be unaware, SBF is the now disgraced CEO of FTX.com (FTX). FTX is a centralized cryptocurrency exchange located in the Bahamas. The firm is at the center of controversy in crypto regarding its recent Chapter 11 bankruptcy filing. You can read about the story here.

The bankruptcy filing by FTX and its affiliate companies will leave a lot of investors and customers in financial ruin. Folks who invested in and with FTX are unlikely to get their money back. Secured creditors and trustees to FTX’s bankruptcy filing have the best chance of getting some of their money returned. The creditors and trustees don’t stand to gain much, however, when those claims are likely to be worth pennies for every dollar they invested.

Not every bankruptcy case, however, has parties who lose everything. There can be winners in bankruptcy filings too depending on their circumstances. One set of winners can be the groups who profit from a company’s reorganization during the Chapter 11 proceedings. Another set of winners can be found outside the bankruptcy court. These folks are the ones who report and regulate the companies going into and out of bankruptcy court.

The reputation of the winners gets stronger while the eventual losers wither away in emotional and financial pain.

In the case of FTX, there will be both winners and losers in this saga. The list of winners and losers is not meant to be exhaustive. People closely involved with the progression of the firm’s bankruptcy case have both reputational and financial risks and rewards depending on its outcomes. Not all the names on this list are obvious or familiar. The purpose of this list is to show how a company’s failure can have unintended consequences for folks with financial relationships with FTX and SBF.

Here, then, is my list of who will be the likely winners and losers from FTX’s bankruptcy filing.


    1. Brian Armstrong (CEO, Coinbase)

    Now, this name should not come as a surprise to anyone. Coinbase, like FTX, is a centralized cryptocurrency exchange. Unlike FTX, however, Coinbase is a publicly traded company. Public traded companies like Coinbase are regulated by the Securities and Exchange Commission (SEC). Coinbase must file quarterly and annual reports about its financial affairs to investors based on rules by the SEC.

    The benefit of being publicly traded means investors can clearly see what a company is up to financially. In the case of Coinbase, CEO Armstrong put the firm on financially strong footing with over $5 billion in capital, according to its latest SEC filing. The attractiveness of Coinbase in crypto markets as both an exchange and a company will rise favorably over time with the demise of FTX as a competitor. So long as CEO Armstrong doesn’t seriously offend regulators like the SEC, Coinbase should do just fine as the bankruptcy saga with FTX unfolds.

    2. Rostin Behnam (Chairman, CFTC)

    Speaking of regulators, this name is one you’re going to hear a lot more of in the months and years ahead. The Commodity Futures Trading Commission (CFTC) regulates futures contracts for digital assets like Bitcoin and Ethereum. The agency also monitors fraudulent trading activities in such contracts for digital assets.

    So you might be wondering how Chairman Behnam could be a winner in FTX’s bankruptcy filing.

    As FTX’s bankruptcy case unfolds, the company’s trading and investing activities will come to light. If the bankruptcy court trustee finds that illegal trading activity occurred between FTX and its counterparties, such actions could lead to stronger enforcement actions by regulatory agencies such as the CFTC and not the SEC. Recent court rulings have found digital assets such as Bitcoin, are considered commodities under the Commodity Exchange Act (CEA).

    Thus, any adverse outcomes from the FTX bankruptcy filing should increase the demand for greater regulatory scrutiny, which bodes well for CFTC Chairman Benham.

    3. Marc Hochstein (Executive Editor, CoinDesk)

    Regulators aren’t the only ones who examine the wheelings and dealings of financial fraudsters. Journalists also play a vital role in making sure the players in financial markets aren’t behaving badly with customers and their counterparties. As much as reporters are maligned today by the public, many journalists from Bethany McLean to John Carreyrou have done an admirable job uncovering fraud in finance when they see it.

    Ian Allison is the reporter at CoinDesk who first broke the story on FTX’s balance sheet trick with its sister organization, Alameda Research. CoinDesk will continue to cover the story and identify patterns of fraud with FTX as its bankruptcy case unfolds. The downfall of FTX will likely be the business story of the year, thanks in part to Marc Hochstein, the executive editor at CoinDesk who oversaw Ian Allison’s piece.

    The role of a free press in reporting financial fraudsters is important to investor awareness of bad financial actors. CoinDesk’s reporting on FTX will improve the reputation of executive editor Hochstein as well as other reputable news organizations in the crypto space. Look for Mr. Hochstein to improve CoinDesk’s stature in the crypto news space by focusing on how the fraudulent activities of FTX, like Celsius and other crypto firms before it, led to its downfall and eventual bankruptcy filing.

    4. John J. Ray III (CEO, FTX)

    In a corporate bankruptcy filing, the CEO of a firm is forced to resign as their skills are not suited to manage a worsening financial crisis. Oftentimes, a new CEO is brought in to clean up the carnage. That person will usually have a skill set that meshes with the financial straits a company finds itself in when filing for Chapter 11 bankruptcy.

    FTX could not have found a better person for their new CEO than John J. Ray III. Ray is a lawyer who specializes in turning around troubled companies. He has an impressive resume on LinkedIn which details his Chapter 11 stints with Enron, Nortel Networks, and Burlington Industries. Given the complexities of FTX’s business relationships with other entities and trading counterparties, Ray’s experience with the liquidation of Enron’s assets in Chapter 11 bankruptcy should serve him well in his attempts to recover assets for the beleaguered crypto exchange.

    5. Molly White (Software Engineer, Writer – Web3 Is Going Just Great)

    With all the bad news that keeps coming for FTX, one voice seems to make sense of it all. That voice belongs to crypto critic and occasional pundit Molly White. Ms. White chronicles the failures and frauds in the web3 space like FTX by rejecting and debunking the prevalent notion that crypto is the future. What’s special about her is that Molly understands the crypto space better than many of the men working in the industry.

    As Ms. White’s profile rises with the downfall of FTX, look for her and female critics of the web3 space to flourish. Independent voices like hers are what a male-dominated industry needs to hear when thinking about crypto assets.


    6. Tom Brady (QB, TB Bucs)

    This name should be familiar to many of you. Seven-time Super Bowl Champion. Three-time NFL regular season MVP. And, pitchman for FTX. He, along with his soon-to-be ex-spouse Giselle Bündchen received an equity stake in FTX for acting as a “brand ambassador.” Brady, along with other sports celebrities, also got equity stakes in the crypto exchange.

    The reason Tom Brady is a “loser” in the FTX fallout isn’t just about the money he and Ms. Bündchen invested. The loss is more about the reputational fallout for the suffering QB. Having one’s name attached to a bankrupt enterprise that may have committed financial fraud is not a good look for anyone. Especially for a star athlete like Brady.

    My hope is that he along with other star athletes who lost millions investing in FTX may get some of their money back as the bankruptcy process begins for FTX.

    7. Alfred Lin (GP, Sequoia Capital)

    Dream about the dent you will put in the universe. Stay grounded in your reality. Build a plan that connects these two worlds.”

    Star athletes aren’t the only ones who lost money investing in FTX. Many institutional investors also had their FTX investments vaporized. Institutional investors are groups that pool large sums of money to invest in assets like stocks, private companies, and crypto. Venture capital firms are one type of institutional investor. Sequoia Capital is one such venture capital firm.

    The reason I bring this up is that one of their partners, Alfred Lin, led the firm’s funding of FTX across multiple rounds. Mr. Lin and Sequoia raised $214 million for the embattled crypto exchange.

    And now, all that money is gone!

    Here’s another quote from Lin on Sequoia’s investment in FTX’s Series B round back in June 2021:

    FTX is the high-quality, global crypto exchange the world needs, and it has the potential to become the leading financial exchange for all types of assets. Sam is the perfect founder to build this business, and the team's execution is extraordinary. We are honored to be their partners.

    Sequoia said in a recent statement that the firm “ran a rigorous diligence process” on its investment in FTX. Looks like their attention to the potential pitfalls of FTX did not go far enough! My question for the firm, and Mr. Lin, would be this: How did you miss the risks of a company whose founder engaged in unethical related-party transactions?

    No VC partner dreams of backing companies that tilt the financial world upside down like FTX has. The reality of FTX’s ambitions has been grounded by the hubris of its founder. Venture capitalists like Mr. Lin should have known better given the risks they take with their investment in firms like FTX. Don’t be too surprised if you hear more of Mr. Lin’s name come up in lawsuits against Sequoia for failure of proper due diligence in their FTX investment.

    8. Dacey Montoya (Treasurer, Protect Our Future PAC)

    FTX made a number of investments during its brief stint as a crypto exchange. The firm made investments in crypto protocols like Solana. Then the company put money to work in marketing and sales efforts. There’s no better return on investment however than in politics.

    Companies try to engage in the political process but in an indirect way. Rather than make donations directly to candidates, they form something called political action committees (PACs). The purpose of a PAC is to pool money together from donors and use those funds to campaign for or against candidates, ballot initiatives, or legislation.

    One such PAC is Protect Our Future. The purpose of the PAC, according to its website is to “…help elect candidates who will be champions for pandemic prevention.” The PAC is bankrolled mostly by SBF. As of this year, the PAC has spent $21.3 million on independent expenditures — exclusively in Democratic primaries for House seats.

    Treasurer Dacey Montoya leads the PAC. The treasurer of a political committee is responsible for examining all contributions to make sure they are not illegal under federal law.

    Why is this notable?

    If the money used by SBF to fund this PAC were “tainted” meaning the contribution was obtained illegally, then Ms. Montoya as the PAC’s treasurer may be on the hook for potential legal action by the Federal Election Commission (FEC). Should Republicans take control of the House of Representatives after this year’s midterms, look for Ms. Montoya’s name to appear in a future hearing on the matters surrounding FTX and its political lobbying activities.

    9. Carrick Flynn (Democratic Candidate, U.S. House of Representatives, OR – Dist. 6)

    On a related note, one of the main beneficiaries of Protect Our Future PAC was none other than Carrick Flynn. Flynn is a progressive Democrat who ran, and ultimately lost, his bid for Oregon’s House seat in the 6th district. Flynn received over $10 million from Protect Our Future in 2022.

    The reason the amount is notable is that Flynn received more than 10 times the average amount other Democratic House representatives got from the PAC. If a link can be made between candidate Flynn and the practice of rent-seeking by the Protect Our Future PAC, then Mr. Flynn may be asked to give some of that money back. The PAC contributions to Mr. Flynn could be considered “ill-gotten” if SBF illegally used funds from FTX to fund his PAC’s lobbying activities.

    Flynn’s name is another to keep an eye on as events unfold with the FTX bankruptcy saga.

    The election loss could cost him more than just a drop in his campaign’s treasury.

    10. Nicole Muniz (CEO, Yuga Labs - ApeCoin)

    Losses are nothing new in the world of crypto world. The FTX bankruptcy filing is causing a lot of crypto investors to dump their holdings. With crypto markets in flux, some coins are losing more than others.

    One coin losing big in particular is ApeCoin. ApeCoin is the governance token for the NFT collection Bored Ape Yacht Club (BAYC). Owners of ApeCoin get to participate in how BAYC operates. The developer of ApeCoin is Yuga Labs, led by CEO Nicole Muniz.

    FTX was a prominent investor in Yuga Labs’ $450 million funding round last year. A portion of those funds was used in the development and launch of ApeCoin earlier this year. What’s interesting to note is that ApeCoin is the native token used to buy NFTs from BAYC. A number of BAYC NFTs ended up in the hands of Alameda Research, the trading firm tied to FTX.

    If during the FTX bankruptcy proceedings there was a “quid-pro-quo” relationship between Alameda and Yuga Labs, Muniz could be subject to civil proceedings as Yuga’s CEO. Look for her name to come up in future proceedings with the FTX bankruptcy.


    Look, there really are no “winners” in this soap opera with FTX, thanks to the criminal activity of SBF. SBF caused many investors to lose their money by taking huge risks and bets with leverage he had no business making! In the end, hubris and greed brought on the downfall of both SBF ad FTX. The reputational mess SBF finds himself in now reminds me of a quote from famed investor Warren Buffett:

    It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

    Maybe SBF should frame this quote to his prison cell wall when he thinks about the harm he’s done to crypto investors here and around the globe with his shameful actions.

    Thanks for reading!

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