%1

FTX says it has identified a deficit of $8.9 billion in customer funds that it can’t account for, the first time the bankrupt cryptocurrency exchange has pinned down how much money has gone missing, WSJ Pro Bankruptcy reported. In a public presentation released yesterday, FTX said that it had identified around $2.7 billion of customer assets, compared with $11.6 billion of balances outstanding on customer accounts. The estimated value of FTX’s assets and liabilities are based on crypto prices on the day of the company’s bankruptcy filing in early November. New managers at FTX, led by restructuring veteran John J. Ray III, have been working to locate and protect billions of dollars in missing customer funds since the company filed for bankruptcy. FTX sought chapter 11 protection after allegations emerged that Alameda Research, a hedge fund started by FTX co-founder Sam Bankman-Fried, was taking customers’ funds from FTX accounts without authorization. Ray said on yesterday that it isn’t yet possible to predict how much customers will be able to recover. “[The exchange’s] books and records are incomplete and, in many cases, totally absent,” Ray said. “For these reasons, it is important to emphasize that this information is still preliminary and subject to change.” It isn’t clear whether customers will be able to recover the entirety of the $2.7 billion in assets that FTX has found. About $1.5 billion of that total included illiquid crypto assets like FTX’s token, FTT, whose value has fallen since the firm’s collapse. Around $880 million in found customer assets are considered “liquid currencies” like dollars, stablecoins, bitcoin or ether, FTX said. Around $400 million are in other receivables, the presentation shows. A great deal of the total $8.9 billion shortfall at FTX can be attributed to Alameda Research, which had borrowed $9.3 billion from customers’ accounts before the exchange went bankrupt, the presentation shows.

Stratford University, the for-profit college whose abrupt closure last year left hundreds of students without a clear path to a degree, officially filed for chapter 7 bankruptcy earlier this month, WTOP.com reported. In Feb. 2 filings with the Eastern District of Virginia’s bankruptcy court in Alexandria, the defunct college claims to hold $696,241 in assets but over $8.5 million in debt. According to the filings, $2.2 million of that debt is owed to the U.S. Department of Education for loans that the department had to discharge because of the school’s closure. Creditors have until May 12 to file proof of claims. The university quickly shuttered last September after its accreditor, ACICS, was decertified by the U.S. Department of Education for failing to meet federal standards, and Stratford failed to find a new accrediting institution. The decertification meant that Stratford — which at the time operated campuses in Woodbridge, Alexandria and Baltimore — could no longer accept federal student loans, the main revenue source for for-profit colleges. At the time, Stratford President Richard Shurtz said that without that revenue, the college could not continue to operate. The college referred its roughly 800 nursing students to other nearby for-profit colleges to transfer, but representatives for those colleges said that most of their credits would not transfer with them.

Nishad Singh followed Sam Bankman-Fried into the high-stakes world of cryptocurrency trading. Now he could help put the former FTX chief executive in prison, according to a Wall Street Journal analysis. Singh, the 27-year-old former director of engineering at FTX, pleaded guilty this week to six criminal counts, including wire fraud. He agreed to cooperate with the government’s investigation of FTX’s collapse. The deal means Mr. Singh could end up testifying against a colleague and friend whom he has known since childhood. Just a few months ago, he and Mr. Bankman-Fried were housemates in the Bahamas, living in a luxury penthouse with other executives at FTX and its sister trading firm, Alameda Research. “I’m unbelievably sorry for my role in all of this and the harm that it has caused,” Singh said in a court hearing in Manhattan on Tuesday. Singh attended the same elite Silicon Valley prep school as Bankman-Fried and was close friends with his younger brother, Gabriel Bankman-Fried. Like the Bankman-Fried brothers and several other top FTX executives, Singh was a proponent of effective altruism, a movement that urges adherents to make big bucks so they can give their fortune to charity.

As a third member of Sam Bankman-Fried’s inner circle became a prosecution witness, lawyers for the FTX co-founder were preparing for a more immediate fight: his use of the internet and mobile apps while out on bail, Bloomberg News reported. Bankman-Fried now faces the culmination of a tense standoff with the judge in his criminal fraud case over his communications. Free on a $250 million bond but confined to his parents’ house with a monitoring device around his ankle, he has already angered U.S. District Judge Lewis Kaplan by using encrypted-messaging apps and a virtual private network, or VPN, which hides a computer’s identity. “Why am I being asked to set him loose in this garden of electronic devices?” Judge Kaplan demanded at the most recent bail hearing in lower Manhattan, on Feb. 16. For now he has barred Bankman-Fried from using either of those tools and from contacting former or current FTX employees. Late Wednesday, in response to a court order, the two sides jointly proposed a pair of technology consultants to advise the skeptical judge on a raft of restrictions that balances the defendant’s rights and needs with the integrity of the judicial process. Kaplan has threatened to revoke the bail package altogether and send Bankman-Fried to jail ahead of his October trial if he isn’t satisfied with the constraints.

A U.S. bankruptcy judge on Tuesday allowed victims of the 2012 Sandy Hook massacre to retain a forensic financial investigator to dig into the finances of bankrupt right-wing conspiracy theorist Alex Jones, who for years falsely claimed that the shooting was a hoax, Reuters reported. Jones and his company Free Speech Systems have been found liable for $1.5 billion in two defamation trials over lies that Jones spread about the deadly elementary school massacre in Newtown, Connecticut. The Sandy Hook families said that they need specialized assistance to review Jones' assets, income, and ability to pay those verdicts. Bankruptcy Judge Christopher Lopez in Houston yesterday approved the families' request to retain Nardello & Co., which is providing its services on a pro bono basis. Jones's attorney, Vickie Driver, told Judge Lopez that Jones has had some difficulty in providing complete financial reports to the bankruptcy court. Jones filed preliminary financial statements earlier in February, but listed several trusts that held unknown assets. "We are trying to locate every single trust and figure out what every single trust owns, and we are starting to get to what I would consider the final layers of the onion," Driver said in court. Jones filed for personal bankruptcy in December, saying he could afford to pay less than 1% of the judgments handed down in two Sandy Hook defamation trials. Judge Lopez will decide in March if Jones has to face a third Sandy Hook defamation trial.

Nishad Singh, the former director of engineering at now-bankrupt cryptocurrency exchange FTX, pleaded guilty to U.S. criminal charges on Tuesday, and agreed to cooperate with prosecutors' investigation into FTX founder Sam Bankman-Fried, Reuters reported. "I am unbelievably sorry for my role in all of this," Singh said, adding that he knew by mid-2022 that Bankman-Fried's hedge fund, Alameda Research, was borrowing FTX customer funds, and customers were not aware. Singh said that he would forfeit proceeds from the scheme. Bankman-Fried, FTX's founder, pleaded not guilty to eight criminal charges filed against him in December. Prosecutors say he stole billions in FTX customer funds to plug losses at Alameda. He has acknowledged inadequate risk management, but says he did not steal funds. Singh, 27, pleaded guilty to one count of wire fraud, three counts of conspiracy to commit fraud, one count of conspiracy to commit money laundering and one count of conspiracy to defraud the United States by violating campaign finance laws.

Crypto derivatives platform LedgerX, one of the few solvent pieces of the bankrupt FTX empire, will no longer use embattled Silvergate Bank to receive domestic wire transfers beginning Wednesday, Bloomberg News reported. The company will use Signature Bank going forward, according to an email LedgerX sent to customers that was reviewed and verified by Bloomberg. LedgerX already had an existing relationship with Signature, according to two of the people who confirmed the email. In a statement, Signature Bank said that “While we can’t comment on specific clients, we are still in the business of holding digital asset deposits.” The bank disclosed in December that it was reducing its exposure to the sector, though not completely. FTX US, the American affiliate of FTX, completed its acquisition of LedgerX in October 2021, more than a year before the crypto exchange’s shocking descent into bankruptcy. LedgerX is registered with the U.S. Commodity Futures Trading Commission, and was an important part of FTX co-founder Sam Bankman-Fried’s push to gain power and influence in Washington. The platform previously sought approval from the CFTC to clear crypto derivatives trades without intermediaries, but withdrew its controversial application after FTX imploded.

Customers of Voyager Digital voted in favor of the crypto lender's chapter 11 bankruptcy plan, the company said in a tweet yesterday, Reuters reported. Of those who participated in the voting, "97% of customers representing 98% of the total claims, voted in favor," the company said.

HyreCar Inc., a publicly traded car-sharing platform, has filed for bankruptcy, partly blaming mounting legal fees from numerous lawsuits and investigations, including Justice Department and Securities and Exchange Commission probes into insider stock trading, WSJ Pro Bankruptcy reported. HyreCar stock closed down 83% to 2 cents a share Monday. Its shares peaked at roughly $24 in June 2021. The Los Angeles-based company, which earlier this month warned that it might file for bankruptcy, has total assets of $16.5 million and total debts, all unsecured, of $18.4 million. The money is owed to trade creditors, its landlord and others. Last week it provided written notice to its landlord that it was ending its lease since all of its 59 employees have been working remotely. Holmes Motors Inc., which is affiliated with an equity owner who recently took a stake in the business, is offering to provide up to $5 million in bankruptcy financing, including $3.1 million on an interim basis. It will also serve as lead bidder in a sale process with a starting offer of roughly $7.8 million.

Toronto-Dominion Bank on Friday agreed to pay $1.2 billion to settle claims stemming from the Canadian bank’s involvement in the Ponzi scheme perpetrated by convicted swindler R. Allen Stanford, resolving nearly all outstanding litigation related to the fraud, WSJ Pro Bankruptcy reported. Michigan-based Independent Bank and London-based HSBC Holdings PLC also reached settlements on Friday, following deals struck last month by Société Générale SA of Paris and Trustmark National Bank of Jackson, Miss. The deals reached this year totaled more than $1.6 billion, pending court approval, according to lawyers representing the court-appointed receiver in the case. The receiver also recouped more than $1.1 billion through previous litigation, bringing the total amount of potential recoveries to more than $2.7 billion, proceeds that will go toward making restitution to victims of the fraud. Stanford Financial Group, now defunct, was a financial-services company that operated until it was seized by U.S. authorities in early 2009. Its former chairman, Mr. Stanford, was convicted in 2012 of running a two-decade investment-fraud scheme amounting to $7 billion, one of the largest frauds in U.S. history. He was sentenced to 110 years in prison.