Sam Bankman-Fried told former FTX employees that excessive borrowing by his own trading firm Alameda Research was responsible for FTX’s demise, insisting he was unaware of margin positions taken by traders.
In a letter to former employees, the FTX The founder wrote that he “did not realize the full extent of the margin position, nor did I realize the magnitude of the risk posed by a hyper-correlated crash.”
FTX generally allowed customers to borrow money in order to increase their bets on cryptocurrencies. But this practice allowed Alameda to take extra wide positions, which Bankman Fried claimed he hadn’t been watching.
According to the letter, seen by the Financial Times, Alameda entered the crypto crash this spring after borrowing $2 billion from FTX, which was backed by what it claimed was $60 billion in collateral. But by the time Bankman-Fried’s cryptocurrency empire crumbled, that borrowing had grown to $8 billion and was backed by assets valued at just $9 billion.
“I deeply regret my oversight failure. . . I lost track of the most important things in the hustle and bustle of corporate growth,” Bankman-Fried wrote.
Letter sent to employees of his companies gives Bankman-Fried’s most detailed account to date of how FTX plummeted from one of the best-known names in digital assets to bankruptcy in less than two weeks .
Earlier Tuesday, attorneys for new FTX executives lambasted Bankman-Fried management of the crypto conglomerate, telling a US bankruptcy court in Delaware that the former billionaire ran his business like a “personal fiefdom” and that the group spent “substantial sums” on items unrelated to the business, such as vacation homes in the Bahamas. Previous bankruptcy filings have highlighted “misuse of customer funds”.
Bankman-Fried said the crash in token prices and the “drying up” of credit in digital asset markets after the collapse of stablecoin Terra this spring eroded Alameda’s guarantee from about $60 billion to $25 billion.
The position deteriorated sharply in November due to a “hyper-correlated crash”. . . over a very short period of time,” an apparent allusion to the price crash of FTX’s own FTT crypto token earlier this month after CoinDesk, a news service that covers digital currencies, revealed the pivotal role that he was playing on the Alameda balance sheet. Rival crypto exchange Binance responded to the report by announcing its intention to sell its coin stock.
The scale of the problem was amplified as Alameda held $8 billion in client funds owned by FTX. Bankman-Fried claimed that Alameda held these funds from FTX clients because it received money from them before the exchange had its own bank account. Several FTX clients told the FT that they wired money to Alameda which was then to be used on the exchange.
“As we frantically put everything together, it became clear that the position was bigger than its display on admins/users, because of the old [cash] deposits before FTX had bank accounts,” Bankman-Fried said.
Alameda’s assets included large investments in venture capital and crypto tokens that could not be quickly turned into cash.
Bankman-Fried said he regretted putting the entire crypto group into Chapter 11 bankruptcy, “even solvent entities,” and apologized to customers and his former staff.
“You were my family,” he wrote. “I lost that, and our old house is an empty warehouse of monitors. When I turn around, there’s no one to talk to.