Sam Bankman-Fried, after being fired from the cryptocurrency firm FTX, attempts to orchestrate a bailout from his home in the Bahamas.
NASSAU, Bahamas — Sam Bankman-Fried, who was recently forced out of the cryptocurrency company he established, told CNBC he is trying to get a multibillion-dollar agreement to bail out FTX, which filed for Chapter 11 bankruptcy earlier this month.
In a brief interview broadcast on CNBC late on Friday, the founder of FTX declined to provide specifics about the collapse of his crypto company, saying only that liabilities were “billions of dollars bigger than I imagined.” Bankman-Fried said no to being interviewed on video or giving any additional comments for the record. He insisted that his current efforts were directed toward recovering customer funds and closing a business arrangement.
As much benefit as we can for the users is something I think we should strive for. Bankman-Fried stated to CNBC, “I lament what occurred and genuinely wish that I had been more attentive.”
To make clients whole, Bankman-Fried stated “there are billions of possible funding options out there,” referring to the “billions” of dollars in customer assets in jurisdictions “where there were segregated balances,” such as the United States.
A multinational empire once worth $32 billion has collapsed in recent weeks. In the midst of a cash crunch, rival exchange Binance issued a letter of intent to acquire FTX’s international operations. One Binance official said the exchange’s financials looked like “a bomb went off,” and the team ultimately decided it couldn’t be saved. On November 11th, FTX filed for Chapter 11 bankruptcy and named John Ray III, who had previously restructured Enron after its historic collapse, as its new chief executive officer.
Bankman-Fried insists he can still contribute to the company’s future even if he has been locked out of his corporate email and all company networks. According to CNBC’s reporting, the 30-year-old has been calling investors at venture capital firms in recent weeks in an attempt to raise funds. Even then, investors reported that they were unable to think of a single company with a healthy enough balance sheet and risk appetite to save the faltering FTX.
Legal experts agree that a long shot, Bankman-Fried-brokered deal would be evaluated in the same manner as any alternative rescue offer.
Professor of law at Georgetown University and principal of Gordian Crypto Advisors Adam Levitin said, “He’s no different than any third-party suitor at this stage, other than the fact that he’s a majority FTX shareholder.” It’s possible for him to make an unsolicited bid to buy out all the creditors in Delaware. However, he cannot compel a settlement without the bankruptcy court’s permission.
The new CEO of FTX has also expressed his support for a rescue plan. On Saturday, Ray said that the cryptocurrency firm is exploring options to sell or reorganize its international operations.
It is “a priority” to “explore sales, recapitalizations or other strategic transactions” in the coming weeks, according to FTX CEO Ray, who said in a statement, “Based on our review over the past week, we are pleased to learn that many regulated or licensed subsidiaries of FTX, within and outside the United States, have solvent balance sheets, responsible management, and valuable franchises.”
After evaluating the situation of FTX’s finances last week, Ray said he’s never seen “such a catastrophic breakdown of corporate controls and such a complete absence of trustworthy financial information” in his 40-year career. He went on to label the situation unprecedented and say that Bankman-Fried and the senior executives were “a very tiny number of inexperienced, naïve, and perhaps corrupted persons.”
The bankruptcy procedure may play a role in whether or not Bankman-Fried signs the agreement.
Bankman-Fried told a Vox reporter last week that clients will be in a better position if “we” can “win a jurisdictional struggle over Delaware,” according to a recent filing by Ray. He added, “f—- regulators,” when asked if he regretted filing for Chapter 11 bankruptcy, which effectively ended his ability to restructure FTX.
Customers’ assets worth billions of dollars in FTX are currently stuck between a bankruptcy court in Delaware and a liquidation process in the Bahamas.
In Delaware, Ray filed for Chapter 11 bankruptcy protection for FTX and more than a hundred of its subsidiaries, but he excluded FTX Digital Markets, which is domiciled in the Bahamas. According to Ray’s organizational chart, the Nassau branch of FTX does not own or control any other organizations.
The Securities Commission of the Bahamas has engaged its own liquidators to manage the recovery of assets and is backing a Chapter 15 process in New York, which provides foreign representatives status in U.S. proceedings. To “protect” creditors and customers, regulators in the Bahamas reportedly moved cryptocurrency held by customers to a separate account. It also said the U.S. Chapter 11 bankruptcy process doesn’t apply to them.
Contrary to developments in Delaware, the Bahamas have taken this step.
The estate for FTX claimed that the withdrawals were “unauthorized” and blamed the government of the Bahamas for cooperating with Bankman-Fried. The new FTX management has filed a challenge with the U.S. court to have the automatic stay — a characteristic of Chapter 11 proceedings — enforced against the Bahamian liquidators. Bankruptcy is aimed to secure property and prevent its sale or transfer without the approval of the court.
The FTX team said the Bahamas organization had no authority to transfer funds, labeling those transfers as “unauthorized.” Elliptic, a data firm, determined that the hacked transfer was worth approximately $477 million.
“There’s going to be some jockeying when it comes to assets in the Bahamas vs. the U.S.,” said Loeb & Loeb partner Daniel Besikof. “The people of the Bahamas are taking a more holistic view of their mandate, while those of us in the United States are pursuing a more technical one.”
FTX’s sloppy bookkeeping contributed to the bankruptcy chaos. There was “no correct list of bank accounts and signatories,” and “insufficient attention to the trustworthiness of banking partners,” according to Ray, who claims the corporation “did not retain centralized management of its cash” under Bankman-leadership. Fried’s
Part of the Bahamas’ motive for control may come down to economic considerations. One FTX official compared the company’s projected $60 million headquarters to the Silicon Valley campuses of Google and Apple, and the company held a high-profile finance conference with SALT in Nassau.
Since the corporation is based in the Bahamas, this action also serves to shield them from domestic creditors. According to Georgetown’s Levitin, “you have the full trickle down effect,” meaning that local Bahamian law firms stand to make a lot of money as well. The bankruptcy court in Delaware and the regulator in the Bahamas are going to “stare each other down.”
Some experts suggest Bankman-Fried may be gunning for a rescue to lower his own criminal liability and probable jail time. Bankman-Fried declined to comment when asked about the allegations.
Justin Danilewitz, a partner at Saul Ewing who concentrates on white-collar crime, said while the odds of anyone rushing to make FTX whole are “highly doubtful given the massive losses,” minimizing client losses can be a method to seem better in the eyes of the court.
If a defendant is in a dire situation and the evidence is overwhelming, “that’s often highly advisable,” Danilewitz says. “It’s a good idea to try and make amends as early as possible.”
Ex-New Jersey Governor Jon Corzine’s MF Global has been compared to that situation by some. Claims were made that the company had improperly misappropriated client funds to cover operational costs. However, Corzine reached a $5 million settlement with the CFTC without admitting or denying wrongdoing.
The approach could backfire, Danilewitz added. This action “may imply some degree of guilt or be interpreted as an acknowledgment and someone taking responsibility for what occurred.”
Even if Bankman-Fried plays a part in recouping funds through a bailout or obtains more power through a Bahamas liquidation process, he may still face years of legal battles, from possible wire fraud to civil action.
Proof of a defendant’s fraudulent intent and the use of wire communications across state lines is necessary for a conviction for wire fraud. There can be fines imposed on top of the maximum statutory punishment of 20 years in prison. Danilewitz referred to it as a “favorite instrument in the toolbox of federal prosecutors.” According to him, the defendant’s motivation will be the central issue. Do you think this was just a series of unfortunate events, or do you think there was deliberate wrongdoing that might lead to federal criminal liability?
Some commentators have drawn parallels between the charges against Bankman-Fried and those against Bernie Madoff and Elizabeth Holmes, the latter of whom was sentenced to 11 years in jail for fraud on Friday for misleading investors about the accuracy of her company’s blood-testing equipment.
The professor at Georgetown, Levitin, said that “he should not have felt happy” after the Theranos verdict. “I think he’s taking a major chance here. Both criminal and civil culpability must be considered.