Earlier this year, FTX entered Japan with a splash. In August, the cryptocurrency exchange announced its arrival with flashy video billboards, towering above the crush of commuters at Tokyo’s Shibuya Scramble intersection. Just as the company used images of NFL star Tom Brady in its U.S. advertisements, Japan saw the faces of Los Angeles Angels pitcher Shohei Ohtani and tennis icon Naomi Osaka plastered across placards and TV spots, lending the exchange an air of legitimacy

FTX Japan’s mission, it said, was to “open up a new era of finance.” The company was attempting to win over a skeptical public and some of the strictest regulators anywhere. Then came FTX’s spectacular collapse, which dragged more than 100 related companies into bankruptcy proceedings under a cloud of alleged fraud and mismanagement. Like elsewhere, FTX in Japan is now under pressure from regulators to return victims’ money, and quickly. In a rare case of redress, the company has promised to return all funds to Japanese users within a matter of weeks

It’s still unclear how FTX Japan will make good on that promise. The company is caught up in the court proceedings of its parent in the U.S., which may trigger a fire sale of subsidiaries. Regulators have suspended the Japan business until March, pointing out that the plan to restore funds isn’t ready. There’s another basic hurdle: since the FTX.com system is inactive, the company needs other infrastructure to deliver the funds back.

The company has floated restarting Liquid, a currently dormant Japanese exchange acquired by FTX earlier in the year, to complete those transfers. But two former employees told Rest of World that, thanks to a chaotic series of layoffs and resignations, only a scattered handful of FTX Japan engineers are familiar with Liquid, and key security roles in the company are vacant. It’s uncertain how that exchange can be revived and customer funds migrated safely. FTX Japan did not respond to repeated requests for comment.

FTX’s acquisition of Liquid in April allowed them to enter the Japanese market in the first place. Headquartered in Tokyo at the time, Liquid was struggling to rebuild after the hacking and theft of up to $90 million in 2021. FTX seized the chance to expand. Folding in Liquid’s operations, migrating Japanese users over, and launching with fanfare as FTX Japan in June, Sam Bankman-Fried’s newest international arm set about targeting experienced traders and drumming up hype in the crypto circles of Japanese Twitter. 

“Japan went from one of the most lax nations in crypto regulation to one of the most tightly regulated crypto nations very, very quickly.”

To operate in Japan, FTX had to commit to stringent rules. As a result, FTX’s Japan customers should be in a comparatively better place than their counterparts overseas, several experts and figures in the Japanese crypto scene told Rest of World. “Japan went from one of the most lax nations in crypto regulation to one of the most tightly regulated crypto nations very, very quickly,” Arisa Toyosaki, the co-founder and CEO of DeFi protocol Cega and an advisor to the Japan Blockchain Association, told Rest of World.

Burned by two exchange collapses in 2014 and 2018, Japan’s Financial Services Agency (FSA) now mandates that cryptocurrency exchanges must keep their customers’ assets separate from their corporate assets, and in a “cold wallet” — meaning offline, and removed from potential theft. Regulators also added the right for customers to claim the return of their crypto assets in case of bankruptcy, Yuri Suzuki, senior partner and head of the crypto practice at Tokyo-based law firm Atsumi & Sakai, told Rest of World. FTX Japan had to commit to compliance with those rules, among others. This means that, in theory, FTX in Japan is 100% liquid, and has the funds available to pay back users.

“In response to past incidents, Japan has developed a user protection framework, and rigorously verifies crypto-asset exchange service providers compliance with these rules. We believe that this leads to the present results,” an FSA spokesperson told Rest of World by email, in response to questions about FTX Japan’s refund promises. 

Mark Karpelès, the former CEO of failed Tokyo exchange Mt. Gox, who is now CTO of cloud computing company Shells, told Rest of World that the FSA “will actually send people to the exchange’s offices to make sure everything is done by the book, every three to six months … I helped a few exchanges before [to] put together the documentation, and I can confirm it is required to be extremely detailed.”

Tom Williams/CQ-Roll Call, Inc/Getty Images

Even if FTX Japan is solvent, the company’s current withdrawal and delivery systems are tethered to FTX.com, which is out of commission, according to an email sent by the company to customers and reviewed by Rest of World. Another email, dated December 1, claims that a plan to resolve the system issue has been developed and engineers are working hard to execute it. Earlier this month, Bloomberg reported that the plan hinges on bringing back Liquid, which went dormant in Japan in September. The plan promises a return of assets to users starting in January 2023.

“That’s only if they will be able to rebuild the platform, make sure FTX has no control or there’s absolutely no back door for someone to access it while [customer assets] are in transit. [They must move] from a potential cold wallet to the [Liquid] platform, to users, to a potential user’s own cold wallet,a former FTX Japan employee, who asked to speak on condition of anonymity due to fears of professional retaliation, told Rest of World.First off, good luck to them without engineering staff and [with] the few people remaining.”

FTX’s early days in Japan and its integration of Liquid bordered on dysfunction, according to the former employees. As FTX Japan wound down Liquid’s operations there, it started relying heavily on FTX.com engineers; in July, management fired almost the entire Vietnam engineering hub, housed under the subsidiary Quoine Vietnam, according to three former employees, two from FTX Japan and one from Quoine. Realizing they’d mistakenly fired essential engineers, the company brought some back on short-term contracts.

Since April, the chief information officer, the IT auditor, and the only full-time security engineer at FTX Japan’s Tokyo office have either resigned or been fired, according to two of the employees, leaving open questions about whether the team executing the plan has the necessary security expertise. “Even using Liquid to process withdrawals carries risk. They’ll need to find a reliable and safe way to recreate customer balances in Liquid that actually exist in FTX.com right now,” said one employee.

“I went bankrupt after diverting all of my 400 million yen to FTX,” claims the account bio, a figure that is close to $3 million.

Junya Hirano, the CEO of crypto-lending app HashHub, which operates a crypto market research arm, also questions any promise to return funds to customers by the end of the year,  given the unique security risks. Hackers already stole nearly $500 million worth of tokens from the FTX system in the days following the bankruptcy filing. “It is very sensitive work … It will take time, and third parties will probably need to review whether the system is secure or not,” he told Rest of World.

FTX Japan’s victims have remained strikingly silent. Rest of World reached out to over 15 different traders who were affected firsthand, all of whom declined to speak about their experience, some citing the shame or stigma in disclosing losses publicly. The few who have come forward have mostly done so anonymously on social media, including a Twitter account run under the name Daniel. “I went bankrupt after diverting all of my 400 million yen to FTX,” claims the account bio, a figure that is close to $3 million.

Yuka, a systems engineer for a Japanese stock-trading company, told Rest of World that she has 1 million yen (about $7,300) frozen in the FTX Japan exchange’s suspension. Despite acknowledging the roadblocks ahead for FTX Japan to deliver on its promise, Yuka, who requested Rest of World use only her first name due to potential professional repercussions, said she’s still optimistic about getting her money back. “I don’t think they can get [it] back at the end of this month. I think it will be delayed. But they will definitely return, I think,” Yuka said. “I trust them. I trust they’ll do their best.”