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(Kitco News) -
Bankrupt crypto exchange FTX filed a request to sell some of their subsidiaries on Thursday, claiming there’s a strong market for them, but a loss of licenses and employees could destroy much of their value if they wait much longer.
FTX is asking the Chapter 11 bankruptcy court in Delaware to allow them to auction off four of the solvent companies in the FTX group by the end of March 2023: FTX Europe, FTX Japan, Embed Technologies, and LedgerX.
FTX Europe AG ran FTX’s European digital assets and derivatives business, but not the crypto exchange itself. According to the filing, “FTX Europe provides a technology platform and exchange for crypto and equity derivatives trading for EU institutional and retail investors and offers single asset derivative contracts linked to equities or crypto assets, as well as index-based futures contracts.” FTX Europe also has Cyprus and UAE subsidiaries with suspended licenses which could be reinstated if they were acquired by new owners.
FTX Japan Holdings K.K. operated as a registered cryptocurrency exchange providing Japanese consumers the ability to trade crypto and crypto derivatives. “FTX Japan is subject to the regulatory supervision of the Financial Services Agency of Japan (the “JFSA”) and is registered as a Crypto-Asset Exchange Service Provider and Type I Financial Instruments Business Operator.” It was known as Liquid Group Inc. before being acquired by FTX in April 2022. It also has a subsidiary, “Quoine Pte Ltd. (“FTX Singapore”), which operates a cryptocurrency exchange in Singapore under exemption while its license application is being processed.”
Embed Financial Technologies Inc. is a Delaware-based corporation which includes its subsidiary Embed Clearing LLC that together “operate a correspondent clearing and custody platform that provides registered investment advisors, brokerdealers and other financial institutions with APIs and brokerage services.” Embed Clearing is registered with the U.S. Securities and Exchange Commission as a clearing broker-dealer and is a member of the Financial Industry Regulatory Authority (FINRA), the Nasdaq, Investors Exchange LLC, The Depository Trust Company, the National Securities Clearing Corporation and the Options Clearing Corporation.
LedgerX LLC is a digital currency futures and options exchange and clearinghouse regulated by the Commodity Futures Trading Commission (CFTC) and is also registered in Delaware. “LedgerX offers and clears futures, options and swaps contracts on digital assets and other commodities primarily for U.S. persons and is registered with the CFTC as a Designated Contract Market (DCM), Derivatives Clearing Organization (DCO) and Swap Execution Facility (SEF)."
Because FTX Japan and FTX Europe were registered in jurisdictions with more regulatory oversight and explicit reserve requirements, they are not themselves insolvent, and their licenses and technology could make them profitable under new ownership. Similarly, LedgerX and Embed operated under the regulatory regimes of U.S. agencies, so their licenses and technology would be valuable to other financial firms.
The filing notes that “each of the Businesses has experienced regulatory pressures which merit an expeditious sale process,” including “FINRA with respect to Embed, the CFTC with respect to LedgerX’s registrations as a DCM, SEF and DCO, the JFSA with respect to FTX Japan, and the Swiss Financial Market Supervisory Authority (“FINMA”) and the Cyprus Securities and Exchange Commission (“CySEC”) with respect to FTX Europe.”
FTX said in the filings that “the longer operations are suspended, the greater the risk to the value of the assets and the risk of a permanent revocation of licenses,” and that they have also experienced “significant customer and employee attrition pressures” which will continue as long as they are held by FTX in bankruptcy, which would destroy the companies’ value.
FTX also claims that because all four businesses were acquired fairly recently, they “operated on a generally independent basis from the Debtors’ other operations, holdings and investments” and also maintained segregated customer accounts, separate management structures, and IT systems. “The relative independence of each of the Businesses’ operations from the remainder of the Debtors’ core business operations make a potential sale process for each of the Businesses relatively less complex,” they wrote.
FTX claims that they have already received “dozens of unsolicited inbound inquiries” to purchase these subsidiaries, and they believe they could get good value for them through an auction process. They are proposing an auction with initial bids due before 5 PM EST on Jan. 18 for Embed, Jan. 25 for LedgerX, and Feb. 1 for both FTX Europe and FTX Japan. With the court’s permission, FTX is hoping to complete the sales for the four businesses between Feb. 27 and Mar. 27, 2023.
