The Australian subsidiary of Sam Bankman-Fried’s cryptocurrency exchange, FTX, is facing significant challenges as the country’s regulator, the Australian Securities and Investments Commission (ASIC), has canceled its local financial services license.
This move comes after revelations of substantial financial misconduct, including misappropriating approximately $8.7 billion from customer accounts for personal trading and venture capital investments.
ASIC has cancelled the Australian financial services licence held by FTX Australia https://t.co/Gsmsg9XcYj
— ASIC Media (@asicmedia) July 19, 2023
With FTX executives facing legal charges in the United States and the bankruptcy proceedings underway, the future of FTX Australia appears bleak.
ASIC cancels FTX Australia’s license, restricting reboot prospects
ASIC has announced the cancellation of FTX Australia’s financial license, effective July 14, 2023. While FTX Australia will still be allowed to provide limited financial services until July 12, 2024, the ability to participate in the proposed global reboot of the FTX.com exchange is severely restricted.
FTX debtor have filed the second interim report pic.twitter.com/aEafxFTnLu
— Sunil (FTX 2.0 Champion) (@sunil_trades) June 26, 2023
Administrator John J Ray III, known for his involvement in the Enron investigation, has been untangling the remains of the FTX business, and he had previously recovered approximately $7 billion in liquid assets. However, the estimated misappropriation of $8.7 billion of customer assets presents a significant challenge to the restructuring efforts.
Uncertainty surrounding Australian users’ claims in FTX bankruptcy proceedings
The cancellation of FTX Australia’s license raises questions about the claims of Australian users within the bankruptcy proceedings. FTX Australia had two entities: FTX Australia, holding the AFSL to offer derivative products to local customers, and FTX Express, mainly used for purchasing cryptocurrencies with Australian dollars.
Once customers bought cryptocurrencies using their Australian dollars, their digital assets were held in the custody of FTX Trading, the company subject to investigation in the US. Australian customers who connected personal wallets or moved cryptocurrency from another exchange to FTX will likely be creditors in the global claims against FTX Trading. The administrators of the Australian subsidiaries are expected to provide a creditors update soon.
FTX reboot prospects and compensation arrangements
While the cancellation of FTX Australia’s license poses challenges for its participation in the global reboot, efforts are underway to seek potential financial backing for a relaunch. Administrator John Ray has been engaging with interested parties, exploring options for refinancing, and offering creditors an ownership stake to enhance their ultimate compensation.
Importantly, "talks include possible compensation for certain existing customers, possibly by offering them stakes in any reorganized entity".
We expect customers to get recovery and/or equity tokens in FTX 2.0.
— FTX 2.0 Coalition (@AFTXcreditor) June 28, 2023
It is crucial to note that compensation arrangements for retail clients and Australian Financial Complaints Authority membership remain intact despite the license cancellation. The restructuring team aims to provide the best possible outcome for creditors who have suffered losses due to the alleged misconduct.
FTX’s future uncertain
FTX Australia’s future remains uncertain as the cancellation of its financial license and the ongoing bankruptcy proceedings pose significant challenges. With Australian investors entangled in the process and allegations of misappropriated customer assets, the path to resolution is complex.
The proposed global reboot of the FTX.com exchange may offer a potential solution, but the extent of Australian users’ claims and compensation remains to be determined. As the situation evolves, updates from the administrators and regulatory authorities will shed further light on the fate of FTX Australia and the affected investors.
While FTX continues to be mired in the revocation of some of its licenses across the globe as well as bankruptcy issues, the exchange’s novel token continues to see impressive investor interest.
Up about 80% year-to-date (YTD) from $0.843 on January 1 to $1.50 on July 19, FTT has seen a minimum daily trading volume of $10 million since the start of July.
With this, the token has retained a spot in the top 250 digital assets by market capitalization with approximately $530 million in value despite shedding more than 80% of its all-time high (ATH) price of $85.02 in September 2021, data from crypto price tracker CoinMarketCap showed.