How Philly investors are faring in the wake of crypto firm FTX's collapse

Nov. 16--Friday's bankruptcy filing by FTX, one of the largest purveyors of Bitcoin and other cryptocurrencies, has embarrassed some of the world's leading investment firms, besides hurting individual speculators.

Since the rapid departure of FTX's former CEO Sam Bankman-Fried, halting his career as a would-be philanthropist, political donor, and Washington policy adviser, the New York and Wilmington, Del., lawyers handling the crypto firm's reorganization proposals have so far told the court little about what went wrong. In court papers they blamed only "unprecedented" events since late October for wrecking what they called "one of the most respected and innovative companies in the crypto industry." They have not yet produced a list of creditors, which observers say could include more than one million investors.

A quick look at the FTX crash and Sixers link

The sector's troubles are another blow to the slowing U.S. economy. Crypto companies attracted oceans of investment capital; they also spent heavily on Super Bowl ads and other marketing campaigns. The FTX collapse, with the fall in crypto prices, has stilled both trends: SoftBank, the giant Japanese investor that is a major owner of the Philadelphia-based Gopuff delivery service, on Monday wrote off its nearly $100 million investment in FTX. And the Miami Heat canceled their $135 million deal that would have named their arena for FTX.

The impact on Philadelphia-area investors is less pronounced. A quick check of the state pension funds in Pennsylvania and New Jersey, which have lost billions in this year's stock and bond market declines, shows each has been scratched a bit by their investments in Wall Street managers and financial service companies that made bigger crypto bets. The city's NBA team has its own multimillion-dollar crypto marketing deal, which remains in place.

Here's how the FTX bankruptcy and the crypto price collapse have been felt here, so far:

The Sixers

The Philadelphia 76ers have collected $10 million in each of the last two years from Singapore-based cryptocurrency dealer Crypto.com to put its address on team jerseys, and plans to do the same next year, a team official confirmed. Crypto.com officials have said the firm could lose up to $10 million in FTX's debacle, and its own cryptocurrency has lost value. But crypto values have fallen before, and bounced back higher, as some of its anxious fans are fond of noting.

PSERS

The Pennsylvania public school pension system's board has $5 million of its nearly $70 billion in assets invested in FTX, and at risk of loss, acting chief investment office Robert Levine told board members Tuesday afternoon, according to a review that is still underway.

An additional $1.3 million in PSERS funds are invested in cryptocurrencies, Levine said. (Spokeswoman Evelyn Williams later clarified that these cryptocurrencies were not directly held by PSERS but owned by one of its money managers, whom the pension system has not publicly identified.) That disclosure led to questions from surprised board members, and trustees shut off public access to the meeting, moving into secret "executive session" to talk more about it.

At least one PSERS manager, New York-based Insight Partners, is among the leading investors in FTX but didn't disclose how much it had in the firm. PSERS has invested over $500 million with Insight since 2018, including $20 million approved at an October board meeting.

The pension system also has identified around $25 million that it invested in crypto-related technology companies, Levine said.

SERS

The retirement plan for state troopers, judges, social workers, state college professors, and other Pennsylvania government employees also has investments with Insight Partners. But since Insight invests in many companies, and SERS is one of multiple investors, its total FTX investment (and potential loss) adds up to "less than $200,000 of the $35 billion fund, said spokeswoman Pamela Hile.

SERS has not directly invested in Bitcoin or other cryptocurrencies but does have around $6 million invested with financial firms "that do a sizable portion of their business in the cryptocurrency industry," Hile said.

New Jersey

The $90 billion state pension investment portfolio's managers delighted crypto boosters in early 2021 when it made what crypto exchange Coindesk at the time called "multimillion-dollar bets on two of the industry's biggest names." The system bet at least $7 million, in all, on two publicly traded cryptocurrency "mining" companies: Riot Blockchain Inc. of Castle Rock, Colo.; and Marathon Digital Holdings Inc., based in Las Vegas.

These miners are paid by members of the public to create a limited number of new Bitcoins and certain other currencies, using specialized computer programs. (A Philadelphia cryptocurrency miner, VBit Technologies, now part of a larger company, has been the subject of investor complaints, which its founders have disputed, since it shut its former Washington Ave. offices earlier this year.)

Both Riot and Marathon Digital shares peaked in value in March 2021, around the time New Jersey invested, then started falling. As of June 30, 2021, the Riot investment was worth $3.7 million, and the Marathon Digital investment was worth $3.4 million. But a year later, at June 30, 2022, both companies' shares had lost more than 80% of their value, and the two investments, combined, were worth less than $1 million, according to a list of state pension assets filed with the SEC. By Sept. 30 they were no longer listed as New Jersey holdings.

In a statement Thursday, Nov. 16, New Jersey state treasurer's spokeswoman Danielle Currie added that while the state's investment office does not "actively" invest in cryptocurrencies, it has picked up additional crypto stocks through its stock-index investments. As of Sept. 30, that included $4.9 million in Coinbase Global Inc., and $1.9 million in MicroStrategy Inc. Both stocks are down more than 75% from their highs last fall.

New Jersey also has more than $80 million invested in financial companies that invested in crypto or do business with crypto exchanges, including $49 million in giant asset manager Blackrock Inc.; $24 million in Softbank Group Corp., owner of bankrupt FTX's lead outside investor; $5.5 million in Signature Bank; and $1.8 million in Silvergate Capital Corp.

Philadelphia Board of Pensions

Philadelphia's $6 billion-plus pension fund "is not an investor in cryptocurrency, nor have we invested in crypto-related businesses," said spokesman Kevin Lessard. "Given the uncertainty around this issue, this was a very conscious decision to not invest in these industries by the Board."

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