Hong Kong cryptocurrency exchange Atom Asset Exchange (AAX) has lost most of its staff to firings and resignations and is unlikely to resume operations after freezing assets on the platform on Nov. 13, former vice president and head of research Ben Caselin told Forkast News on Friday.

AAX, which had as many as 121 employees according to its LinkedIn profile though Caselin said the number was more than triple that, is one of a series of crypto-related businesses caught in the fallout from the Nov. 11 bankruptcy of the FTX exchange.

U.S. crypto platform BlockFi froze operations and then filed for bankruptcy on Tuesday, citing “significant exposure to FTX and associated corporate entities.” 

Investors worldwide have been pulling crypto off exchanges in fear of more failures. However, many have had assets trapped as platforms froze operations due to low liquidity, contributing to a further spiral of investor anger and distrust.

On the day of FTX’s bankruptcy, AAX stated it had no financial exposure to FTX and its affiliates. “All digital assets on AAX remain intact with a substantial amount stored in cold wallets and user funds are never exposed to counterparty risk from any financing or venture activities,” it said. 

However, Caselin, who left the company on Monday, said that communication from upper management had become “opaque and messy.”

Caselin said he became aware of the severity of AAX’s problems several days after its services were halted on Nov. 13. At the time, AAX said the freeze was a security measure in response to what it called a series of malicious attacks on the platform. 

However, days later, employees were called into crisis meetings to discuss AAX’s need for more capital, Caselin said, adding that different groups within AAX began pushing to resume operations by either selling equity, a merger or acquisition, or issuing debt. 

“Then everything ran into a wall,” he said, adding that “basically, all of the staff” were terminated or quietly resigned, as investor talks became shrouded in non-disclosure agreements, and communication with management stalled. He said he didn’t know the whereabouts of other executives.

Up and running? 

On Nov. 15, AAX put out an updated press release: “In order to replace the capital needed to resume all our services, AAX will need to raise new capital. While this is clearly a very difficult environment in which to raise new capital, the amount is not large by market standards,” the statement said.

“Our existing shareholders have contributed additional capital over the past week and we have secured interest on new investments. At this stage, we estimate that on top of our liquidity, we are in a good position to get our operations and services fully up and running.”

However, on Nov. 30, the Hong Kong-based South China Morning Post, citing an unnamed former AAX employee, reported that AAX had faced financial problems prior to FTX’s collapse due to poor risk management practices at AAX’s market maker, 10kM Trading. 

The Post said it received an unsigned email from 10kM Trading saying it is “not suffering from severe trading losses” and that it had no impact or influence on AAX. The company did not leave a name or contact number, the Post said. On its website, 10kM Trading describes itself as a “leading liquidity provider in the digital asset market.”

Forkast emailed press contacts for AAX and 10kM Trading but did not receive a response. AAX had earlier disabled its Telegram accounts, which were used to communicate with users. 

Ben Caselin said he was unfamiliar with the specific activity of 10kM Trading but that there were a number of brokerages that provided liquidity to AAX’s exchange.

The asset freeze at AAX and speculation about its ties with 10kM Trading has drawn comparisons to the failure of FTX, which reportedly used customer funds to finance trading at FTX’s sister brokerage Alameda Research.

According to some reports, Alameda had an US$8 billion hole in its balance sheet when it imploded, and the fear is much of it may have been customer funds from FTX. 

In preparation for a potential legal battle, users with funds stuck in AAX have set up information-sharing groups like “AAX Rights Protection Group” on Telegram, which has drawn more than 2,000 members. The users are seeking information on their frozen assets and the whereabouts of the AAX team. 

According to Caselin, the concerns about user funds are valid. “I think the best case scenario is to begin a formal process of unwinding the company, with funds going back out to user’s cold wallets.”

“If there is a liquidation and it turns out there are user funds missing, the focus will become, where did that loss come from?”