Sam Bankman-Fried, CEO and founder of FTX, walks near the US Capitol Building, in Washington, D.C., September 15, 2022.
Graeme Sloan | Sipa via AP Images
NASSAU, Bahamas — Despite being fired from the cryptocurrency giant he founded, Sam Bankman-Fried told CNBC he’s trying to close a multibillion-dollar deal to save FTX, which filed for Chapter 11 bankruptcy protection earlier this month.
In a brief interview with CNBC late Friday, the FTX founder declined to give details about the collapse of his cryptocurrency conglomerate, or what he knows after the commitments as “billions of dollars more than I thought.” Bankman-Fried declined to be interviewed on camera or have an extended discussion on the record. He said he was focused on getting customers’ money back and was still trying to secure a deal.
“I think we should try to get as much value for the users as possible. I hate what happened and I very much wish I could have been more careful,” Bankman-Fred told CNBC.
Bankman-Fried also confirmed that there are “billions” of dollars in client assets in jurisdictions “where segregated balances exist”, including in the United States, and said “there are billions of dollars of potential financing opportunities” to make clients complete.
What was once a $32 billion global empire has collapsed in recent weeks. Rival Binance has signed a letter of intent to buy the international FTX business as it faces a liquidity crunch. But its team determined that the exchange was beyond saving, with one Binance executive describing the balance sheet as if “a bomb went off.” FTX filed for Chapter 11 bankruptcy protection on November 11 and named John Ray III as its new CEO, whose corporate experience includes restructuring Enron in the wake of its historic collapse.
Despite losing access to his company email and all company systems, Bankman-Fried stresses that it could play a role in the next steps. The venture capital investors told CNBC that the 30-year-old has been calling to try to secure funding in recent weeks. However, investors said they couldn’t imagine any company with a large enough balance sheet or willingness to take the risk to rescue beleaguered FTX.
According to legal experts, a long-term deal brokered by Bankman-Fried will be viewed in the same way as any competitive bailout offer.
“It’s no different from any third party at this point, other than the fact that it’s a majority shareholder in FTX,” said Adam Levitin, Georgetown University law professor and director of Gordian Crypto Advisors. “He can come to Delaware with an unsolicited offer, and say I want to buy out all the creditors for a price. But this has to be approved by the bankruptcy court—he can’t force a deal.”
FTX’s new CEO also said he’s open to a bailout. On Saturday, Ray said the crypto firm is looking to sell or restructure its global empire.
“Based on our review over the past week, we are pleased to learn that many of FTX’s regulated or licensed affiliates, in the US and abroad, have solvent balance sheets, responsible management, and valuable franchises,” said FTX President Ray. statement, adding that it is a “priority” in the coming weeks to “explore sales, recapitalization or other strategic transactions”.
After reviewing FTX’s financial condition last week, Ray said he had never seen “such a complete failure of company controls and such a complete absence of trustworthy financial information” in his 40-year career. He added that Bankman Fried and its senior executives were “a very small group of inexperienced, inexperienced and potentially vulnerable individuals”, describing the situation as “unprecedented”.
Battle in the Bahamas
Part of Bankman-Fried’s ability to close a deal may come down to whichever jurisdiction has a greater say in the bankruptcy process.
In a recent report, FTX’s new CEO Ray cited a conversation with a Vox reporter last week in which Bankman-Fried suggested clients would be better off if “we” could “win a court battle vs. Delaware.” He also told Vox he “regrets” it has filed for Chapter 11 bankruptcy, which took any restructuring of FTX out of its control, adding “FK regulators.”
Billions in the assets of FTX clients are now stuck in a stalemate between a bankruptcy court in Delaware and a liquidation in the Bahamas.
John Ray placed FTX and more than 100 subsidiaries under Chapter 11 bankruptcy protection in Delaware — but that didn’t include FTX Digital Markets, which is headquartered in the Bahamas. Nassau-based FTX does not own or control any other entities, according to the organizational chart provided by Ray.
The Bahamas Securities Commission has appointed its liquidators to oversee asset recovery and support New York’s Chapter 15 process, which grants foreign representatives recognition in US proceedings. As part of the process, regulators in the Bahamas said they moved customers’ cryptocurrencies to another account to “protect” creditors and customers. She also claimed that the US Chapter 11 bankruptcy process did not apply to them.
The Bahamas is moving in the face of what’s happening in Delaware.
FTX alleged that these withdrawals were “unauthorized” and accused the government of The Bahamas of working with Bankman-Fried in this transfer. FTX’s new leadership team has defied liquidators in the Bahamas, asking a US court to step in while imposing an automatic stay – a standard feature in Chapter 11 proceedings. Bankruptcy usually means sequestering assets to ensure they can’t be touched without court approval.
The FTX team alleged that the Bahamas group had no right to move the funds and described the withdrawals in the Bahamas as “unauthorized.” Data firm Elliptic estimated the value of the transfer, which was initially thought to be a hack, at $477 million.
“There are some issues that either require coordination or fighting to figure out — there will be some maneuvering when it comes to assets in the Bahamas versus the US,” said Daniel Pesikoff, partner at Loop & Loop. “The Bahamas take a broader reading of their mandate and the United States a more technical reading.”
The mess around the bankruptcy is due in part to messy accounting on the part of FTX. Under Bankman-Fried’s leadership, John Ray said, the firm “did not maintain centralized control of cash flow” — “there was no accurate list of bank accounts and signatories” — and “insufficient interest in the creditworthiness of banking partners”.
Part of the Bahamas’ drive for control may be economic interests. FTX hosted a high-profile financial conference with SALT in Nassau and planned a $60 million investment in a new headquarters that a senior executive likened to Google or Apple’s Silicon Valley campus.
“Part of it has to do with protecting local creditors — this is a Bahamian firm. There’s also a lot of money to be made for local Bahamian law firms, and you have a full incremental effect,” said Levitin of Georgetown University. “There will be some level of competition between the Delaware bankruptcy court and the regulator in the Bahamas.”
The future of Bankman Fried
Some experts say Bankman-Fried may be seeking a bailout to reduce his criminal liability and possible prison term. Bankman Fried did not respond to a request for comment on the possible charges.
While the odds of anyone flocking to make a full-fledged FTX are “highly unlikely given the staggering losses,” said Justin Danilowitz, a partner at Saul Ewing who focuses on white-collar crime, “mitigating client losses could be a tactic to look better in the eyes.” from the court.
“This is often very advisable if the defendant is in a real bind and the evidence is compelling — it’s a good idea to try to make amends as quickly as possible,” said Danilewitz.
Some have likened this outcome to what happened at MF Global, which was previously run by former New Jersey Governor Jon Corzine. The company has been accused of using clients’ money to pay the company’s bills. But Corzine settled with the CFTC for $5 million, without admitting or denying the misconduct.
Danilowitz said that approach could backfire. This step may “reflect some degree of blame or it may be seen as an admission, with someone taking responsibility for what happened.”
Even if Bankman-Fried manages to play a role in recovering the money through the bailout, or somehow gains more control through the Bahamas liquidation process, it could face years of legal battles from potential wire fraud to civil litigation.
Wire fraud requires evidence that the defendant participated in a scheme to defraud, and used interstate wires to achieve it. The legal maximum is a maximum of 20 years, plus fines. Danilewitz called it “a federal prosecutor’s favorite tool in the toolbox”. He said the main question concerned the intent of the defendant. “Was this all a major mishap, or was there willful misconduct that could result in federal criminal liability?”
Others have likened Bankman-Fried’s legal situation to Bernie Madoff and Elizabeth Holmes, the latter of whom was sentenced Friday to 11 years in prison for fraud after deceiving investors about the alleged effectiveness of her company’s blood-testing technology.
“Judgementing Theranos shouldn’t have made him feel good,” said Levitin of Georgetown University. “He has a real risk here. There is the potential for criminal liability, civil liability.”
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