Founder of failed crypto exchange FTX apologizes to former employees | Cryptocurrencies

The founder of the failed crypto exchange FTX has written to his former employees apologizing for his role in the collapse and continues to insist his downfall can be solely explained by misplaced $8bn (£6.7bn).

In the letter, first published by the industry news site CoinDesk, Sam Bankman-Fried wrote: “I deeply regret the failure of my supervision. On the contrary, I hope that we have done many different things … I will do what I can to make you – and to the customers – even if it takes the rest of my life.

Despite the mea culpa, however, Bankman-Fried said that the company was salvageable, and that if he had not been pressed into filing for bankruptcy in mid-November he could have been saved.

“We seem to be able to raise significant funds,” he wrote. “Potential interest in billions of funds came in about eight minutes after I signed the chapter 11 documents. Between those funds, the billions of dollars of securities still held by the company, and the interest we received from other parties, we thought we might be able to recover the value of big to customers and save business.

“The extreme amount of coordination pressure came, out of desperation, to file for bankruptcy for all FTX – even the most solvent entities – and despite the claims of other jurisdictions’… I reluctantly gave in to that pressure, although I should have known better. ; I hope I heard you are the ones who saw and still see the value in the platform, which is my belief as well.

In her letter, Bankman-Fried reiterated that claims that FTX is a fundamentally healthy businesspresenting a narrative of its downfall that shows it with assets of $ 60bn, against only $ 2bn of liabilities, as recently as this spring.

Since then, he said, two crashes in the crypto market led to the assets falling in value, even though more customers fled to the platform. In November, its assets fell to $17bn, before a “bank run” resulted in $8bn being withdrawn in a matter of days.

Coup-de-grace, he said, was finding a further $8bn of liabilities due to old cash deposits from “before FTX had a bank account”. Bankman-Fried previously explained in a message to Vox reporter Kelsey Piper that the debts had been forgotten for years.

It exists because the company routinely asks users to send funds to the bank accounts of the hedge fund group Alameda Research, where deep-rooted mismanagement has led to billions of dollars in cash being blocked.

Bankman-Fried did not directly address Alameda’s involvement in his memo to employees, addressing a source of confusion, and also did not mention the event that led to the November bank run: the discovery that Alameda’s solvency depended on billions of dollars. of a token, FTT, that FTX printed itself, and that has no deeper value beyond the promise of FTX to effectively pay dividends to holders.

“I never intended for this to happen,” Bankman-Fried wrote. “I was not fully aware of the margin position, nor was I aware of the magnitude of the risk caused by the hyper-correlated crash.”

However, the exculpatory story was presented by the former CEO – who was replaced in mid-November by John J Ray III, a bankruptcy specialist who oversaw the winding up of Enron 20 years ago. has said FTX worst case he has seen – has been criticized by observers.

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

For large markets like bitcoin or ethereum, that assumption may be true. However, FTX has denominated billions of dollars of its assets in tokens, such as FTT and serum, that it controls. According to a balance sheet prepared by Bankman-Fried shortly before FTX’s bankruptcy, $2.5 billion of the company’s assets are in FTX-created tokens, which have a total market cap of a fraction of that amount.

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

Most of those customers are believed to be corporate clients and investment professionals, using the lightly regulated FTX International exchange to make risky leveraged bets on cryptocurrency values.

After the collapse of FTX, the online bank Starling announced a seven-month suspension all customer deposits to the cryptocurrency exchange, citing risks to customers. The suspension will be reviewed in June 2023, the bank said.

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