December 2, 2022

THE crisis engulfing Sam Bankman-Fried’s FTX.com is rapidly worsening, with the one-time crypto prodigy warning of bankruptcy if his firm fails to secure funds to cover a shortfall of up to $8 billion.

Bankman-Fried briefed investors on the vulnerability on Wednesday, just before rival exchange Binance abruptly scrapped a takeover bid. He said FTX.com needs $4 billion to remain solvent and is trying to raise bailout funding in the form of debt, equity, or a combination of both, according to a person with direct knowledge of the matter.

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

Sam Bankman-Fried, Founder and Chief Executive Officer of FTX Cryptocurrency Derivatives Exchange, speaks during the Institute of International Finance (IIF) Annual Members Meeting in Washington, DC, USA on Thursday, October 13, 2022. This year’s conference theme is “ The search for stability in times of uncertainty, realignment and transformation.”

An FTX representative declined to comment.

The acknowledgment of his firm’s mounting problems and limited capabilities is a startling turn of events for Bankman-Fried, who was once worth $26 billion and has been compared to John Pierpont Morgan. It also highlights the uncertainty hanging over FTX, its clients and the cryptocurrency markets.

The US authorities are investigating FTX, most of Bankman-Fried’s fortune is gone and rivals are profiting from his woes. Robinhood Markets Inc. has seen its biggest crypto inflows ever over the past two days, Chief Executive Officer Vlad Tenev said on Thursday. Binance and Coinbase Global Inc. have also seen major inflows, data from CryptoQuant shows.

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

Notable Supporters

Staying in limbo while the stock market falters is the fate not only of its investors and lenders, but of everyone who has failed to recover customer funds since it halted some withdrawals earlier in the week. The collapse of crypto firms Celsius and Voyager tied up billions in customer funds in bankruptcy proceedings.

FTX has a prominent list of backers including Sequoia Capital, BlackRock Inc., Tiger Global Management and SoftBank Group Corp.

Still, Bankman-Fried remained defiant during a hectic period of around 24 hours that included mounting speculation that Binance would not complete the deal.

He repeatedly told investors during Wednesday afternoon’s conference call that it’s just not true that Changpeng Zhao is walking away from the acquisition, the person said.

About an hour later, Binance said it was actually pulling back.

“Our hope was to assist FTX clients in providing liquidity, but the issues are beyond our control or ability to assist,” Binance, the crypto exchange founded by Zhao, said in a statement.

draw attention to yourself

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

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

Zhao said in a memo earlier Wednesday that there was no “master plan” to acquire FTX and that “user confidence has been severely shaken.”

Renewed concerns about the risk of contagion are evident in falling digital asset prices. Bitcoin fell below $16,000 after Binance announcement, its lowest level in two years.

Coinbase CEO Brian Armstrong said in an interview with Bloomberg TV last Tuesday that a failure of the deal with Binance would likely mean FTX clients would take losses.

“It’s not good for anyone,” he said. Bloomberg News