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Crypto exchange FTX filed for U.S. bankruptcy proceedings on Friday and founder Sam Bankman-Fried stepped down as CEO, in a stunning downfall that has sent shock waves through markets and drawn calls for better regulation of the digital industry.

The distressed crypto trading platform had been struggling to raise billions in funds to stave off collapse after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.

The company said in a statement shared on Twitter on Friday that FTX, its affiliated crypto trading firm Alameda Research and about 130 other companies have commenced voluntary Chapter 11 bankruptcy proceedings in Delaware.

FTX had raised $400 million from investors in January, valuing the company at $32 billion. It attracted money from investors such as Singapore state investor Temasek and the Ontario Teachers’ Pension Plan as well as celebrities and sports stars.

Bankman-Fried, 30, known for his trademark shorts and T-shirt attire, has morphed from being the poster child of crypto’s successes to the protagonist of the industry’s highest-profile blowup.

“The shock was that this guy was the face of the crypto industry, and it turned out that the emperor had no clothes,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York.

The week’s turmoil hit already-struggling cryptocurrency markets, sending bitcoin to two-year lows. Bitcoin dropped after FTX’s announcement and was down 4.3% at $16,803 on Friday afternoon.

Shares of cryptocurrency and blockchain-related firms also dropped on the news.

FTX’s token FTT plunged 30% on Friday to $2.57, facing an 88% weekly loss.

Bankman-Fried, whose net worth was estimated as high as $26.5 billion by Forbes a year ago, repeatedly apologized.

“I’m really sorry, again, that we ended up here,” he said in a series of tweets.

Bankman-Fried did not respond to requests for comment.

Possible contagion effect

In its bankruptcy petition, FTX Trading said it has $10 billion to $50 billion in assets, $10 billion to $50 billion in liabilities, and more than 100,000 creditors. John J. Ray III, a restructuring expert, has been appointed to take over as CEO.

“The next question is how wide of a contagion effect this is going to have on other exchanges and where the next potential losses can occur,” said John Griffin, founder of Integra FEC, which consults on financial fraud investigations.

FTX was scrambling to raise about $9.4 billion from investors and rivals, Reuters reported, citing sources as the exchange sought to save itself after customer withdrawals.

“The Chapter 11 filing is a necessary step to allow the company to assess the situation and develop plans to move forward for the benefit of stakeholders,” Ray said in a Slack memo to FTX staff seen by Reuters.

Ray, 63, oversaw the liquidation of Enron after its bankruptcy filing and served as the senior officer of what became Enron Creditors Recovery Corp. He also oversaw the bankruptcy restructuring at Nortel Networks.

He did not respond to a request for comment.

Some investors, including Sequoia and SoftBank, had already marked FTX investments to zero. SkyBridge Capital is working to buy back its FTX stake, the alternative investment firm’s founder, Anthony Scaramucci, said in an interview with CNBC on Friday.

The reverberation went beyond the financial markets where the exchange has a significant presence, with the Mercedes Formula One team suspending its partnership agreement ahead of the season’s penultimate race in Brazil.

‘The writing was on the wall’

As FTX’s troubles mounted, regulators around the world stepped in.

FTX is under investigation by the U.S. Securities and Exchange Commission, the U.S. Justice Department and the Commodity Futures Trading Commission, according to a source familiar with the investigations.

“Once Binance walked away from buying FTX after only 24 hours of due diligence the writing was on the wall for FTX,” said Antoni Trenchev, co-founder of crypto lender Nexo.

“Now we enter the next phase of the fallout, where we witness the second order effects and discover which entities were exposed to FTX and Alameda.”
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Twitter paused its recently announced $8 blue check subscription service Friday as fake accounts mushroomed and new owner Elon Musk brought back the “official” badge to some users of the social media platform.

The coveted blue check mark was previously reserved for verified accounts of politicians, famous personalities, journalists and other public figures. But a subscription option, open to anyone prepared to pay, was rolled out earlier this week to help Twitter grow revenue as Musk fights to retain advertisers.

The flip-flop is part of a chaotic two weeks at Twitter since Musk completed his $44 billion acquisition. Musk has fired nearly half of Twitter’s workforce, removed its board and senior executives, and raised the prospect of Twitter’s bankruptcy. The U.S. Federal Trade Commission said Thursday it was watching Twitter with “deep concern.”

Several users reported Friday that the new subscription option for the blue verification check mark had disappeared, while a source told Reuters the offering has been dropped.

Twitter did not reply to a request for comment.

Fake accounts purporting to be big brands have popped up with the blue check since the new roll-out, including Musk’s Tesla TSLA.O and SpaceX, as well as Roblox, Nestle NESN.S and Lockheed Martin LMT.N.

“To combat impersonation, we’ve added an ‘Official’ label to some accounts,” Twitter’s support account – which has the “official” tag – tweeted on Friday.

The label was originally introduced Wednesday, but “killed” by Musk just hours later.

Drugmaker Eli Lilly and Co LLY.N issued an apology after an impostor account tweeted that insulin would be free, amid the political backlash and scrutiny of the high prices of the medicine.

“We apologize to those who have been served a misleading message from a fake Lilly account,” the company said, reiterating the name of its Twitter handle.

A number of misleading tweets about Tesla from a verified account with the same profile picture as the company’s official account were also being circulated on the platform.

“Twitter has over the past several years worked to try to improve that (misinformation). And it seems like Elon Musk has unraveled it within a matter of weeks,” said A.J. Bauer, a professor at the University of Alabama.

Musk had said Twitter users engaging in impersonation without clearly specifying it as a “parody” account would be permanently suspended without a warning. Several fake brand accounts, including those of Nintendo 7974.T and BP BP.L, have been suspended.

On Thursday, in his first company-wide email, Musk warned that Twitter would not be able to “survive the upcoming economic downturn” if it failed to boost subscription revenue to offset falling advertising income, three people who saw the message told Reuters.

Many companies, including General Motors GM.N and United Airlines UAL.O, have paused or pulled back from advertising on the platform since Musk took over. In response, the billionaire said Wednesday he aimed to turn Twitter into a force for truth and stop fake accounts.
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The widespread retrenchment in the U.S. technology industry has thrown thousands of workers in Silicon Valley out of work, a trend greatly amplified on Wednesday by Meta Platforms, the parent company of Facebook, which announced it would eliminate 13% of its workforce, amounting to more than 11,000 jobs.

The announcement followed on the heels of major layoffs at other tech firms, most recently Twitter, which is restructuring in the aftermath of its takeover by Tesla founder Elon Musk, and also business software firm Salesforce and social media giant Snap, Inc.

Other major tech firms, including Apple, Amazon and Alphabet, the parent company of Google, have said that they will slow or curtail new hiring.

Announcing the job cuts, Facebook founder and Meta CEO Mark Zuckerberg admitted he had made an error in judgment by assuming the sharp growth in online commerce that coincided with the beginning of the COVID-19 pandemic signaled a permanent change in consumer habits.

“I want to take accountability for these decisions and for how we got here,” Zuckerberg said in a statement released Wednesday. “I know this is tough for everyone, and I’m especially sorry to those impacted.”

Market reacts

The move by Meta to cut costs was applauded by many investors, some of whom have been calling on the company to pay more attention to its bottom line.

Brad Gerstner, founder of Altimeter Capital and a vocal proponent of change at Meta, used Twitter to voice his approval of Zuckerberg’s announcement on Wednesday morning.

Calling the move an “important first step,” he wrote, “Innovation wins when companies are healthy and fit. The cultural mindset shift from the dangerous era of excess/free money will define the next [generation] of winners.”

Meta’s share price, which had plunged from more than $345 last November to below $89 last week, got a boost from the news. After closing at $96.48 on Tuesday, Meta shares opened the day above $100, and closed up 5% at $101.47.

Other layoffs

Employees leaving Meta and seeking other employment in the tech sector will enter a challenging environment, given the sudden layoffs of thousands of their fellow workers across the sector.

Last week, Twitter announced it would lay off about 3,700 people, or approximately half of its workforce. The layoffs occurred in Twitter offices around the world but were concentrated in the United States. The company has reportedly asked some of the workers originally let go to return, but the overwhelming majority are expected to remain separated from the company.

San Francisco-based Salesforce announced Monday it would lay off approximately 2,500 people. That revelation came just weeks after the company’s largest competitor, software giant Microsoft, eliminated nearly 1,000 jobs in October.

This continues a trend that has been accelerating since early this year as a parade of other tech firms, including Seagate, Snap, Intel, Netflix, Shopify, Lyft and others have either cut jobs or restricted hiring.

Some perspective

Representative Ro Khanna, the Democratic member of Congress who represents a district including large segments of Silicon Valley, was asked during an interview with Bloomberg Television on Monday whether he thought the region would be able to “survive” the economic shock of the thousands of layoffs.

Khanna said some perspective was in order, noting that his district alone is home to companies with $10 trillion in market value and would be able to bounce back, though perhaps not without a broader economic recovery.

“I think we’re a leading indicator of some of the slowing in the economy,” Khanna said. “But I have no doubt that these companies are very resilient and we’ll come back.”

Visa holders

The impact of the layoffs will be particularly harsh on immigrants working at U.S. tech firms. Many hold H-1B visas, which means their ability to remain in the U.S. is dependent on continued employment by a company willing to sponsor their visa applications.

H-1B visa holders, in general, face a 60-day deadline to find a new job. If they fail to do so, they are required to leave the country.

According to data compiled by the United States Citizenship and Immigration Services, the overwhelming majority of H-1B visa holders work in the technology field. In 2019, the agency reported that of the 387,492 H-1B visa holders in the country whose occupations were known, 256,226, or 66%, worked in “computer-related fields.”

H-1B visas are disproportionately issued to citizens of India, who held 71.7% of outstanding visas in 2019. The next largest recipient are citizens of China, who held 13% of H-1B visas in 2019. Canada came in third at 1.2% and no other country’s citizens held more than 1% of the total.

In his public statement, Zuckerberg acknowledged that “this [workforce reduction] is especially difficult if you’re here on a visa.” He said Meta would have dedicated immigration specialists available “to help guide you based on what you and your family need.”

Global impact

The layoffs in Silicon Valley-based tech firms have also echoed around the world, particularly at Twitter, where staff at several international offices were let go en masse.

Bloomberg News reported that Twitter laid off some 90% of its employees in India, the majority in the company’s product and engineering teams. In Ghana, the site of the company’s only office on the African continent, nearly all of the company’s 20 employees received termination notices.

Meta has several hundred employees in India, spread across Facebook and Instagram and WhatsApp, two other social media companies it owns. It was unclear Wednesday how the layoffs would affect staff there.
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