CEO Sam Bankman-Fried of cryptocurrency exchange FTX lent roughly $10 billion of its customers’ assets to its sister firm Alameda Research, also helmed by Bankman-Fried, a sum that Alameda still owes after a series of risky trades, The Wall Street Journal reported Thursday, citing anonymous sources.
Bankman-Fried, the second-largest billionaire donor to Democratic causes in the 2022 midterms according to Forbes, described the move as a poor judgement call, according to the WSJ. The outstanding loan represents more than half of the $16 billion in customer assets that FTX reportedly held. (RELATED: Musk’s Foreign Ties Are ‘Worth Being Looked At’ After Joint Acquisition Of Twitter With ‘Other Countries,’ Biden Says)
“I fucked up, and should have done better,” Bankman-Fried tweeted Thursday as part of a thread adressing the crisis.
After a Nov. 2 report by crypto-focused news outlet CoinDesk noted an “unusually close” relationship between the two companies, including more than $5.8 billion of Almeda assets tied to FTX’s own cryptocurrency, investors began reporting difficulty withdrawing their assets from FTX, Business Insider reporter on Nov. 8. FTX halted customer withdrawals following roughly $5 billion in withdrawal requests Sunday, Bankman-Fried said Thursday, and has since rushed to raise cash, according to the WSJ.
“FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries),” Bankman-Fried tweeted on Monday, later deleting the tweet, according to the WSJ.
Competitor Binance to announce plans to acquire the exchange, but sent crypto stocks plunging Wednesday when it pulled out of the deal, saying in a statement that its rival’s “issues are beyond our control or ability to help.”
“An exchange really shouldn’t have problems getting its customers their deposits,” Frances Coppola, a U.K.-based economist, told the WSJ. “It shouldn’t be doing anything with those assets. They should literally be sitting there so people can use them”
Sounds like Sequoia partners were mesmerized from beginning & had blinders on. If I found out a founder was playing a videogame at same time while raising money, I would say that’s a red flag that he didn’t care about investors capital – def not something to get excited about pic.twitter.com/n1kz0JKZ87
— tae kim 🐀 (@firstadopter) November 9, 2022
Traditional brokers are legally obligated to keep client assets and company assets separated, the WSJ reported. In a similar collapse following risky bets using customer assets, brokerage firm MF Global was fined $100 million in 2013.
While MF Global customers were eventually able to recoup their losses following bankruptcy proceedings, it is unclear if FTX customers can enjoy the same peace of mind, the WSJ reported.
“This was about FTX International,” Bankman-Fried tweeted Thursday. “FTX US, the US based exchange that accepts Americans, was not financially impacted by this shitshow. It’s 100% liquid. Every user could fully withdraw (modulo gas fees etc). Updates on its future coming.”
Before the crisis, Bankman-Fried enjoyed a positive reputation, and portrayed himself as primarily being motivated to make money in order to donate it, according to venture firm Sequoia Capital. FTX has been under investigation by both the U.S. Securities and Exchange Commission and the Department of Justice for several months, and staff at the two agencies were in regular contact, the WSJ reported Nov. 9, citing anonymous sources.
FTX did not immediately respond to a Daily Caller News Foundation request for comment. The website for Alameda Research has gone private and the DCNF was unable to contact a representative.
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