• Sehgal resigned from the UCC to pursue an FTX 2.0 bid with Kraken CEO Arjun Sethi and Tribe Capital, assuming lawyers would allow the sale.

• Three credible finalists included the Sethi-Tribe group, Bullish led by Thomas Farley, and Figure under Mike Cagney, all now valued in billions post-IPO.

• Equity components in bids could have added significant value, but lawyers terminated the process, leading to liquidation instead of potential revival amid favorable market conditions.

Discover how FTX revival plan efforts were allegedly derailed by legal conflicts, leaving creditors shortchanged. Explore Sehgal’s bold claims and implications for crypto bankruptcy cases today.

What Derailed the FTX Revival Plan?

The FTX revival plan was allegedly derailed by the bankruptcy legal team, according to Arush Sehgal, who claimed conflicts of interest and deliberate sabotage prevented three well-funded bidders from acquiring and rebooting the exchange. This decision favored liquidation, potentially costing creditors tens of billions in equity value. Sehgal, now Head of Crypto at Alpaca, detailed these accusations in a public post on X, highlighting missed opportunities during a crypto market recovery.

Who Were the Key Bidders in the FTX Sale Process?

Arush Sehgal identified three prominent finalists in the FTX sale: the consortium of Kraken CEO Arjun Sethi and Tribe Capital, backed by an undisclosed public exchange; Bullish, led by Thomas Farley; and Figure, headed by Mike Cagney. These groups submitted credible, well-funded proposals starting in May 2023, when FTX reached out to over 75 potential bidders amid efforts to relaunch post-collapse. Sehgal emphasized that each offer included substantial equity components that could have delivered tens of billions in additional value to the roughly 9 million FTX creditors.

Since the bids were rejected, these entities have thrived independently. Bullish went public at a $6 billion valuation and now trades at $9 billion. Figure completed its IPO at $5 billion, reaching $8 billion in market value. Meanwhile, Sethi is steering Kraken toward an IPO, underscoring the financial strength these bidders brought to the table. Sehgal argued that any of these operators—described by him as “stone cold killers on a warpath to victory”—would have been ideal to manage FTX’s multi-billion-dollar crypto portfolio and tokenized claims.

The bankruptcy estate, however, pursued liquidation under the guidance of John Ray III, whom Sehgal criticized sharply. In a January 2024 court hearing, lead counsel Andrew Dietderich stated that revival efforts failed due to insufficient funding commitments and high costs, declaring no viable buyer for the offshore exchange. Sehgal countered this narrative, asserting that bidders like Sethi had pledged to run the venture profitably, but lawyers from Sullivan & Cromwell shut down the process entirely. This shift left customers migrating to platforms like Hyperliquid, rather than benefiting from a structured revival.

Expert analysis from bankruptcy proceedings, as reported in court documents, supports the complexity of these decisions. Robert Cleary, lead examiner in an independent investigation, concluded in reports from May and September 2024 that Sullivan & Cromwell did not ignore red flags or participate in fraud during their representation of FTX founder Sam Bankman-Fried. Despite this, Sehgal’s claims point to broader issues in prioritizing liquidation over acquisition, especially when market conditions in late 2023 favored crypto reboots—FTX had been the second-largest exchange globally before its November 2022 implosion.

Frequently Asked Questions

What Conflicts of Interest Were Alleged Against FTX’s Legal Team?

FTX creditors accused Sullivan & Cromwell of participating in the exchange’s fraud and ignoring conflicts, leading to a February 2024 class-action lawsuit. US senators raised bipartisan concerns over the firm’s ties to Sam Bankman-Fried, including his Robinhood shares purchase. However, an independent probe by Robert Cleary in May 2024 found no complicity, and creditors dismissed the suit in October 2024 after reviewing evidence that cleared the firm of wrongdoing.

How Did the FTX Bankruptcy Liquidation Impact Creditors?

The shift to liquidation meant creditors received distributions from asset sales rather than equity in a revived FTX, potentially missing out on billions in upside from bidders’ offers. With over 9 million affected users, this process prioritized recovery of frozen funds but forewent growth opportunities in a rebounding crypto market, as voiced by former UCC member Arush Sehgal in his detailed critique.

Key Takeaways

• Revival Opportunities Overlooked: Three strong bids for FTX 2.0, including from Kraken’s Arjun Sethi, were terminated by lawyers, denying creditors equity value estimated in tens of billions.
• Legal Conflicts Scrutinized: Despite investigations clearing Sullivan & Cromwell, accusations of bias persisted, highlighted by lawsuits and senatorial objections that questioned the firm’s impartiality in bankruptcy proceedings.
• Lessons for Crypto Bankruptcies: Future cases should balance liquidation speed with acquisition potential, ensuring creditor input to maximize recoveries in volatile markets—consider consulting estate advisors early.

Conclusion

Arush Sehgal’s outspoken FTX revival plan critique underscores deep frustrations with the FTX bankruptcy legal team, revealing how decisions to abandon bidder interest in favor of liquidation reshaped creditor outcomes. While investigations absolved key players like Sullivan & Cromwell of fraud involvement, the lost potential for a rebooted exchange amid crypto’s resurgence remains a cautionary tale. As the industry evolves, stakeholders must prioritize transparent processes to protect assets and foster recovery, potentially setting precedents for handling distressed platforms in upcoming cycles.