Although I think people may be using the term “solvency” in slightly different ways in discussions around FTX. I think that in FTX’s case, illiquidity effectively amounted to insolvency, and that it’s uncertain how much they could have sold their illiquid assets for. If for some reason you were to trust SBF’s own estimate of $8b, their total assets would have (just) covered their total liabilities.
Sullivan & Cromwell’s John Ray said in December 2022 “We’ve lost $8bn of customer money” and I think most people have interpreted this as FTX having a net asset value of minus $8b. Presumably, though, Ray was referring either to the temporary shortfall in liquid funds or to the accounting discrepancy that was uncovered that summer/fall.
SBF also claimed that he could have raised enough liquidity to make customers substantially whole given a few more weeks, but was under extreme pressure to declare bankruptcy. I think there’s a good chance this is accurate, in part because most of the pressure came from Sullivan & Cromwell and a former partner of the firm, who are now facing a class action lawsuit for their alleged role in the fraud.
(If anyone has evidence that FTX’s liabilities did in fact exceed its assets by $8b at the time of the bankruptcy, I would be interested in seeing it.)
SBF also claimed that he could have raised enough liquidity to make customers substantially whole given a few more weeks, but was under extreme pressure to declare bankruptcy. I think there’s a good chance this is accurate [. . . .]
This seems unlikely to me. The books were just in too bad of a shape for anyone conducting even a minimum amount of due diligence to fork over the needed liquid assets. Selling the illiquid assets would have taken time, and in many cases doing so quickly would have depressed the value of those assets. Moreover, suspending withdrawals until liquidity could be obtained would have been the death knell for FTX’s enterprise value. So, contra the earlier situations in which investors poured money into FTX, the potential upside would be fairly limited for accepting the risk of whatever landmines might be buried in FTX’s financials.
The estate hopes everyone can be made whole as far as recovering the value in USD on the date of filing, but that is based in part on appreciation in the value of crypto and to a lesser extent on use of the trustee’s muscular powers in bankruptcy (such as clawing back ~$30M from EVF, getting out of expensive sponsorship deals, etc.).
Finally, even assuming it was possible to get FTX into shape to attract liquidity, that would have involved massive effort. The universe in which SBF hires an army of forensic accountants to untangle FTX’s disastrous accounting very quickly is a universe in which a lot of outsiders now have proof of very serious fraud. Those people are not likely to allow SBF to hide the extent of the fraud from would-be saviors.
Agree. In fact, SBF himself described FTX International as insolvent on his substack.
Although I think people may be using the term “solvency” in slightly different ways in discussions around FTX. I think that in FTX’s case, illiquidity effectively amounted to insolvency, and that it’s uncertain how much they could have sold their illiquid assets for. If for some reason you were to trust SBF’s own estimate of $8b, their total assets would have (just) covered their total liabilities.
Sullivan & Cromwell’s John Ray said in December 2022 “We’ve lost $8bn of customer money” and I think most people have interpreted this as FTX having a net asset value of minus $8b. Presumably, though, Ray was referring either to the temporary shortfall in liquid funds or to the accounting discrepancy that was uncovered that summer/fall.
SBF also claimed that he could have raised enough liquidity to make customers substantially whole given a few more weeks, but was under extreme pressure to declare bankruptcy. I think there’s a good chance this is accurate, in part because most of the pressure came from Sullivan & Cromwell and a former partner of the firm, who are now facing a class action lawsuit for their alleged role in the fraud.
(If anyone has evidence that FTX’s liabilities did in fact exceed its assets by $8b at the time of the bankruptcy, I would be interested in seeing it.)
This seems unlikely to me. The books were just in too bad of a shape for anyone conducting even a minimum amount of due diligence to fork over the needed liquid assets. Selling the illiquid assets would have taken time, and in many cases doing so quickly would have depressed the value of those assets. Moreover, suspending withdrawals until liquidity could be obtained would have been the death knell for FTX’s enterprise value. So, contra the earlier situations in which investors poured money into FTX, the potential upside would be fairly limited for accepting the risk of whatever landmines might be buried in FTX’s financials.
The estate hopes everyone can be made whole as far as recovering the value in USD on the date of filing, but that is based in part on appreciation in the value of crypto and to a lesser extent on use of the trustee’s muscular powers in bankruptcy (such as clawing back ~$30M from EVF, getting out of expensive sponsorship deals, etc.).
Finally, even assuming it was possible to get FTX into shape to attract liquidity, that would have involved massive effort. The universe in which SBF hires an army of forensic accountants to untangle FTX’s disastrous accounting very quickly is a universe in which a lot of outsiders now have proof of very serious fraud. Those people are not likely to allow SBF to hide the extent of the fraud from would-be saviors.
Sorry, I just meant the second part (“was under extreme pressure to declare bankruptcy”)