The disgraced founder of FTX, Sam Bankman-Fried, believes there’s enough value locked on the exchange’s balance sheet to repay customer deposits held under custody and rebuild his dying crypto empire.
In a tweet thread that suggests the 30-year-old considers himself to be the hero who came up just short, the self-styled altruist said he still held out hope there was a future for a post-bankruptcy FTX.
“What can I try to do? Raise liquidity, make customers whole, and restart,” he wrote on Tuesday to his 1 million followers on Twitter. “All I can do is to try. I’ve failed enough for the month, and part of me thinks I might get somewhere.”
For the first time since FTX and its 130-odd affiliated subsidiaries filed for bankruptcy last Friday, Bankman-Fried published specifics number concerning the quality of its balance sheet.
He claimed the group still owned assets worth $9 billion at present price after they were “marked to market”—half of what they were worth a month ago. This is matched against cash obligations it needs to meet of $8 billion.
Good news?
In theory that could be considered good news for customers, as it suggests the hot air in the balance sheet has already largely deflated, leaving a more solid foundation from which to work. Even as their value declined in the past few weeks, there still appears to be a reservoir of assets worth a net $1 billion that can be liquidated.
The problem is that by Bankman-Fried’s own account, $3.5 billion of the company’s overall assets were illiquid, meaning they could not easily be converted to cash to meet claims. These can be anything from property owned to exotic tailor-made derivative contracts that rarely trade and are difficult to price.
That said, it’s not clear how much of what Bankman-Fried posts on social media is ultimately of much meaning. He no longer serves as CEO, and his company is now in the hands of John J. Ray III, who managed the orderly dissolution of Enron on behalf of its stakeholders.
Secondly, Bankman-Fried denied last week that Alameda Research—his crypto hedge fund famous for exploiting the so-called “Kimchi Premium” arbitrage opportunity in the price of Bitcoin—had been engaged in “any of the weird things” he saw on Twitter.
In truth, Alameda was the source of FTX’s bankruptcy, borrowing the latter’s customer funds to finance speculative crypto bets that turned sour. The Wall Street Journal reported that Bankman-Fried and Alameda CEO Caroline Ellison, who once were romantically involved, had covered this up internally.
‘Pretty disgusted’
His empire collapsed spectacularly last week after Binance withdrew its backing following revelations at the start of this month that Alameda, one of FTX’s major market makers and business partners, was hiding its insolvency.
Binance founder Changpeng Zhao said he would sell his entire holdings of FTX’s native token, FTT, which he received after he exited an investment in the rival exchange. This prompted a wave of customer withdrawals that Bankman-Fried quantified as hitting roughly $5 billion last Sunday alone.
The failure of FTX has been likened both to the 2008 bankruptcy of Wall Street investment bank Lehman Brothers as well as to the Ponzi scheme fraud committed by Bernie Madoff.
Bankman-Fried even fooled a number of savvy financial investors, including Singapore sovereign wealth fund Temasek and Sequoia Capital, which in late September attested to his “savior complex” in a fawning profile that has since been taken down. Meanwhile, Bankman-Fried’s own multibillion-dollar wealth has gone up in smoke, and now largely consists of his 7%-plus stake in trading app Robinhood.
Despite being deliberately incorporated in Antigua and Barbuda, Bankman-Fried’s offshore crypto exchange is now seeking protection from creditors under Chapter 11 of the U.S. Bankruptcy code.
This process allows a company to reorganize its capital structure with a goal of cleaning up its balance sheet. This typically involves wiping out shareholders in the process, while ultimately agreeing with lenders to swap their debt claims for equity.
This could yet see a leaner, healthier FTX emerge one day from bankruptcy, though it is highly unlikely it will ever again enjoy the confidence of the market.
On Monday, Travis Kling, chief investment officer of the crypto hedge fund Ikigai Asset Management, penned an excoriating, expletive-laden condemnation of Bankman-Fried after his investors’ funds were trapped on the exchange.
“I’m pretty disgusted with the space as a whole and kinda humanity in general,” he wrote.
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