SBF was pressured to file for Chapter 11 bankruptcy against his wishes, apparently

Chapter 11

Between November 6th and November 10th, I received a large number of calls from prospective investors, many of them potentially interested in contributing more than a billion dollars of financing. Together, there was substantially more strong interest than what it would have taken to make all customers immediately whole.

Starting on November 8th, I was put under extreme pressure to file for Chapter 11.

1. Most of that pressure came from Ryne Miller, the General Counsel of FTX US and a former partner at Sullivan & Cromwell (S&C), and Sullivan and Cromwell itself.

2. Sullivan & Cromwell was one of the primary external law firms that represented FTX US as well as FTX International at the time.

   1. I have 19 pages of screenshots of Sullivan & Cromwell, Mr. Miller, and others I believe were influenced by them, all sent over a two day period, pressuring me to quickly file for Chapter 11. They range from adamant to mentally unbalanced. They also called many of my friends, coworkers, and family members, pressuring them to pressure me to file, some of whom were emotionally damaged by the pressure. Some of them came to me, crying.
   2. It was only later that I was informed that it was very unusual for such a significant filing to be made so quickly.

3. Sullivan & Cromwell chose John Ray to run the Chapter 11 team

4. During the time I was being pressured to file, Sullivan & Cromwell lawyers told my counsel that I would get to choose the board chair. Sullivan & Cromwell silently reneged on that a few days later.

5. At roughly 4:30 am on November 10th, 2022, against my better judgment, I clicked on a Docusign link that would nominate John Ray as the CEO of various entities.

6. Less than 10 minutes later I received a potential funding offer for billions of dollars to help make customers whole.

7. A few minutes thereafter I instructed my counsel to rescind the document; it had become clear to me that it was not the best way forward.

8. My counsel informed me a few minutes later that it was too late to rescind it, and that Sullivan & Cromwell lawyers were submitting it on my behalf despite my instructions not to.

9. Roughly 6 hours later—more than ample time to change course— Sullivan & Cromwell filed the document with the court against my express wishes and stated orders.

10. After that John Ray filed for Chapter 11 for all of the entities–including a fully solvent US entity, FTX US, in which they shut down customer access and withdrawals–John Ray and his team appointed, as legal counsel for the Chapter 11 team (debtors), Sullivan & Cromwell.

11. John Ray is famous primarily for his work for the Enron bankruptcy estate.

    1. Sullivan & Cromwell recommended John Ray to manage the FTX bankruptcy; in the Enron bankruptcy, law firms including Sullivan and Cromwell were paid roughly $700m (!!!) in fees from funds that would otherwise have gone to creditors. (https://www.latimes.com/archives/la-xpm-2007-nov-22-fi-enronfees22-story.html; https://www.chron.com/business/energy/article/Energy-company-s-bankruptcy-generating-12789018.php)

       
       

12. So, to summarize, to the best of my knowledge: when Enron went through the Chapter 11 process, John Ray and S&C were both lawyers and/or administrators for the estate, which paid out roughly $700m in legal fees. Then, when FTX crashed: an ex-S&C partner chose S&C to represent FTX. S&C pressured me to file Chapter 11 documents, and filed the documents despite my instructions not to. S&C chose John Ray as the new CEO of the Chapter 11 estate; John Ray then chose S&C to represent the Chapter 11 estate. S&C reneged on an agreement to let me choose the board chair, and then John Ray appointed the board.

13. In an official statement, The Bahamas Attorney General, Ryan Pinder, said “it is possible that the prospect of multimillion-dollar legal and consultancy fees is driving both [the Chapter 11 team’s] legal strategy and their intemperate statements”. https://nypost.com/2022/11/28/bahamas-shreds-ftx-ceo-john-ray-extremely-regrettable-a ccusations/

14. I will end this section with a screenshot of a message Mr. Miller sent to much of FTX’s leadership at 10:23 pm on November 8th, 2022:

    1. screenshot
    2. Needless to say, Sullivan & Cromwell has not made sure that we are all represented through this. They have, however, done a good job of making sure they were wired $4M.

As of today, I am still aware of billions of dollars of serious offers for financing, including signed LOIs: billions of dollars that could potentially make customers substantially whole. However, I believe that all of those are conditional on FTX being restarted as an exchange. I sincerely hope that all of the global teams working on FTX are seriously considering such a possibility, because I believe it would drive a large amount of value to customers and creditors. I hope, at the very least, that all global FTX entities are prioritizing allowing customers to get access to their account data and history.

However, I admit I am not optimistic about some parts of the process. I have not myself witnessed any progress by Mr. Ray’s team towards raising substantial funds or restarting the exchange. In the few days prior to the Chapter 11 filings, Mr. Miller said, referencing my plans, that a capital raise was “a 0% likelihood…” And in response to my desire to keep FTX active, Mr. Miller said “There’s nothing to save Sam”.

And as of today, FTX US is off and US customers cannot even access their account data, let alone withdraw. To my knowledge, FTX US is solvent, and could make all customers whole. I’m surprised and saddened that it has not.

I understand that the Chapter 11 team has been placed in a very complex and difficult situation. I regret placing them there; I both regret the oversight that allowed for insolvency in the first place, and what I believe to be an overly rushed and improper transfer of control and filing. I have heard very good things about many members of the Chapter 11 team, especially those from Alvarez and Marsal, and believe that they could be extremely valuable members of a more global process forward for FTX.