Crypto platform FTX appoints Alvarez & Marsal as restructuring advisor

15 November 2022 Consultancy.uk 3 min. read

Consultancy Alvarez & Marsal and law firm Sullivan & Cromwell have been named as the restructuring advisors of FTX. The high-profile restructuring will see the professionals tasked with trying to salvage the remaining value of the beleaguered crypto platform.

In mid-November 2022, one of the cryptocurrency sphere’s worst crashes unfolded in double-time. Valued at $32 billion during its peak, FTX has since seen its estimated value tumble to being practically worthless.

The saga began when reports broke that CEO and crypto-billionaire Sam Bankman-Fried appeared to hedge risks with the FTX coin that he issues himself. News coverage also suggested he had used about $4 billion from investors to absorb losses at his trading house, Alameda.

Crypto platform FTX appoints Alvarez & Marsal as restructuring advisor

Investors started withdrawing their funds – roughly $6 billion in all – from the platform. A week later, FTX had collapsed, with the company nearly $10 billion short of the deposits investors wanted returning. The world’s largest crypto exchange, Binance, initially moved to buy FTX, but within 24 hours the deal fell through because FTX's debt were “too large to carry”. Soon after, FTX and 131 other FTX firms filed for Chapter 11 bankruptcy in the United States.

The news comes with the cryptocurrency bubble having well and truly burst over the last year. The market had long ceased to be seen as any mechanism for storing value – with its notorious volatility making it of interest to only the most speculative of investors. But the case of FTX has still managed to have a huge ripple effect on the flagging crypto-sector. In the days since the news broke, crypto-valuations have sunk to their lowest point in years – the previous low came when Russia invaded Ukraine – mainly because FTX and Alameda are a keystone entities in the wider crypto-market. Having been tied to so many other investments, loans and transactions, there is therefore a fear of a domino effect, dragging others down with them.

At the time of FTX’s bankruptcy filing, Bankman-Fried announced he had stepped down and handed the reins to new CEO John J. Ray III. A turnaround veteran, Ray previously served as Chief Restructuring Officer and Plan Administrator in notable bankruptcy cases and situations, such as Overseas Shipholding Group, Nortel Networks, and Enron.

Ray commented that the Chapter 11 bankruptcy filing would in fact be an important step in developing plans to restructure the crypto exchange. But that will be easier said than done. Explaining just how big the restructuring challenge is, one industry insider said the downfall of FTX is to the crypto industry, what Lehman Brother was to the financial sector back in 2008.

In order to help tackle that workload, one of the first things Ray did as CEO was to install advisory brand Alvarez & Marsal (A&M) and legal firm Sullivan and Cromwell as the company's restructuring advisors. The US-headquartered A&M was actually one of the lead restructuring advisors on the Lehman Brothers case, and the hope seems to be that A&M is therefore well prepared to undertake such a tricky case.

According to early reports, even if the turnaround goes well, there is a good chance that users of the FTX platform will struggle to recoup their funds. In the meantime, the US regulators SEC and CFTC, and the Department of Justice, are investigating the allegations around Alameda and FTX. That could see the scandal’s key figures placed into custody.