How did FTX sell $744 million in assets and what is the impact on the market?

Author: jk

Since FTX was taken over by the bankruptcy liquidation team this year, FTX is taking a series of steps to handle its bankruptcy restructuring process, including the sale of assets and the development of a restructuring plan aimed at recovering as much money as possible for creditors and stabilizing its business operations.

Within a week, the FTX exchange made two important developments in its complex bankruptcy proceedings.

On December 7, local time in the United States, the official committee of FTX’s unsecured creditors disclosed a reply letter, which was addressed to the FTX 2.0 Customer Ad Hoc Committee on December 4. In its letter, the official committee noted that the proposed restructuring plan struck the right balance between the competing interests of stakeholders and the interests of all unsecured creditors. It is expected that the revised restructuring plan and disclosure statement will be submitted to the bankruptcy court in mid-December in order to provide more details.

At the same time, the official committee is also evaluating reasonable alternatives that may improve the terms of the plan and is discussing potential acquisitions, recapitalizations or other transactions. While the official committee is currently constrained by confidentiality obligations and is unable to disclose details, a number of concepts, including equity tokens involved in debt recovery, have been taken into account. The official committee also welcomed continued cooperation with the FTX 2.0 Customer Ad Hoc Committee in the coming months to work together to complete these bankruptcy cases.

On the other hand, on November 30, FTX also received approval from the bankruptcy court to begin selling its stake in the digital trust managed by Grayscale. It’s part of FTX’s plan to raise money to pay off billions of dollars in debt. According to court documents, FTX plans to sell the assets in a way that maximizes value while trying to avoid disrupting the digital investment market.

FTX’s investment in Grayscale covers a variety of digital currencies, and its buyers do not directly hold the actual currency, but instead acquire shares in the trust formed and managed by Grayscale. **FTX’s stake in the trust was valued at about $744 million last month, according to a statement in court filings. **

So how exactly did FTX deal with this asset? What steps do you need to go through to change from Grayscale’s shares to creditors’ equity? In other words, how exactly does FTX realize and repay its debts? Odaily Daily has found detailed steps in court filings.

Steps for Disclosure of Court Documents

According to court filings, FTX Trading Ltd. and its related debtors and debt holders are in the process of implementing a series of proceedings to sell or transfer the trust assets they hold. The goal of these proceedings is to ensure that the value of the assets is maximized and that the proceeds are distributed to creditors in a fair and appropriate manner while maintaining effective management of the trust assets.

The debtor was authorized, but not instructed, to execute the sale of the trust assets in accordance with the following sale procedures, based on its reasonable business judgment, according to the court documents:

1. Selection of Investment Advisors: FTX will market and sell the trust assets through a court-approved investment advisor. **This means that FTX will enter into an investment services agreement with the advisor, who will handle all matters related to the sale of the trust assets.
2. Establishment of a Pricing Committee: FTX will establish a Pricing Committee consisting of its representatives, committee representatives, and ad hoc committee representatives. This committee is responsible for reviewing and determining the pricing and sale strategy of the assets in coordination with the investment advisers.
3. Pricing Restrictions: The sale of certain trust assets will be subject to pricing and sale restrictions. These restrictions will be specified in the Investment Services Agreement and agreed in advance in writing with FTX, the Investment Advisors, the Committee, and the Ad Hoc Committee. In other words, it ensures that the asset is not priced indiscriminately, thus avoiding the problem of too much difference between the market value and the fixed value.
4. Sales Method: FTX will sell trust assets through investment advisors, over-the-counter (OTC) transactions or through exchanges.
5. Reporting Requirements: All sales of trust assets will be recorded and included in monthly reports to FTX, the Commission, and the Ad Hoc Committee.
6. Prohibition of Related Party Transactions: Investment advisers are not allowed to select any of their related parties as counterparties to trust asset transactions. **
7. Bid Requirements: For OTC sales, the Investment Adviser is required to obtain at least two offers from different counterparties before executing any such sale.
8. Sales Execution: FTX may sell trust assets to one or more buyers in one or more transactions through an investment advisor.
9. Brokerage Execution: All sales of trust assets should be made through or with a registered securities broker-dealer or other person exempt from registration.

Who might be the parties involved?

According to Coindesk’s report in August this year, the role played by this “investment advisor”, that is, the investment bank in traditional finance, may be Galaxy in this incident.

“Galaxy Asset Management has extensive experience in digital asset management and transactions, including in relation to the type of proposed transaction and investment objectives,” according to a court filing in August. The reference here is to the asset management company of Galaxy, founded by Mike Novogratz, which is an investment adviser approved by the Securities and Exchange Commission.

Galaxy Digital, better known as Galaxy Digital, another part of the company, announced that it had been implicated by FTX for tens of millions of dollars at the time of FTX’s bankruptcy, and the documents detail a conflict-of-interest process that will ensure that asset managers act in the best interests of FTX. If Galaxy is really the investment advisor for the sale of Grayscale assets, then according to the terms of the above steps, Galaxy Digital cannot participate in the sale of Grayscale assets as a counterparty.

Some new developments reveal more details about its asset sale process. For example, it is reported that “FTX/Alameda addresses transfer $2.8 million GMT to Wintermute” and “FTX/Alameda addresses transfer 17,100 SOL to Wintermute.” These transactions suggest that market makers like Wintermute may have acted as counterparties or broker-dealers in FTX’s asset sale process.

It can be seen that the sales steps given in the document are still very professional. Investment advisers and non-mandatory guidance are set up to allow them to make decisions that are most beneficial to creditors based on market conditions and the characteristics of the asset. This approach speeds up the decision-making process and increases the efficiency of sales, while also ensuring transparency and traceability of the process.

However, it also poses risk management challenges: there may be conflicts of interest, and additional oversight and control mechanisms are needed to ensure that the decisions of several committees are in the best interests of creditors and other stakeholders.

Overall, while this approach provides flexibility and efficiency, it also requires appropriate oversight and transparency mechanisms to maintain fairness and efficiency throughout the sales process.