FTX rushes to bankruptcy with $8 billion hole, US probe

(Bloomberg) – The crisis engulfing Sam Bankman-Fried’s FTX.com is rapidly worsening, with the former crypto prodigy warning of bankruptcy if his company can’t get funds to cover a shortfall of up to $8 billions of dollars.

Bloomberg’s Most Read

Bankman-Fried informed investors of the discrepancy on Wednesday, shortly before rival exchange Binance abruptly backed out of a takeover bid. He said FTX.com needed $4 billion to stay solvent and was trying to raise bailout funding in the form of debt, equity or a combination of the two, according to a person with direct knowledge of the matter. .

“I screwed up,” Bankman-Fried told investors on the call, according to people familiar with the conversation. He said he would be “incredibly, incredibly grateful” if investors could help.

A representative for FTX declined to comment.

Recognition of his company’s growing problems and limited options is a stunning turning point for Bankman-Fried, who was once worth $26 billion and was compared to John Pierpont Morgan. It also highlights the uncertainty hanging over FTX, its customers, and the cryptocurrency markets.

US authorities are investigating FTX, the vast majority of Bankman-Fried’s wealth has evaporated, and his rivals are cashing in on his misfortunes. Robinhood Markets Inc. has seen its biggest crypto inflows in the past two days, chief executive Vlad Tenev said Thursday. Binance and Coinbase Global Inc. also saw large inflows, according to data from CryptoQuant.

Investor Sequoia Capital has written down the full value of its holdings in FTX.com and FTX.us, indicating the company sees no clear path to recovering its investment.

Major Contributors

The fate of its investors and lenders, but also that of anyone who has been unable to recover client assets since it halted some withdrawals earlier in the week, hangs in the balance as the exchange falters . The failure of crypto firms Celsius and Voyager saw billions of customer money locked in bankruptcy proceedings.

FTX has a strong list of backers such as Sequoia Capital, BlackRock Inc., Tiger Global Management, and SoftBank Group Corp.

Still, Bankman-Fried remained defiant for a turbulent roughly 24-hour period that included growing speculation that Binance would not go through with the deal.

He repeatedly told investors during the conference call on Wednesday afternoon that it was simply not true that Changpeng Zhao was walking away from the takeover, the person said.

About an hour later, Binance said it was indeed backing off.

Read more: Binance withdraws from FTX Rescue, citing finances, investigations

“Our hope was that we could help FTX customers provide liquidity, but the issues are beyond our control or ability to help,” Binance, the crypto exchange founded by Zhao, said in a statement.

In addition to financial stress, FTX is attracting the attention of US authorities.

The Securities and Exchange Commission and Commodity Futures Trading Commission are investigating whether the firm properly handled client funds, as well as its dealings with other parts of Bankman-Fried’s crypto empire, including its trading house. trade Alameda Research, Bloomberg News reported on Wednesday. Justice Department officials are also working with SEC attorneys, one of the people said.

Zhao said in a memo on Wednesday that there was no “blueprint” to take over FTX and that “user confidence is badly shaken.”

The renewed concern about the risk of contagion is manifesting in the fall in digital asset prices. Bitcoin fell below $16,000, the lowest in two years, following Binance’s announcement.

Coinbase Chief Executive Brian Armstrong said in a Bloomberg TV interview on Tuesday that if the deal with Binance fell through, it would likely mean that FTX customers would suffer losses.

“It’s not a good thing for anyone,” he said.

For crypto market prices: {CRYP}; for the best crypto news: {TOP CRYPTO}.

–With help from Yueqi Yang, Hannah Miller and Tanzeel Akhtar.

Bloomberg Businessweek’s Most Read

©2022 Bloomberg LP

Comments are closed.