Arush Sehgal, a former member of FTX’s unsecured creditors’ committee (UCC), has delivered a blistering critique of the legal team that oversaw FTX’s bankruptcy, accusing them of derailing a revival plan that could have returned “tens of billions” of dollars to creditors.

Sehgal, the Head of Crypto at Alpaca, made the allegations in a detailed post on X while quoting Kraken chief executive officer Arjun Sethi’s announcement that the exchange had raised $800 million at a $20 billion valuation.

An account linked to the convicted founder of the defunct FTX exchange reposted Sehgal’s post. 

Three well-funded bidders left empty-handed

According to Sehgal, he resigned from the UCC to work on a bid for FTX 2.0 alongside Sethi and Tribe Capital, wrongly assuming the bankruptcy lawyers intended to allow the sale to proceed.

He wrote, “Contrary to Andrew Dieterich’s lies about nobody wanting to buy FTX2.0, there were 3 credible and well-funded finalists in the sale process.”

Seghal said the three finalists were the Sethi-Tribe consortium backed by an undisclosed public exchange, Bullish led by Thomas Farley, and Figure headed by Mike Cagney.

Since then, Bullish has gone public at a $6 billion valuation and is now worth $9 billion, while Figure completed its IPO at $5 billion and is valued at $8 billion, and Sethi “is now IPO’ing Kraken,” according to Seghal.

When FTX was considering relaunching the platform following its famed crash, it reportedly reached out to more than 75 bidders starting in May 2023.

“Each of these offers had significant equity components on the table that would have added tens of billions in value to all FTX creditors holdings but the lawyers killed the deal,” Seghal wrote in his post on X. 

“This was as much of a surprise to us as the general public and creditors given the value left on the table,” he added.

At the time of its collapse, FTX was the second-largest cryptocurrency exchange globally, and market conditions appeared favorable for a reboot.

Conflicts of interest accusations

FTX creditors filed a class-action lawsuit against Sullivan & Cromwell in February 2024, alleging the firm actively participated in the fraud. A bipartisan group of US senators raised objections to the firm’s participation, citing apparent conflicts of interest. 

An independent investigation shared in May 2024 that Sullivan & Cromwell was not complicit in the fraud that caused FTX’s collapse. The lead examiner of the investigation, Robert Cleary, released another report in September 2024, absolving the law firm of ignoring “red flags” when it represented Sam Bankman-Fried, FTX’s disgraced founder, who is currently serving a 25-year prison sentence, for his purchase of shares of Robinhood Markets.

In October of the same year, the FTX creditors voluntarily dismissed their lawsuit against the law firm, stating that the investigation reports gave them enough evidence that there was no claim there.

Liquidation vs acquisition

The bankruptcy estate defended its decision to pursue liquidation rather than a sale. During a January 2024 court hearing, Dietderich declared any revival plans officially dead, stating that months of negotiations had failed to secure necessary funding and that the cost was “simply too high” to create a profitable transaction.

He said, “No investor is ready to commit the needed capital to a restart of the offshore exchange, nor has a buyer emerged for that exchange as a going concern.”

Seghal’s post is a contradiction to that claim, as he wrote that “FTX2.0 bidders promised to tokenize claims and run the multi-billion dollar venture and crypto portfolio, who better to run this than Arj, one of our generation’s greatest capital allocators, or Tom/Cagney each of whom are absolute, stone cold killers on a warpath to victory.” 

He continued, “FTX creditors would have benefited from any of them, instead we got John ‘Anthropic is vaporware’ Ray, Sullcrom shut down the sale and basically all 9M customers moved to Hyperliquid.”

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