FTX crypto customers worry they will never see their money again

The company’s massive financial problems began spilling into the open early this month, and FTX was quick to halt withdrawals from its international unit. American customers had hoped they might be luckier, but many of them haven’t been able to get their money out either.

“My blood is boiling,” said Matthew Way, a fundraiser for an Illinois orchestra who has about $1,800 stuck at FTX.

Where the money could be—and whether it will ever arrive—is anyone’s guess. FTX filed for bankruptcy on Nov. 11. John J. Ray, the company’s new CEO who also unwound Enron, said in a court filing Thursday that “only a fraction” of FTX’s digital assets have been located and secured. Determining how much cash is left has been difficult too, according to the bankruptcy filings, since FTX didn’t keep an accurate list of its bank accounts.

FTX said in a statement Saturday that it is working “to maximize recoverable value for stakeholders.”

“I respectfully ask all of our employees, vendors, customers, regulators and government stakeholders to be patient with us as we put in place the arrangements that corporate governance failures at FTX prevented us from putting in place prior to filing our Chapter 11 cases,” Mr. Ray said in the statement.

Mr. Way, the orchestra fundraiser, was drawn to FTX in part by the buzz. The exchange came recommended by the social-media influencer Kevin Paffrath, known on YouTube as Meet Kevin.

Mr. Way parked the money at FTX late last year and kept it in cash, intending to buy bitcoin if its price ever fell back to its lows of early 2020. He never got the chance.

On Nov. 10, FTX founder Sam Bankman-Fried tweeted that the American arm of FTX, known as FTX US, “was not financially impacted by this shitshow” and was “100% liquid.” To Mr. Way, it felt like a bluff. He decided to yank his money out and got an automated email saying his request would be processed within one business day.

The next morning, FTX filed for bankruptcy, and Mr. Bankman-Fried resigned.

As of Sunday, a message from Nov. 10 remained highlighted at the top of the FTX US website: “Withdrawals are and will remain open.” Mr. Way, 43, is still waiting for his money.

Meanwhile, he has soured not just on crypto but on the people who hyped it, including Mr. Paffrath, the internet star. Mr. Paffrath, who has said he can earn millions of dollars a year doling out investment recommendations on social media, apologized in an interview and said he feels terrible: “This is a scar on me as an influencer.”

In an email to the Journal on Friday, Mr. Bankman-Fried continued to say that customers of the U.S. unit should be fine.

“To my knowledge, FTX US has funds to process customer withdrawals,” he wrote. “However the Chapter 11 team apparently is unwilling to process them.”

The new FTX CEO and the company’s bankruptcy lawyers made clear in court filings that Mr. Bankman-Fried doesn’t speak for them or FTX. The former CEO “continues to make erratic and misleading public statements,” Mr. Ray, the new CEO, said in a court filing.

FTX is hardly the first crypto exchange to collapse, but its demise has been particularly jarring. Until this month, it was one of the five largest in the world. Mr. Bankman-Fried was often viewed as a steadying force in a volatile industry, throwing lifelines to other companies in need.

But behind the scenes, FTX played loose with customer money. It lent billions of dollars of customer assets to fund risky bets at its sister trading firm, Alameda Research. In traditional finance, brokers must keep customer money separate from other funds.

The crypto firms that relied on FTX are now feeling the pain as well, a sign that the destruction in the crypto industry will be felt far and wide. BlockFi, for example, paused withdrawals and is preparing for a potential bankruptcy.

Drake Lyle of Nashville, Tenn., deposited $2,700 onto FTX last year and used it to buy small positions in bitcoin, ether and litecoin. He expected the value of his crypto holdings to slide around. He didn’t expect FTX to implode.

“It definitely seemed credible, like a Charles Schwab of crypto,” said Mr. Lyle, 25 years old.

He tried without success to withdraw his money, which he said had shrunk to $800, before the bankruptcy filing.

“That’s a nice vacation for me and my girlfriend,” Mr. Lyle said. “That’s all the Christmas presents for my family and friends that I was going to buy.”

Mr. Lyle is considering joining a class-action lawsuit filed last week against Mr. Bankman-Fried and the celebrities who endorsed FTX, such as Tom Brady and Stephen Curry. Adam Moskowitz, an attorney involved in the suit, estimates his office fielded more than 1,000 calls and emails from investors around the world in the 24 hours after the lawsuit was filed.

FTX spent heavily to attract new customers in the crypto boom, emblazoning its name on the venue where the National Basketball Association’s Miami Heat plays and dropping a Super Bowl commercial early this year.

Many crypto newbies had never given much thought to the likes of bitcoin, but the pandemic gave them time to experiment, and the ever-higher prices were easy to get excited about.

Some customers embraced active trading, using platforms such as FTX to try to time the market. Others thought they were taking a safer route by using FTX to park their money as if it were a bank deposit—but paying a much higher yield.

Florida resident Joseph DiBella was drawn to FTX by the 8% interest rate the exchange offered on crypto deposits, he said. The company’s ubiquitous branding also helped.

“It was just all over the place,” he said. “That definitely was a factor in my thought process.”

He now believes he has about a 50-50 chance of getting his $4,000 back.

George Gonzalez, 38, received $10,000 that he withdrew Nov. 8. But he is still waiting for $15,000 that he tried to get out the following day. That money represents about two years of savings.

Mr. Gonzalez, a software engineer in California, was a big fan of Mr. Bankman-Fried’s and followed his many media appearances closely. He particularly liked the CEO’s proclaimed commitment to philanthropy. Now, Mr. Gonzalez has turned to meditation to try to stay calm.

“The odd thing is the feeling of shame and embarrassment which overwhelms the anger that I have for Sam and his inner circle,” Mr. Gonzalez said. “It just takes my legs out from under me.”