The Bahamas’ securities regulator has frozen the assets of part of Sam Bankman-Fried’s crypto empire and moved to appoint a liquidator for one of its entities, as the embattled entrepreneur raced to raise as much as $8 billion to save FTX.
The Bahamas Securities Commission took the action on Thursday against FTX Digital Markets, the Bahamian subsidiary of FTX. No assets belonging to the business can be transferred without the approval of a provisional liquidator, the regulator said. FTX moved to the Bahamas in 2021 from Hong Kong, where it was launched.
“The Commission is aware of public statements indicating that client assets have been mishandled, mismanaged and/or transferred to Alameda Research,” the notice said. Alameda is Bankman-Fried’s crypto trading business.
Bankman-Fried sought to raise as much as $8 billion to save his crypto company on Thursday as more of his former backers wrote down their investments in the FTX exchange.
The crisis caused contagion in the crypto sector as BlockFi, a digital asset lending platform, paused client withdrawals.
BlockFi said Thursday that it was unable to conduct business as usual due to the “lack of clarity on the status” of FTX and Alameda. Amid a cryptocurrency meltdown earlier this year, the FTX boss had bailed out BlockFi, extending it a $250 million loan.
The 30-year-old admitted on Twitter that the FTX trading venue has an insufficient stock of readily available funds to meet client demands. Investors lined up by Bankman-Fried described a chaotic plea from the humble crypto executive to plug his company’s financial hole.
The outcome of Bankman-Fried’s dash for cash will determine FTX’s fate amid growing doubts about its ability to stay afloat without an infusion of new capital, and concerns about clients with cash stuck in the frozen stock market. In a sign of how pressure is mounting between companies affiliated with him, FTX US, which is separate from the international exchange, said it may halt trading on its platform in the coming days.
Investors put the amount Bankman-Fried is asking for between $6-8 billion. Alameda Research, his trading firm, owes $10 billion to FTX, two people familiar with the matter said.
Several investors have reduced their stakes in FTX to zero, indicating that they are unlikely to put in more money. Paradigm, an investor with a $300 million holding in the trading venue, had reduced the value of its investment to zero, after venture capital firm Sequoia, which announced the move on Wednesday.
One investor said Bankman-Fried was looking to tap crypto exchange OKX, stablecoin operator Tether and Tron founder Justin Sun for the fundraising.
Tether’s chief technology officer Paolo Ardoino told the Financial Times that the company played no role in a rescue of FTX. He said Bankman-Fried had been in touch several days ago, before the aborted Binance bailout was announced, to ask for help from the stablecoin publisher.
“We were asked if we were interested in investing or lending money. We said no, Ardoino said.
Sun did not respond to a request for comment but said on Twitter: “We are putting together a solution together with FTX to initiate a path forward.”
Late Thursday, FTX said it had reached an agreement with Tron to establish a “special facility” that allows holders of certain crypto tokens to exchange assets one-to-one from FTX to external wallets.
OKX turned down an exclusive deal to bail out FTX on Tuesday but is still considering whether to commit money, people familiar with the matter said. Its executives are concerned about the risk that FTX misused customer deposits and the possibility of lawsuits from customers.
Investors and clients have turned to prominent U.S. litigator David Boies to launch a lawsuit, people familiar with the matter said. Meanwhile, Bankman-Fried has hired Paul Weiss partner Martin Flumenbaum, known for representing junk bond trader Michael Milken who was jailed for violating US securities laws and later pardoned.
Boies declined to comment, while Flumenbaum did not immediately respond to a request for comment.
The push to raise money comes less than a month after FTX was poised to complete a Series C funding round that matched its $32 billion valuation from January.
One investor said Bankman-Fried appears to be running the financial rescue attempt without professional advisers. “It looks like he’s running this process himself via text. He doesn’t have a boyfriend,” the investor added.
Bankman-Fried blamed poor internal record-keeping for a misreporting of leverage and liquidity on the stock exchange. “I’m sorry . . . I was screwing up.”
He promised working capital and that any money raised would first be used to repay customers, and offered to step down as CEO if the company survived.
“There are a number of players we are in talks with, [letters of intent], term sheets, etc,” Bankman-Fried said. “I can’t make any promises about that.”
Reporting by Kadhim Shubber, Arash Massoudi, Joshua Oliver and Scott Chipolina in London; Ortenca Aliaj in New York; and Richard Waters and Tabby Kinder in San Francisco. Additional reporting by William Langley, Chan Ho-him and James Fontanella-Khan.
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