The Bahamas securities regulator has frozen the assets of part of Sam Bankman-Fried’s crypto empire and decided to appoint a liquidator for one of its entities, as the embattled entrepreneur rushes to raise up to $8 billion to save FTX.
The Bahamas Securities Commission took action on Thursday against FTX Digital Markets, the Bahamian subsidiary of FTX. No assets belonging to the company 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 suggesting that client assets have been mismanaged, mismanaged and/or transferred to Alameda Research,” the statement said. Alameda is owned by Bankman-Fried crypto commercial enterprise.
Bankman-Fried was looking to raise up to $8 billion to save his crypto company on Thursday as more of his former backers wrote their investments on the FTX exchange.
The 30-year-old conceded on Twitter that the FTX trading platform does not have a sufficient reserve of readily available funds to meet customer demands. Investors pitched by Bankman Fried described a chaotic call from the lowly crypto CEO to plug his company’s financial hole.
The outcome of the Bankman-Fried cash rush will determine the fate of FTX amid growing doubts about its ability to stay afloat without injecting fresh capital and anxiety for clients with cash locked in on the frozen exchange. In a sign of mounting pressure on companies affiliated with it, 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 sought by Bankman-Fried at between $6 billion and $8 billion. Alameda Research, his trading company, owes FTX $10 billion, two people familiar with the matter said.
Several investors have reduced their holdings in FTX to zero, suggesting they are unlikely to invest more money. Paradigm, an investor with $300 million on the trading platform, had reduced the value of its investment to zero, following venture capital firm Sequoia, which announced the move on Wednesday.
An investor said Bankman-Fried is looking to leverage crypto exchange OKX, stablecoin operator Tether, and Tron founder Justin Sun for fundraising.
Tether’s chief technology officer, Paolo Ardoino, told the Financial Times that the company had no role in rescuing FTX. He said that Bankman-Fried had been in touch several days ago, before Binance’s aborted bailout announcement, to ask for help from the stablecoin issuer.
“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 setting up a solution with FTX to initiate a way forward.”
Late Thursday, FTX said it had reached an agreement with Tron establishing a “special facility” allowing holders of certain crypto tokens to swap assets one-to-one from FTX to external wallets.
OKX on Tuesday declined an exclusive deal to bail out FTX but is still considering committing funds, people familiar with the matter said. Its executives are concerned about the risk of FTX misusing customer deposits and the possibility of legal action by customers.
Investors and clients have approached prominent US litigant David Boies to launch legal action, 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 security laws and later pardoned.
Boies declined to comment, while Flumenbaum did not immediately respond to a request for comment.
The push to raise funds comes less than a month after FTX was on course to complete a Series C funding round matching its January valuation of $32 billion.
An investor said Bankman-Fried appeared to be leading the financial rescue attempt without professional advisers. “It looks like he’s directing this process by text message all by himself.” He doesn’t have a guy,” the investor added.
Bankman-Fried blamed poor internal record keeping for faulty accounting for leverage and liquidity on the exchange. “I’m sorry . . . I screwed up.
He promised short-term assets and that any money raised would first be used to reimburse customers, and offered to step down as chief executive if the business survives.
“There are a number of players we are in talks with, [letters of intent], condition sheets, etc. said Bankman-Fried. “I can’t promise anything about it.”
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