‘I’m sorry’: FTX boss Sam Bankman-Fried’s desperate search for billions to stay afloat

It’s unclear who, if anyone, might be willing to put money into FTX after Binance backed out of its deal.

At least one investor has declined to provide help because of concerns about the relationship between FTX’s customer deposits and Alameda Research, according to a person with knowledge of the situation, who was not authorised to discuss it. Another person familiar with FTX’s finances said the exchange had lent as much as $US10 billion in customer funds to Alameda. The figure was reported earlier by The Wall Street Journal.

The total amount of money that FTX still owes remains unclear, but it could be as much as $US8 billion, according to three people familiar with the figures, who were not authorised to discuss them.

An FTX spokesperson declined to comment. Bankman-Fried’s memo to staff was reported earlier by Reuters.

Until this week, Bankman-Fried was considered one of the most trusted and powerful figures in the crypto industry. He spent hundreds of millions of dollars in an effort to bail out other crypto companies and became a frequent presence in the halls of Congress, where he tried to shape crypto regulations.

That all changed last weekend when Changpeng Zhao, the Binance CEO, expressed concerns about FTX’s financial stability in a series of viral Twitter posts. FTX faced a flood of withdrawal requests that it was unable to meet. On Tuesday, Binance announced that it had tentatively agreed to buy FTX, only to pull out of the deal a day later, citing regulatory concerns and issues with “corporate due diligence.”

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Shortly before the deal fell through, Bankman-Fried held a call with FTX’s investors, appearing dishevelled, apologising repeatedly and using an expletive to emphasise how much he had messed up, said a person familiar with the call.

Bankman-Fried attributed some of FTX’s struggles to a negative public-relations campaign against the firm that he said had been going on for about a month. He also insisted that the Binance transaction would go through, the person said, and explained that FTX had some assets available — but that it would be unable to liquidate them quickly enough to meet the customer demand.

The swift collapse of FTX seemed to surprise a number of deep-pocketed institutional investors that pride themselves on doing due diligence on companies before committing money to them.

On Wednesday evening, Sequoia Capital, one of FTX’s largest backers, said it considered its $US213 million investment worthless. In a letter to its own investors, the firm said FTX was at risk of bankruptcy, though it didn’t know “the full nature and extent” of the risk.

FTX’s downfall has set back years of efforts to pull the crypto industry into the mainstream of finance.

Paradigm, a crypto-focused investment fund, had put $US278 million into FTX. In a letter to its investors viewed by the Times, the firm said its investment was likely to go to zero. FTX’s problems “will take many months to fully understand,” the firm wrote.

Dozens of other venture investors, including major firms like Lightspeed Venture Partners, BlackRock and Thoma Bravo, previously committed money to FTX, which was once considered one of the most promising and stable crypto exchanges.

In all, investors sank nearly $US2 billion into FTX, according to PitchBook, including some $US95 million from a venture capital fund affiliated with the Ontario Teachers’ Pension Plan. The pension said it expected any loss to cause “limited impact.”

Last week, FTX executives were seeking funding from investors in the Middle East, though it was unclear whether the effort was related to the problems that surfaced over the weekend, two people familiar with the matter said.

And in recent days, Bankman-Fried held talks with Sun, the creator of the cryptocurrency project Tron. On Thursday, FTX announced an agreement with Tron that would allow customers to withdraw a small set of cryptocurrencies, with the help of an injection of $US13 million.

“We are putting together a solution together with FTX to initiate a pathway forward,” Sun said on Twitter on Wednesday night. He did not respond to a request for comment.

Bankman-Fried is also facing dissent from within the senior ranks of FTX. On Wednesday night, the general counsel for FTX’s U.S. arm wrote on an internal messaging system that he had “advised U.S. regulators of my instruction to founders to turn off functionality” of the websites for FTX and the U.S. arm, according to two people who saw the message and a screenshot that has circulated on Twitter.

“Sam has a different perspective than me on this,” wrote the lawyer, Ryne Miller. He added that “we should not be optimistic for an outcome that is positive.” The post was swiftly deleted.

Scrutiny of Bankman-Fried is growing in Washington. For several months, the SEC had been asking the company to voluntarily turn over information. Now it’s pursuing an investigation into FTX’s collapse, two people familiar with the matter said. The Commodity Futures Trading Commission is also looking into the crisis. And federal prosecutors in Manhattan have started an inquiry, a person briefed on it said.

The Justice Department has contacted at least one third party seeking information about FTX’s finances, according to a person familiar with the matter. One issue that federal authorities are examining is whether FTX misused customer funds to prop up Alameda. The two companies are technically separate, but they have close financial ties: Both were founded by Bankman-Fried, and Alameda conducts trades on FTX’s platform.

The collapse of FTX has also shaken its employees, some of whom say they feel betrayed. Many received their salaries through deposits into their FTX accounts, meaning the implosion of the company could drain their savings, a person familiar with the matter said.

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In the memo to employees, Bankman-Fried apologised for the chaos. “Ultimately it’s my responsibility to make sure the right things happen,” he said.

He said that two executives, Miller and Zach Dexter, were handling day-to-day operations at the firm’s US arm, and that Constance Wang, the firm’s chief operating officer, was involved in the fundraising efforts.

Bankman-Fried, in a somewhat unusual move, also took to Twitter on Thursday morning to post a mea culpa of sorts, in which he said, “I’m sorry” and “should have done better.” In a series of posts, he said he could not communicate more with customers and investors because his “hands were tied during the duration of the possible Binance deal.”

This article originally appeared in The New York Times.