According to a source with direct knowledge, Sam Bankman-Fried stated Wednesday to FTX.com investors that the company would have to file bankruptcy if it didn’t receive a cash injection.
Bankman-Fried told investors that his crypto exchange was facing a deficit of up to $8Billion and required $4B to stay solvent. The call took place before Binance made a change and bailed on the takeover offer. According to the person, FTX seeks rescue funding in the form of either equity or debt.
According to people familiar with the conversation, Bankman-Fried said that he had “f—ed up” during the call. He stated that he would be “incredibly grateful,” if investors would help.
A representative of FTX declined to comment.
It is an amazing turn by the one-time wunderkind of crypto, who was once worth $26 million and was compared to John Pierpont Morgan. It highlights the uncertainty surrounding FTX, its customers and cryptocurrency markets.
The fate of investors and lenders is not only in jeopardy but also of anyone who has been unable or unwilling to retrieve customer assets. Voyager and Celsius saw billions of dollars in client money locked up during bankruptcy proceedings.
FTX is supported by a number of prominent backers, including Sequoia Capital and BlackRock Inc., Tiger Global Management, SoftBank Group Corp. and SoftBank Group Corp. This indicates that Sequoia did not realize the full value of its holdings at FTX.com or FTX.us and does not see a clear path to recoup its investment.
Bankman-Fried was still steadfast during the 24-hour period that saw increasing speculation about Binance’s decision to cancel the deal.
During the conference call Wednesday afternoon, he repeatedly stated to investors that Changpeng Zhao wasn’t walking away from the takeover.
Binance confirmed that it was withdrawing an hour later.
Binance, a crypto exchange that Zhao founded, stated in a statement, “Our hope was for FTX customers to provide liquidity. But the issues are beyond our control and ability to help.”
FTX, in addition to financial difficulties, is attracting attention from US authorities.
The Securities and Exchange Commission and Commodity Futures Trading Commission are looking into whether the firm handled customer funds properly, and its relationship with other parts Bankman-Fried’s crypto empire, such as his trading house Alameda Research. Bloomberg News reported Wednesday. One person said that officials from the Justice Department are also working with SEC lawyers.
Zhao stated in a memo that Wednesday’s Zhao had said that there was no master plan to takeover FTX and that “user confidence has been severely shaken.”
With the plummeting prices for digital assets, there is renewed concern about contagion. After Binance’s announcement, Bitcoin dropped below $16,000, its lowest level in two years.
Brian Armstrong, Coinbase’s Chief Executive Officer, stated Tuesday on Bloomberg TV that if the Binance deal fell through it would most likely result in FTX customers suffering losses.
He said, “That’s not a good idea for anyone.”
