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FTX said yesterday that a probe of its balance sheet showed holdings of customer funds were lower than the exchange’s internal accounts had indicated, acknowledging for the first time there was a shortfall of funds at the U.S. exchange, WSJ Pro Bankruptcy reported. It also disclosed that a hack two days after the company’s bankruptcy filing in November led to the theft of around half of the crypto assets stored on the U.S.-based exchange, valued at about $90 million before the company’s collapse. The same hacker took about $323 million of crypto from FTX’s international exchange, representing about 20% of that exchange’s total crypto assets. FTX also said that it found that a small group of individuals at the company had the ability to remove digital assets from the exchange without any record-keeping. “It has taken a herculean investigative effort from our team to uncover this preliminary information,” said FTX Chief Executive John J. Ray III, who has been leading the company since its bankruptcy filing. “We ask our stakeholders to understand that this information is still preliminary and subject to change. We will provide additional information as soon as we are able to do so.” The company said on Tuesday it identified $5.5 billion of liquid assets across its businesses, including $265 million of unrestricted cash — money that isn’t pledged as collateral or kept in custody for customers — at its U.S. businesses and around $273 million of unrestricted cash at the international exchange. It also identified around $3.5 billion of crypto assets as of Nov. 11, the day it filed for bankruptcy. Read more.

In related news, indicted FTX founder Sam Bankman-Fried later challenged aspects of the company's report in a blog post, Reuters reported. Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, Alameda Research, pushed back against FTX's calculations late Tuesday, saying that the company's lawyers at Sullivan & Cromwell had presented an "extremely misleading" picture of the company's finances. Bankman-Fried said FTX has more than enough money to repay U.S. customers, whom he says are owed between $181 million and $497 million based on his "best guess." Bankman-Fried has not had access to FTX records since stepping down as CEO in November. Read more.

GigaMonster Networks LLC, a high-speed internet provider backed by investment firm Barings LLC, filed for chapter 11 protection, aiming to sell itself under bankruptcy, WSJ Pro Bankruptcy reported. The Marietta, Ga.-based company specializes in deploying high-speed internet services to multifamily and commercial buildings. It sought chapter 11 protection on Monday in the U.S. Bankruptcy Court in Wilmington, Del., after having struggled to quickly expand the company through acquisitions, according to the court filing. “Growth was slower than anticipated, and the company did not generate revenues sufficient to offset the drain on cash” to cover the fixed costs, said Rian Branning, the company’s chief restructuring officer, in the filing. GigaMonster started as Kubix LLC, a Florida limited liability company founded in 2013, and was changed to the current name the following year. The company contracts with property owners to set up high-speed internet networks for the Internet of Things, including smart lighting, security systems, door locks and thermostats. It also provides internet services to subscribers in those buildings. In 2019, Barings Asset-Based Income Fund (U.S.) LP became the majority investor. But the company’s growth has been limited, and it currently contracts with about 400 properties and about 35,000 internet subscribers. GigaMonster’s net operating loss was about $22 million on revenue of about $18.8 million in 2021, according to a filing. The condition didn’t improve in 2022 and, as of October, it reported a net loss of about $22.5 million, the filing said. The company had about $44 million in debt as of the petition date, according to court papers.

Performance Powersports Group Inc., a wholesale supplier of dirt bikes, all-terrain vehicles and golf carts, has filed for bankruptcy, with a lender and investor planning to serve as lead bidder while the private-equity-backed company seeks better offers, WSJ Pro Bankruptcy reported. The Tempe, Ariz.-based vehicle dealer, backed by investment firm Kinderhook Industries LLC, said it has been hurt by supply-chain disruptions, higher freight costs and a reduction in customer demand. The company sells its vehicles to customers including Tractor Supply Co., Lowe’s Cos. and Walmart Inc., according to a filing on Monday in the U.S. Bankruptcy Court in Wilmington, Del. Performance Powersports, which sells products under brands that include Coleman, also said it has been in an inventory dispute with a key vendor, Chongqing Huansong Industries (Group) Co. Ltd. A delay in vehicle delivery by the China-based vendor caused 2021 holiday sales to suffer, Performance Powersports said. Chongqing Huansong is listed as the largest unsecured creditor, with a $58 million claim. Performance Powersports has debt of more than $120 million, according to its court filing.

The unraveling of Bed Bath & Beyond Inc. could unlock one of the company’s strongest businesses: the Buybuy Baby chain of stores selling strollers, cribs and other infant gear, the Wall Street Journal reported. Bed Bath, which is preparing for a bankruptcy filing, has been in discussions with private-equity firm Sycamore Partners and another suitor about a deal to sell the baby chain as part of its chapter 11 restructuring. While sales at both chains are shrinking, the smaller baby business has held up better than the home goods chain. The company is still opening new Buybuy Baby stores, even as it closes 150 of its namesake locations and moves to preserve cash. As of February 2022, the company had about 770 Bed Bath & Beyond stores and about 130 Buybuy Baby locations. The Buybuy Baby business has drawn more interest than the core Bed Bath & Beyond business, the people said, and some discussions with potential suitors have centered around keeping the Buybuy Baby locations intact while determining another path forward for Bed Bath & Beyond. It’s unclear what that could look like.

Houston-based natural gas pipeline Ruby Pipeline LLC received U.S. bankruptcy court approval on Friday for a chapter 11 plan built around a $282 million sale of its assets to Tallgrass Energy LP, Reuters reported. Under the plan, Tallgrass, a Blackstone Group company, will acquire a 680-mile pipeline that is used to transport natural gas from the Rocky Mountains to Northern California and the Pacific Northwest. Ruby Pipeline will use cash from that sale, as well as a $135 million contribution from its equity owners Kinder Morgan Inc and Pembina Pipeline Corp and $162.8 million in its existing cash accounts, to repay creditors and wind down its business. Bankruptcy Judge Craig Goldblatt approved the plan during a court hearing in Wilmington, Delaware. No creditors opposed the plan, and Ruby Pipeline attorney Sunny Singh said at Friday's hearing that the Tallgrass sale "allowed us to resolve all of the disputes in this case." Ruby Pipeline filed for chapter 11 protection on March 31st of last year because it didn’t have enough cash on hand to pay $475 million in unsecured notes that were due on April 1. The company blamed its financial troubles on declining natural gas prices and the subsequent drop in demand for its services.

Investors are making higher offers for FTX customer accounts trapped in bankruptcy after lawyers for the failed cryptocurrency exchange said they have located $5 billion in cash and other liquid assets, WSJ Pro Bankruptcy reported. Bids on FTX accounts hit 15.5 cents on the dollar on Wednesday on the bankruptcy claims trading platform Xclaim Inc., which runs a market for buying and selling cryptocurrency accounts in chapter 11. Cherokee Acquisition, which runs a separate bankruptcy claims market, said bids on FTX claims increased to roughly 14 cents on the dollar this week after lawyers detailed their efforts to find and secure the company’s assets. The bids were still just a fraction of the accounts’ listed value, but they represented the highest offers since the cryptocurrency firm’s swift collapse in early November. FTX accounts had been priced at between 6 cents and 11.5 cents on the dollar since it plunged into chapter 11, according to Cherokee Acquisition. The uptick indicated some investors now believe recoveries might be slightly higher than previously expected for FTX’s roughly 9 million customer accounts. FTX lawyers disclosed on Wednesday that they have located $5 billion in cash and liquid assets and that they plan to sell hundreds of additional investment holdings with a book value of $4.6 billion. Read more. (Subscription required.)

The intersection of cryptocurrency and bankruptcy is one of the key issues to be discussed by expert panels at ABI's upcoming Rocky Mountain Bankruptcy Conference Jan. 26-27 in Salt Lake City. Are you registered?

FTX can put four key units including derivatives arm LedgerX and stock-clearing platform Embed up for sale, a Delaware bankruptcy judge ruled on Thursday, CoinDesk.com reported. Investment bank Perella Weinberg is now allowed to start the sale process, which also includes the crypto exchange’s European and Japanese units, and which have already attracted as many as 117 expressions of interest. In formal terms, the judicial decision allows bids, an auction, and a sales hearing to take place, with permission for any actual transaction to come later. U.S. Bankruptcy Judge John Dorsey charged with overseeing the wind-up of the exchange, approved the measures in an order dated Thursday after a hearing held Wednesday. Sale notices will be published within around three business days, with indications of interest to be received between Jan. 18 for Embed and Feb. 1 for FTX Europe and Japan.

The co-founders of failed cryptocurrency hedge fund Three Arrows Capital are now courting investors for a new venture that looks to capitalize on a growing list of bankruptcies in the space, CNBC.com reported. Kyle Davies and Su Zhu are listed as founding members in a pitch deck obtained by CNBC for a distressed debt marketplace called GTX. Davies and Zhu founded Three Arrows Capital, a once $10 billion Singapore-based hedge fund that filed for bankruptcy in July. The fund, also known as 3AC, was ordered to liquidate by a British Virgin Islands court after a plunge in prices and risky trades left it unable to repay lenders. The new investor pitch comes as the Three Arrows founders navigate their own controversial bankruptcy. Advisors working to liquidate 3AC have accused Davies and Zhu of not cooperating with the liquidation process. The advisors served the co-founders a subpoena over Twitter last week, claiming that their whereabouts were still unknown.

Financial firm Beneficient Co. Group LP urged a bankruptcy court to keep sealed details of an investor claim that it siphoned funds from its former parent company, saying that disclosing such allegations would cause further financial damage for the firm and its investors, WSJ Pro Bankruptcy reported. Beneficient received $230 million from former parent company GWG Holdings Inc. before being carved out as an independent entity in 2021, less than five months before GWG filed for chapter 11 bankruptcy protection. GWG investors have been probing how it wound up bankrupt after selling more than $1 billion in bonds as a capital-raising vehicle for Beneficient, a financial-services firm led by Dallas-based entrepreneur Brad Heppner. The official committee of bondholders in GWG’s chapter 11 case alleged in a legal motion last month that Mr. Heppner funneled funds from GWG to Beneficient through conflicted, related-party deals in return for equity of unproven value, which he has denied. From 2019 to 2021, when most of those bonds were sold, Beneficient and GWG were led by many of the same people, as the companies had largely overlapping boards of directors. Parts of the bondholder attorneys’ December filing were redacted. Bankruptcy Judge Marvin Isgur has said those redactions contained criminal and quasi-criminal allegations, and indicated that he wanted to unseal them to provide transparency for stakeholders in GWG’s chapter 11 case.

A judge in Connecticut has placed tighter restrictions on Chinese businessman and media entrepreneur Guo Wengui and his followers to end what she described as an alleged campaign of online and in-person harassment directed at a court-appointed trustee and others involved in his chapter 11 case, Reuters reported. Bankruptcy Judge Julie Manning said that she found it "extremely alarming" that the campaign against chapter 11 trustee Luc Despins and Pacific Alliance Asia Opportunity Fund (PAX), a Cayman Islands-based investment fund that is Guo's largest creditor, has continued or escalated since she imposed a temporary restraining order on Guo in November. Her latest order prohibits Guo or his agents from protesting outside the homes of Despins and others, and restricts what they can post on social media.