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FTX was one of the largest overseas crypto exchanges, based on a Caribbean island with a friendly regulatory regime, and arguably beyond the reach of U.S. rules that govern how trading firms deal with investors and consumers, the Wall Street Journal reported. The lawsuits filed yesterday show how U.S. regulators have found a way to police global crypto conduct they don’t closely regulate. The Commodity Futures Trading Commission alleged, for instance, that Bahamas-based FTX affected the price of commodities sold in the U.S. That gave the CFTC authority to file a civil fraud lawsuit against FTX founder Samuel Bankman-Fried and his companies. Crypto exchanges including FTX don’t register with U.S. regulators such as the CFTC or the Securities and Exchange Commission and aren’t subject to inspections that check for compliance with American rules. But they are still subject to U.S. laws that prohibit fraud if they deal with local customers or work inside the U.S. The CFTC wields another advantage in fraud cases, thanks to a change in law that Congress passed in 2010. The newer statute says the CFTC doesn’t need to prove market manipulation. Instead, regulators only have to show that a defendant committed fraud and that the conduct affected commodity prices. The CFTC’s lawsuit alleges that FTX misused customer money to fund its sister trading firm, Alameda Research, and made misleading statements about the firms’ financial stability and risk-management practices. When the exchange collapsed last month, the price of bitcoin futures fell more than 23%, the CFTC said. The agency alleged a clear connection between FTX’s conduct and the price of digital commodities such as bitcoin and ether.

Poor management practices and inexperienced leaders led to FTX's implosion, the crypto exchange's new chief executive told lawmakers on Tuesday, shortly after U.S. regulators charged founder Samuel Bankman-Fried with defrauding investors, Reuters reported. "The FTX group's collapse appears to stem from absolute concentration of control in the hands of a small group of grossly inexperienced, non-sophisticated individuals," said John Ray, who was named CEO of FTX after Bankman-Fried stepped down and the company filed for bankruptcy on Nov. 11. Ray also said there was virtually no distinction between the operations of FTX and Alameda Research, Bankman-Fried's crypto trading firm, which maintained close ties with his exchange. "I've just never seen an utter lack of record keeping — absolutely no internal controls whatsoever," Ray told the U.S. House of Representatives Financial Services Committee. A representative for Bankman-Fried did not immediately respond to a request for comment on Ray's testimony. He said he was shocked to learn FTX was using Quickbooks — software geared toward small and mid-size businesses — for accounting and approving invoices via Slack messages. Asked why he had testified that he did not believe the audited financial statements were reliable, Ray said: "We've lost 8 billion dollars of customer money. So by definition, I don't trust a single piece of paper in this organization." It will take weeks, perhaps months, to secure all the group's assets, Ray said, warning it would be a lengthy process. "At the end of the day, we're not going to be able to recover all the losses here," he said. Read more.

To view a replay of yesterday's hearing and access Ray's prepared testimony, please click here.

The Senate Banking Committee will hold a hearing today at 10 a.m. ET titled "Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers." Witnesses currently scheduled to testify include Prof. Hilary J. Allen of the American University Washington College of Law, Kevin O’Leary, an investor, Jennifer J. Schulp Director Of Financial Regulation Studies at the Cato Institute's Center for Monetary and Financial Alternatives, Cato Institute and actor and author Ben McKenzie Schenkkan. Click here to access the live web stream for today's hearing.

Lawyers for bankrupt lender Celsius are seeking to claw back $7.7 million from the estate of rival Voyager, as judges wrangle over the exact legal status of Celsius’ assets, CoinDesk.com reported. The Bankruptcy Code allows clawback of transactions that took place up to three months before Celsius filed for chapter 11 bankruptcy on July 13, documents filed in a court in the Southern District of New York in the early hours of Wednesday morning said. “Voyager maintained Earn accounts with Celsius, which earned significant rewards for its users,” the filing said, citing Voyager transactions of $7.7 million between Celsius accounts, of which $5.9 million was withdrawn, during the crucial 90-day period. “Section 547 of the Bankruptcy Code allows Celsius to claw back that cryptocurrency.” Other withdrawals and transfers could also be subject to challenge, Celsius said, but added that the figure was still small in Voyager’s total pool of $1.85 billion in unsecured claims. Voyager itself had filed for bankruptcy July 5, and claims against the company were supposed to be filed by Oct. 3. But Celsius is begging for a deadline extension — saying that it had been too preoccupied with its own legal case, and that Voyager had sent its legal notice to an out of date address for Celsius’ U.K. arm.

Serta Simmons Bedding is preparing to seek bankruptcy protection as soon as January, Bloomberg News reported. The closely held mattress manufacturer has been in confidential talks with its creditors over a restructuring plan, which may involve giving control to certain first-lien lenders. Talks are ongoing and plans could change, the people added. It isn’t yet clear if the company needs financing to fund its operations through chapter 11, they said. Serta’s entire debt load of more than $2 billion matures next year. Its approximately $843 million first-lien term loan due November 2023 is quoted at around 9 cents on the dollar, according to data compiled by Bloomberg. Given the sizable debt wall and deteriorating performance amid an inflationary environment, Serta will likely see a default, bankruptcy filing or debt restructuring in the coming months, S&P Global Ratings wrote in a note in August. Lower consumer confidence and slowdown in the housing market will likely hurt demand for bedding related products, the credit grader said.

FTX founder Sam Bankman-Fried was arrested in the Bahamas at the behest of U.S. prosecutors on Monday, the day before he was due to testify before Congress about the abrupt failure last month of one of the world’s largest cryptocurrency exchanges, Reuters reported. The arrest marks a stunning fall from grace for the 30-year-old entrepreneur widely known by his initials SBF, who rode a boom in bitcoin and other digital assets to become a billionaire many times over until FTX's rapid demise. The exchange, launched in 2019 and based in the Bahamas, filed for bankruptcy Nov. 11 after it struggled to raise money to stave off collapse as traders rushed to withdraw $6 billion from the platform in just 72 hours. Since then it emerged Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business. The arrest came as Bankman-Fried prepared to lash out at his former lawyers at Sullivan and Cromwell, new FTX CEO John Ray and rival exchange operator Binance at a Congressional hearing. In the testimony, a draft copy of which was seen by Reuters, Bankman-Fried planned to say he was pressured by Sullivan and Cromwell lawyers to nominate Ray as CEO following the sudden exodus of customer funds. And when within minutes he changed his mind, following an offer of billions of dollars of fresh funding, he was told it was too late. Bankman-Fried will now be unable to testify, according to Congresswoman Maxine Waters, who said in a statement she was surprised to hear of his arrest. Ray's testimony will go ahead.
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The House Financial Services Committee’s hearing is scheduled today at 10 a.m. ET to investigate FTX’s collapse. Click here to access a live web stream of the hearing.

Additionally, the Senate Banking Committee will hold a hearing tomorrow at 10 a.m. ET titled "Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers." Witnesses currently scheduled to testify include Prof. Hilary J. Allen of the American University Washington College of Law, Kevin O’Leary, an investor, Jennifer J. Schulp Director Of Financial Regulation Studies at the Cato Institute's Center for Monetary and Financial Alternatives, Cato Institute and actor and author Ben McKenzie Schenkkan. Click here to access the live web stream for tomorrow's hearing. Read more.

U.S. regulators filed civil securities fraud charges today against Sam Bankman-Fried, the founder of the collapsed FTX crypto exchange, who was arrested last night at his home in the Bahamas, the New York Times reported. The Securities and Exchange Commission charged him with misleading big investors, who committed nearly $2 billion to FTX in recent years, about the financial health of the crypto exchange and its sister crypto trading platform, Alameda Research. The SEC also said that Mr. Bankman-Fried misled customers by taking in billions of dollars to trade crypto on FTX and telling them it was safe. But the SEC said that money from customers was commingled with funds at Alameda and used to finance investments in outside ventures, buy real estate and make political donations. “We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” the S.E.C. chair, Gary Gensler, said in a statement.
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At least $73 million of political donations tied to Sam Bankman-Fried’s FTX may be at risk of being clawed back as bankruptcy lawyers sort through the remnants of his crypto empire in search of assets to repay creditors, Bloomberg News reported. Just a few months ago, Bankman-Fried, the 30-year-old founder of the crypto exchange, had pledged to give as much as $1 billion in the 2024 presidential election cycle. While there’s precedent for forcing political entities to return contributions in cases of fraud, recovery prospects are unclear in FTX’s case. Recouping campaign funds as part of the bankruptcy proceedings is a complicated and lengthy process, and the scope of the total funds eligible for clawback depends on myriad federal and state laws. It is also subject to the bankruptcy lawyers’ judgment on what money, which may be long spent by the time the FTX trustees try to go after it, is worth the effort.

Clovis Oncology Inc. filed for bankruptcy and plans to sell its experimental cancer drug at an auction with Novartis Innovative Therapies making a binding, opening bid worth as much as $681 million, Bloomberg News reported. Novartis has agreed to pay $50 million initially and another $630.75 million in payments if the cancer drug, FAP-2286, wins regulatory approval and later hits certain sale goals, Clovis said in a statement. The agreement will be considered the opening bid of a court-supervised auction, should a judge approve the deal and competing offers come in. For Clovis, which once had a market value of over $3 billion, the opening bid for its pipeline candidate is a far cry from the $5.1 billion that a competitor secured from GSK Plc in 2018. Back then Clovis was riding high on speculation it could secure a similar deal for another cancer drug, Rubraca. But regulatory setbacks and disappointing sales have left the company saddled with debts. The company is also talking to other parties about selling different parts of its business.

Sears Hometown Stores Inc. filed for bankruptcy on Monday, court papers show, Bloomberg News reported. The retailer listed assets of no more than $50 million and liabilities of at least $50 million in its bankruptcy court petition, filed in Delaware. Chapter 11 bankruptcy allows companies to continue operating while working on a plan to repay creditors. Sears Hometown is a branch of the retailer that focuses on selling appliances, tools, hardware and lawn and garden equipment. Sears spun off the Hometown business in 2012 to raise cash for its struggling parent company. Hometown wasn’t part of Sears Holdings Corp.’s 2018 bankruptcy, and Transformco, a company backed by former Sears Chief Executive Officer Eddie Lampert, purchased it in 2019 as part of a strategy to focus Sears’s future business on appliances. Instead the company has continued to fade away, with Transformco shuttering stores and selling off signature brands like Craftsman and DieHard. The now-bankrupt Sears Hometown entity is at least partially owned by Lampert, according to court papers.

FedNat Holding Co., a Florida-based homeowners insurance company, filed for bankruptcy after an increase in severe weather events in the state weighed on its balance sheet, Bloomberg News reported. The company filed for chapter 11 protection in Fort Lauderdale on Sunday, court papers show. FedNat listed $33.8 million of assets and $171 million of debts in its bankruptcy petition. FedNat has racked up losses in recent years in part because more big storms hit coastal areas of the southeastern US, where the company operates. It has also suffered from the deluge of claims litigation dogging other small Florida insurers. The bankruptcy underscores Florida’s deepening home insurance crisis, where average premiums are nearly triple the national average. Ron DeSantis — the Republican governor expected to make a presidential run — is attempting to reform the system, and the state’s senate has a special session to address the crisis starting Monday. “As an industry, the Florida property insurance industry lost over $1.6 billion in 2020 and over $1.5 billion in 2021,” thanks to losses from catastrophes, higher reinsurance costs and litigation abuse, Chief Restructuring Officer Katie S. Goodman said in a sworn bankruptcy court statement. Catastrophe losses cost FedNat $800 million on a gross basis last year, though reinsurance and other recoveries reduced that loss to $86 million, according to court papers. In September, a Florida court ordered a FedNat subsidiary to liquidate after state’s insurance regulator deemed it insolvent. At least five other Florida insurers have been put into receivership by state’s regulator this year, Goodman said.

U.S. drugmaker Clovis Oncology Inc. on Sunday filed for bankruptcy protection in Delaware, hit by a fall in sales of its cancer drug and challenges in raising additional capital, Reuters reported. Clovis has been struggling to sell its cancer drug Rubraca, the company's only approved drug, as sales were hit in recent years by intensifying competition from rival ovarian cancer treatments, and partly due to declining diagnoses during the pandemic lockdowns. The company has also lined up a debtor-in-possession (DIP) financing facility of up to $75 million to provide it with necessary liquidity, subject to court approval, Clovis said in a press release on Monday. Colorado-based Clovis said it has entered into a stalking horse agreement with Novartis Innovative Therapies AG to sell the license rights to its pipeline clinical candidate FAP-2286 for an upfront payment of $50 million and up to an additional $333.75 million after achieving some development and regulatory milestones. Clovis will also receive $297 million later, when it hits certain sales milestones. Clovis is also actively engaged in discussions with a number of interested parties regarding a potential sale of one or more of its other assets. In a filing at the U.S. Bankruptcy Court for the District of Delaware, Clovis estimated its assets to be in the range of $100 million to $500 million, with liabilities between $500 million and $1 billion.