Founder of failed crypto exchange FTX apologizes to former employees

The founder of failing crypto exchange FTX has written to his former employees to apologize for his role in its collapse and continues to insist that his downfall can only be explained by misplacing $8 billion (£6.7 billion).

In the letter, first published by industry news site CoinDesk, Sam Bankman-Fried wrote: “I deeply regret my oversight failure. Looking back, I wish we had done a lot of things differently…I’m going to do what I can to make it up to you – and customers – even if it takes the rest of my life.

Despite the mea culpa, however, Bankman-Fried said the business was salvageable and had he not been forced to file for bankruptcy in mid-November he could have saved it.

“We probably could have raised some significant funds,” he wrote. “The potential interest in billions of dollars in funding came about eight minutes after we signed the Chapter 11 paperwork. Between those funds, the billions of dollars in collateral the company still held and the interest we had received from other parts, I think we probably could have returned great value to customers and saved the business.

“Extreme coordinated pressure came, out of desperation, to file for bankruptcy from all of FTX – even solvent entities – and despite claims from other jurisdictions…I reluctantly gave in to this pressure, even though I should have known better; I wish I had listened to those of you who have seen and still see the value of the platform, which was and is also my belief.

In the letter, Bankman-Fried reiterated claims that FTX was a fundamentally sound company, presenting an account of its downfall that showed it with $60 billion in assets, compared to just $2 billion in liabilities, as recently as this spring.

Since then, he says, two crashes in the crypto markets have sent the value of his assets plummeting, even as more and more customers have fled to the platform. By November, its assets had fallen to $17 billion, before a “run on the bank” resulted in $8 billion in withdrawals within days.

The knockout, he said, uncovered an additional $8 billion in liabilities due to old cash deposits “before FTX had bank accounts.” Bankman-Fried previously explained in messages to Vox reporter Kelsey Piper that those debts had been forgotten for years.

They existed because the company used to ask users to wire funds to the Alameda Research Group’s hedge fund bank account, where deep-rooted mismanagement led to the embezzlement of billions of dollars in cash.

Bankman-Fried did not directly address Alameda’s involvement in its memo to employees, glossing over the source of the confusion, nor did it mention the inciting incident of the November bank run: the discovery that Alameda’s solvency rested on billions of dollars of a token, FTT, which FTX self-printed, and which had no deeper value beyond FTX’s promise to actually pay dividends to holders.

“I never wanted this to happen,” Bankman-Fried wrote. “I didn’t realize the full extent of the margin position, nor the magnitude of the risk posed by a hyper-correlated crash.”

However, the exculpatory account presented by the former CEO – who was replaced in mid-November by John J Ray III, the bankruptcy specialist who oversaw the liquidation of Enron 20 years ago and said that FTX was the worst case he had seen – criticized by observers.

Bankman-Fried presents the company’s financials “marking everything in the market, regardless of liquidity” – assuming that the huge deposits of crypto assets that FTX holds can be sold at prices close to market prices.

For large markets such as Bitcoin or Ethereum, this assumption may be true. However, FTX has denominated billions of its assets in tokens, such as FTT and Serum, which it controls. According to a balance sheet prepared by Bankman-Fried shortly before FTX’s bankruptcy, $2.5 billion of the company’s assets were in tokens that FTX had created, which had a total market capitalization of a fraction of that amount.

The Delaware bankruptcy court heard on Tuesday how the former chief executive ran FTX as his “personal fiefdom.” Lawyers for the company told the court that 8% of FTX Group’s customers were based in the UK, representing around 80,000 unsecured creditors.

Most of these clients are believed to be businesses and investment professionals, using the lightly regulated FTX International exchange to make risky leveraged bets on cryptocurrency stocks.

After the collapse of FTX, online bank Starling announced a seven-month suspension of all customer deposits on cryptocurrency exchanges, citing risk to consumers. The suspension would be reviewed in June 2023, the bank said.

#Founder #failed #crypto #exchange #FTX #apologizes #employees

Leave a Comment

Your email address will not be published. Required fields are marked *