Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Friday, November 11. In today's newsletter, new revelations about the cause and scope of crypto exchange FTX's sudden collapse. The fallout is spreading to its sister firm and, in a worrisome sign for the crypto world, to other exchanges like BlockFi as well.

In bankruptcy court, Kirkland & Ellis will stay in charge of a chapter 11 case seeking to resolve mass earplug claims against its client 3M. And Juul landed a lifeline from top shareholders that is expected to avert a near-term bankruptcy.

FTX tapped into customer accounts to fund risky bets. Crypto exchange FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm, Alameda Research, setting the stage for the exchange’s implosion, a person familiar with the matter said. FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, the Journal reported.

FTX paused customer withdrawals earlier this week after it was hit with roughly $5 billion worth of withdrawal requests on Sunday, according to a Thursday morning tweet from Mr. Bankman-Fried. The crisis forced FTX to scramble for an emergency investment.

• FTX affiliate's assets frozen in Bahamas. The Securities Commission of the Bahamas said that it froze the assets of FTX Digital Markets Ltd, the Bahamian subsidiary of FTX, and appointed a provisional liquidator. Mr. Bankman-Fried said on Twitter that “one way or another, Alameda Research is winding down trading.”
   
• Silicon Valley poured money into FTX, with few strings attached. A marquee roster of investors from Silicon Valley invested nearly $2 billion with few strings attached and no oversight on the cryptocurrency exchange’s board. Attracted to a founder they saw as visionary, investors moved swiftly to commit, putting aside some customary oversight safeguards. Multiple investment rounds were split widely among dozens of funders, a contrast to typical venture-capital rounds that have one lead investor that negotiates key terms with the company, the Journal reported.
  
  Now, the backers are nursing a high-profile black eye as Mr. Bankman-Fried aims to raise as much as $3 billion to $4 billion in equity. That would be a tall order for a financial company of FTX’s size in normal conditions. Its previous largest funding round was $1 billion in mid-2021, when crypto was booming.
   
• Hope fades for FTX customers. It isn’t clear how much customers will get back on the money they parked with FTX, or how long that might take. Big crypto losses are a familiar sight by now after several firms went bankrupt this year, but many said they thought FTX was different.
   
• See the celebrities with ties to FTX. Tom Brady, Stephen Curry and other big names in sports and entertainment have either invested in FTX or been brand ambassadors for the company. The company’s struggles this week expose the problems of being associated with it.
   
• Crypto lender BlockFi halts withdrawals, citing FTX’s problems. Cryptocurrency lender BlockFi said it was pausing withdrawals and limiting activity on its platform, saying it was "shocked and dismayed" by the sudden collapse of FTX and its sister firm Alameda. BlockFi, based in Jersey City, N.J., had obtained a financial lifeline from FTX this past summer.
   
• Top stablecoin Tether edges further below $1 peg. Tether, the world's largest stablecoin, has inched further away from its one-to-one peg to the dollar, falling to as low as 97.7 cents, after which it quickly rebounded to its intended $1 peg. And now that it has broken the buck again, questions are swirling about whether tether can maintain investor confidence in the midst of newfound turmoil in the cryptocurrency market.

The penalty adds to a nearly $1 billion jury verdict last month to determine how much Mr. Jones should pay for claiming the 2012 massacre was a government conspiracy. 

Superior Court Judge Barbara Bellis said that Mr. Jones had the unique position of using his platform to mock the court, the plaintiffs’ attorneys and the jury throughout the proceedings. The repeated attacks on those affected by the Sandy Hook shooting, including during the trial, continued to cause harm, the judge said.

In a separate order, she also restricted Mr. Jones from moving his assets out of the U.S. But the ability for Sandy Hook families to collect on their massive judgments against Mr. Jones and his business are complicated by the bankruptcy proceeding in Texas for Infowars' parent company, Free Speech Systems LLC.

Ghana bondholders hire advisers after country’s request for IMF bailout. A group of Ghana’s foreign bondholders has hired advisers ahead of prospective debt talks with the government over a bailout the country hopes to get from the International Monetary Fund, according to people familiar with the matter.

Once considered a poster child for development in Africa, Ghana has fallen on hard times as it carries a $55 billion debt load, most recently estimated by the government to be worth around 80% of its annual economic output. A cost-of-living crisis sparked protests early this summer in the capital, and the government formally requested support from the IMF in July.

Creditors’ push to get organized is pre-emptive. However, in previous IMF deals, foreign bondholders have been paid back less than they were owed when the multilateral fund deemed the public debt burden to be too high.

Judge Jeffrey Graham with the U.S. Bankruptcy Court in Indianapolis rejected concerns over Kirkland’s potential conflict of interest in representing Aearo in chapter 11 because the law firm also advises parent company 3M in mass personal injury lawsuits about its military earplugs. The judge said he believed the goals for 3M and its bankrupt unit Aearo are aligned at this point because they both aim to resolve valid injury claims.

Earplug injury claimants argued that Kirkland can’t be loyal to Aearo as its bankruptcy counsel because Kirkland lawyers pushed Aearo into chapter 11 for the sole purpose of managing 3M’s litigation risks.

The investment deal is the first piece of a bailout package under discussion with two of Juul’s biggest investors, Hyatt Hotels heir Nick Pritzker and California investor Riaz Valani. Juul called the investment and restructuring plans a path forward.

The goal of the deal is to put Juul on firmer financial footing so it can stay in business, pursue its dispute with the Food and Drug Administration and continue its product development and scientific research. Other early investors might also chip in, and a second part of the bailout that could cover near-term legal liabilities is also under discussion, the Journal reported.

• Earlier: U.S. Crackdown on Juul and Smoking: What to Know.

Twitter executive departures draw FTC concern. Elon Musk ordered the end of remote work for most Twitter Inc. employees as the departure of senior security and privacy executives from the company drew concern from federal regulators. The platform's new owner also delivered a dour assessment of its prospects, saying the challenging economic climate will be especially difficult for businesses like Twitter that depend on advertising.

Inflation report leaves Fed on track for 0.5-point rate rise next month. The latest inflation report is likely to keep Federal Reserve officials on track to approve a half-percentage-point interest-rate increase next month, stepping down from the recent pace of unusually hefty rate rises. Analysts said the new report offered a glimmer of encouragement to investors that interest rates wouldn’t have to rise to levels significantly above 5%.

• Consumer prices post 7.7% annual rise. Inflation eased last month to the slowest pace since January, but still high. 
• Home-price growth slows under tide of rising mortgage rates. Large price gains that characterized much of the past two years are now becoming much less widespread.

Federal judge strikes down Biden's student debt cancellation. A federal judge in Texas on Thursday struck down the Biden administration’s mass student debt cancellation plan, imperiling a key administration priority that would have forgiven up to $20,000 in student debt for tens of millions of borrowers.

The Biden administration’s plan is an “unconstitutional exercise of Congress’s legislative power” that also failed to go through normal regulatory processes, according to the judge's ruling, which is sure to be appealed.

U.K. economy slides toward recession. The U.K. economy contracted in the three months through September, as high energy prices and rising interest rates mark the beginning of what policy makers expect will be a long-lasting recession, part of a downturn that is likely to affect much of Europe in the coming months.

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