Sam Bankman-Fried tries to negotiate FTX bailout from his home in the Bahamas, despite being kicked out of the crypto firm

Sam Bankman-Fried tries to negotiate FTX bailout from his home in the Bahamas, despite being kicked out of the crypto firm

Sam Bankman-Fried, CEO and founder of FTX, walks near the US Capitol, in Washington, DC, September 15, 2022.

Graeme Sloan | Sipa via AP Images

NASSAU, Bahamas — Despite being kicked out of the cryptocurrency giant he founded, Sam Bankman-Fried told CNBC he was trying to cut a multi-billion dollar deal to bail out FTX, which will filed for Chapter 11 bankruptcy earlier this month.

In a brief interview with CNBC Friday night, the FTX founder declined to elaborate on his crypto conglomerate’s downfall, or what he knew beyond the liabilities being “billions of dollars bigger than I know. thought”. Bankman-Fried declined an on-camera interview or broader discussion of the case. He said he was focused on recovering funds from clients and was still looking to work out a deal.

“I think we should try to bring as much value as possible to users. I hate what happened and deeply wish I had been more careful,” Bankman-Fried told CNBC.

Bankman-Fried also maintained that there were “billions” of dollars of client assets in jurisdictions “where there were separate balances”, including the United States, and said “there are billions of dollars in potential funding opportunities” to make clients whole. .

What was once a $32 billion global empire has imploded in recent weeks. Rival Binance had signed a letter of intent to buy FTX’s international business as it faced a liquidity crunch. But his team decided the exchange was beyond backup, with a Binance executive describing the toll as if “a bomb had gone off”. FTX filed for Chapter 11 bankruptcy on Nov. 11 and named John Ray III as its new CEO, whose corporate experience includes restructuring Enron following its historic collapse.

Although he lost access to his corporate email and all company systems, Bankman-Fried maintains he can play a role in the next steps. Venture capitalists told CNBC the 30-year-old had been calling trying to secure funding in recent weeks. Still, investors said they couldn’t imagine any company with a big enough balance sheet or risk appetite to bail out the beleaguered FTX.

Legal experts say a long-term deal brokered by Bankman-Fried would be considered the same as any competitive bailout offer.

“He’s no different than any third-party suitor at this point, other than the fact that he’s a majority shareholder of FTX,” said Adam Levitin, a Georgetown University law professor and director. from Gordian Crypto Advisors. “He could walk into Delaware with an unsolicited offer and say I want to buy out all the creditors for a price. But that would have to be approved by the bankruptcy court — he can’t force a deal.”

FTX’s new CEO also said he was open to a bailout. On Saturday, Ray said the crypto firm was looking to sell or restructure its global empire.

“Based on our review last week, we are pleased to learn that many of FTX’s regulated or licensed affiliates, inside and outside the United States, have sound balance sheets, responsible management and valuable franchises,” FTX chief Ray said in a statement, adding that it is “a priority” in the coming weeks to “explore sales, recapitalizations or other strategic transactions.”

After reviewing the state of FTX’s finances last week, Ray said he had never seen “such a complete failure of corporate controls and such a complete lack of reliable financial information” in the past week. his 40-year career. He added that Bankman-Fried and senior staff were “a very small group of inexperienced, unsophisticated and potentially compromised individuals”, calling the situation “unprecedented”.

Battle in the Bahamas

Part of Bankman-Fried’s ability to sign a deal may depend on which jurisdiction has the most say in the bankruptcy process.

In a recent filing, new FTX CEO Ray cited a conversation with a Vox reporter last week in which Bankman-Fried suggested clients would be in a better position if “we ‘could’ win a jurisdictional battle. against Delaware”. He also told Vox he “regrets” the Chapter 11 bankruptcy filing, which stripped him of any FTX restructuring, adding “fk regulators.”

Billions of FTX client assets are now caught in limbo between a Delaware bankruptcy court and a liquidation in the Bahamas.

John Ray placed FTX and more than 100 subsidiaries under Chapter 11 bankruptcy protection in Delaware – but that did not include FTX Digital Markets, which is based in the Bahamas. The Nassau-based branch of FTX does not own or control any other entities, according to the organizational chart filed by Ray.

The Bahamas Securities Commission has hired its own liquidators to oversee asset recovery and is supporting a Chapter 15 process in New York, which grants foreign representatives recognition in US proceedings. As part of the process, Bahamian regulators said they transferred customers’ cryptocurrency to another account to “protect” creditors and customers. He also claimed that the U.S. Chapter 11 bankruptcy process does not apply to them.

The Bahamas decision runs counter to what is happening in Delaware.

The FTX estate claimed these withdrawals were “unauthorized” and accused the Bahamian government of working with Bankman-Fried on this transfer. FTX’s new management team challenged Bahamas liquidators and asked the US court to intervene while imposing an automatic stay – a standard feature of Chapter 11 proceedings. Bankruptcy typically aims to close assets for ensure they cannot be touched without court approval.

The FTX team claimed that the Bahamas group had no right to move money and called the Bahamas withdrawals “unauthorized”. Data company Elliptic estimated the value of the transfer, which was initially believed to be a hack, at around $477 million.

“Some issues require either coordination or fighting to resolve – there’s going to be some maneuvering when it comes to assets in the Bahamas versus the United States,” said Daniel Besikof, partner at Loeb & Loeb. “The Bahamas is taking a broader reading of its mandate and the United States is taking a more technical reading.”

The bankruptcy chaos is partly the result of messy bookkeeping on the part of FTX. Under Bankman-Fried, John Ray said the company “did not maintain centralized control of its cash” – “there was no clear list of bank accounts and signatories” – and “insufficient attention to the solvency of banking partners”.

Part of the Bahamas’ motivation for control may come down to economic interests. FTX held a high-level financial conference with SALT in Nassau and planned to invest $60 million in a new headquarters that a senior executive likened to Google or Apple’s campus in Silicon Valley.

“Part of this is to protect domestic creditors – this is a Bahamian company. There is also a lot of money to be made for local Bahamian law firms, you get the full effect training,” said Levitin of Georgetown. “There is going to be some level of competition between the Delaware bankruptcy court and the Bahamian regulator.”

The future of Bankman-Fried

Some experts say Bankman-Fried could seek a bailout to reduce his own criminal liability and possible jail time. Bankman-Fried did not respond to a request for comment on potential charges.

Justin Danilewitz, a partner of Saul Ewing who focuses on white-collar crime, said while the chances of someone flocking to make FTX a whole are “very unlikely given the huge losses,” the mitigation client losses can be a tactic to look better in the eyes of the court.

“It’s often strongly advised if a defendant is in real trouble and the evidence is compelling — it’s a good idea to try to make amends as quickly as possible,” Danilewitz said.

Some have compared the result to what happened at MF Global, formerly run by former New Jersey Governor Jon Corzine. The company has been accused of using customers’ money to pay the company’s bills. But Corzine settled with the CFTC for $5 million, without admitting or denying misconduct.

The approach could backfire, Danilewitz said. This decision could “reflect a degree of guilt or be seen as an admission and someone taking responsibility for what happened”.

Even if Bankman-Fried manages to play a part in recovering the funds through a bailout, or gaining more control through a Bahamian liquidation process, it may face years of legal battles ranging from a possible wire fraud to civil suits.

Wire fraud requires proof that a defendant engaged in a scheme to defraud and used interstate wires to accomplish it. The maximum legal sentence is a maximum sentence of 20 years, plus fines. Danilewitz called it “the federal prosecutor’s favorite tool in the toolbox.” The key question, he said, will have to do with the defendant’s intent. “Was this all a big accident, or was there willful misconduct that could give rise to federal criminal liability?”

Others have compared Bankman-Fried’s legal position to Bernie Madoff and Elizabeth Holmes, the latter of whom was sentenced to 11 years in prison on Friday for fraud after misleading investors about the alleged effectiveness of her company’s blood-testing technology. .

“Theranos verdict shouldn’t have left him feeling good,” Georgetown’s Levitin said. “There is a real risk here. There is the possibility of criminal liability and civil liability.”

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