Crypto exchange FTX and its sister company Alameda Research, which have filed for bankruptcy in a United States court, invested billions in at least three Kenyan start-ups in what could throw the young firms into financial wild waters.
Regulatory filings and court papers show that Sam Bankman-Fried’s collapsed $32 billion crypto empire through investment arm Alameda Research, pumped billions of shillings into local digital finance start-up Mara and remittance company Chipper Cash.
Mara received Sh2.8 billion ($23 million) in May backed by FTX-affiliated Alameda Research and Coinbase Ventures for expansion and to create a platform for its users to buy and sell crypto tokens using the Kenya shilling and other currencies in the region.
Mara is a crypto brokerage firm that allows users to buy, sell and send digital assets using local currencies.
For its part, Chipper Cash raised Sh18.3 billion ($150 million) at Sh244.9 billion valuation last year from the collapsed crypto firm and other investors for expansion in Africa.
Chipper Cash is a money remittance and payments platform founded in 2018 to offer instant cross-border mobile money transfers in Africa.
The peer-to-peer payment services platform operates across nine countries, including Kenya, Ghana, Uganda, Tanzania, Rwanda, Nigeria and South Africa.
In the first bankruptcy case filed by Bankman-Fried on November 11, BitPesa Kenya was listed among the over 100 subsidiaries spread across continents. FTX later clarified that some of the firms initially listed as part of the suit including BitPesa are not part of its sprawling crypto empire.
BitPesa is a blockchain payments platform founded in 2013 that was at one point linked to the former ICT Cabinet Secretary, Joe Mucheru. Mr Mucheru offloaded his minority stake in 2018 citing a conflict of interest.
BitPesa is owned by AZA Finance and its relationship with FTC Africa was a partnership with FTX Africa to expand web3 in Africa which failed to take off.
The collapse of the exchange has further plunged the volatile digital currency market into crisis, coming on the back of a recent meltdown with many investors yet to recover as Bitcoin struggles to maintain the key level of Sh2.4 million ($20,000).
The ripple effects have already seen other crypto firms like BlockFi file for bankruptcy following the implosion.
More than four million Kenyans who hold digital assets for speculation and hedge on local currency could be pushed deeper into losses as the full impact of the latest crisis in the industry unravels.
FTX has been one of the most popular digital tokens trading platforms in Africa and Kenya being one of the leading markets in the region could signal losses running into billions.
“That’s where [Africa] the most underserved globally are and where there’s a whole lot of lowest-hanging fruit in terms of being able to make people’s lives better,” Bankman-Fried told the news website Vox in 2021.
Experts and insolvency professionals have said that the company collapsed under the weight of mismanagement and financial impropriety in what the new FTX chief executive, John Ray III, said was the biggest case of corporate failure he has seen in 40 years.
Filings in the US Bankruptcy Court for the District of Delaware indicate that the company owes over $3 billion to one million creditors.
In a damning filing of the company’s fall, Mr Ray III has said that the FTX group companies lacked appropriate corporate governance. The new management is now seeking to restructure or sell the crypto empire.
“Based on our review over the past week, we are pleased to learn that many regulated or licensed subsidiaries of FTX, within and outside of the United States, have solvent balance sheets, responsible management and valuable franchises,” Mr Ray III said in a statement
“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.”
A team of lawyers are currently working to track assets in the complex web of companies to repay creditors who are said to be over one million.
Lawyers of the collapsed firm said in the first hearing last week that the company was run by an inner circle of Bankman-Fried operating from the Caribbean Island of Bahamas with no regard to corporate governance rules.
They said the 30-year-old ran the exchange as a “personal fiefdom”, using customer funds to buy homes for executives and holiday homes in the Bahamas.
It emerged last week that the disgraced crypto king and his parents used company funds to purchase at least 19 properties worth about Sh14.8 billion ($121 million) in the Caribbean Island over the last two years.
Mr Ray III, who is leading the efforts to restructure or sell the company, has accused his predecessor Bankman-Fried of frustrating and undermining the case by working with Bahamian regulators to shift some assets overseas.
The crypto market, known for its wild price swings, has shed more than half of its value since November last year as investors pulled out money from riskier assets amid worries over soaring inflation and rising interest rates.
Since the implosion of FTX, some crypto players are taking to decentralised exchanges known as “DEXs” where investors trade peer-to-peer on the blockchain.
Overall daily trading volumes on DEXs leapt to their highest level since May on November 10, as FTX imploded, according to data from market tracker DeFi Llama, but have since pared gains.
Editor's note: The previous version of this story reported that BitPesa, which is owned by AZA Finance, is part of the ongoing FTX bankruptcy case filed on November 11. Subsequent court filings and hearings indicate that BitPesa is not part of the suit. Its engagement with the collapsed crypto giant was a commercial partnership with FTX Africa to expand web3 in Africa which did not take off.
