Disgraced former crypto billionaire Sam Bankman-Fried denied any wrongdoing in a new blog post about why his crypto exchange FTX collapsed.
Bankman-Fried posted an “FTX Pre-Mortem Overview” on Substack Thursday and said “I didn’t steal funds, and I certainly didn’t stash billions away,” referring to allegations of misused customer funds by FTX and Alameda Research, the crypto hedge fund Bankman-Fried founded.
— SBF (@SBF_FTX) January 12, 2023
According to Bankman-Fried’s indictment by federal prosecutors, he “agreed with others to defraud customers of FTX.com by misappropriating those customers’ deposits and using those deposits to pay expenses and debts of Alameda Research, Bankman-Fried‘s proprietary crypto hedge fund, and to make investments.”
The Securities and Exchange Commission (SEC) said in separate complaint “[b]ut from the start, Bankman-Fried improperly diverted customer assets to his privately-held crypto hedge fund, Alameda Research LLC (“Alameda”), and then used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations.”
In his blog post, Bankman-Fried attributed FTX and Alameda’s downfall to the fund insufficiently hedging its exposure to crypto markets and a November 2022 crypto crash created by Changpeng Zhao (CZ), CEO of Binance, a rival crypto platform.
He said in the post “FTX International and Alameda were both legitimately and independently profitable businesses in 2021, each making billions,” and “I haven’t run Alameda for the past few years.”
Bankman-Fried stepped down as Alameda CEO in 2021, but continued to make decisions behind the scenes, according to The Wall Street Journal. (RELATED: Crypto Platform Coinbase Will Lay Off 20% Of Its Staff)
The Commodities Futures Trading Commission (CFTC) said in a complaint that Bankman-Fried “maintained direct decision-making authority over all of Alameda’s major trading, investment, and financial decisions,” despite stepping down as CEO.
Alameda was vulnerable to an extreme crypto market crash based on its balance sheet heading into 2022, Bankman-Fried said. It would have taken a 94% crash to bankrupt the fund at the start of 2022, he specified.
He explained how crypto crashes over the course of 2022 dropped Alameda’s assets by 80% and left the fund over leveraged, meaning it held too much debt compared to its overall assets. Alameda refused to hedge its crypto exposure until Summer 2022 and still possessed $10 billion of assets heading into November.
Bankman-Fried said the November crash of Alameda and FTX “was a targeted attack on assets held by Alameda, not a broad market move.” He attributed it to “an extremely effective months-long PR campaign against FTX–and the crash,” to CZ and linked to his tweet announcing he would sell FTT tokens, the crypto token created by FTX.
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ 🔶 Binance (@cz_binance) November 6, 2022
CZ’s tweet followed a market crash generated by reports alleging misused customer funds by FTX and Alameda. Binance was reportedly interested in purchasing FTX when the crypto exchange was rapidly losing value.
FTX collapsed at the same time “because Alameda had a margin position open on FTX; and the run on the bank turned that illiquidity into insolvency,” Bankman-Fried said.
His explanation for Alameda and FTX’s collapse led him to conclude “no funds were stolen” despite “public misperceptions and material misstatements.”
Bankman-Fried pleaded not guilty to the charges and his trial date is set for Oct. 2, 2023. He was released from custody on a $250 million bond and ordered to stay at his parents’ house in Palo Alto, California.
Substack did not immediately respond to a request for comment.