The Bahamas Securities Commission has frozen the assets of part of Sam Bankman-Fried’s crypto empire and appointed a liquidator for one of his companies as the embattled entrepreneur scrambles to raise up to $8 billion to bail out FTX.
The Bahamas Securities Commission on Thursday filed a lawsuit against FTX Digital Markets, FTX’s Bahamian subsidiary. No assets of the company can be transferred without the approval of an interim insolvency practitioner, the regulator said. FTX moved from Hong Kong, where it was launched, to the Bahamas in 2021.
“The Commission is aware of public statements suggesting that client assets have been mistreated, mismanaged and/or transferred to Alameda Research,” the announcement reads. Alameda is Bankman-Fried’s crypto trading company.
Bankman-Fried looked to raise up to $8 billion to bail out his crypto company Thursday as more of his former supporters wrote off their investments in the FTX exchange.
The crisis sparked contagion in the crypto sector as BlockFi, a digital asset lending platform, paused customer payouts.
BlockFi said Thursday it could not operate its business as usual because “the status” of FTX and Alameda “is not clear.” Amid a cryptocurrency meltdown earlier this year, FTX boss had bailed out BlockFi and given it a $250 million loan.
The 30-year-old admitted on Twitter that the FTX trading floor does not have an insufficient supply of easily accessible funds to meet client demands. Investors recruited by Bankman-Fried described a chaotic appeal by the humble crypto boss to plug his company’s financial hole.
The outcome of Bankman-Fried’s flight for cash will determine the fate of FTX amid growing doubts about its ability to stay afloat without an injection of fresh capital and concerns for clients whose money is stuck in the frozen exchange. In a sign of pressure mounting on its affiliated companies, FTX US, which is separate from the international exchange, said it could halt trading on its platform in the coming days.
Investors estimate the amount Bankman-Fried is targeting at between $6 billion and $8 billion. Alameda Research, its trading firm, owes FTX $10 billion, two people familiar with the matter said.
Several investors have reduced their equity holdings in FTX to zero, suggesting they are unlikely to invest more money. Paradigm, an investor with a $300 million stake in the exchange, had reduced the value of its investment to zero after venture capital firm Sequoia announced on Wednesday.
One investor said Bankman-Fried wants to bring crypto exchange OKX, stablecoin operator Tether and Tron founder Justin Sun on board to raise funds.
Paolo Ardoino, Tether’s chief technology officer, told the Financial Times the company played no role in saving FTX. He said Bankman-Fried contacted him to solicit the stablecoin issuer’s help a few days ago, before the aborted Binance bailout was announced.
“We were asked if we were interested in investing or lending money. We said no,” said Ardoino.
Sun did not respond to a request for comment, but said on Twitter, “We are working out a solution together with FTX to initiate a way forward.”
Late Thursday, FTX announced that it has reached an agreement with Tron that will set up a “special facility” that will allow holders of some crypto tokens to trade assets one-for-one from FTX to external wallets.
OKX on Tuesday turned down an exclusive deal to bail out FTX but is still considering whether to provide funds, people familiar with the matter said. Its executives are concerned about the risk of FTX misusing customer deposits and the possibility of customer lawsuits.
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Investors and customers have contacted prominent US trial attorney David Boies to file a lawsuit, people familiar with the matter said. Meanwhile, Bankman-Fried has hired Paul Weiss partner Martin Flumenbaum, known for representing junk bond dealer Michael Milken, who was jailed and later pardoned for violating US security laws.
Boies declined comment, while Flumenbaum did not immediately respond to a request for comment.
The fundraising push comes less than a month after FTX agreed to raise a Series C funding round matching its January valuation of $32 billion.
An investor said Bankman-Fried appears to be carrying out the financial rescue attempt without professional advisers. “It looks like he’s running this process himself via SMS. He doesn’t have a man,” added the investor.
Bankman-Fried blamed poor internal record keeping for the exchange’s incorrect accounting of leverage and liquidity. “I’m sorry . . . I screwed it up.”
He pledged the working capital and that the money raised would be used to pay back customers first, and offered to resign as CEO if the company survived.
“There are a number of players that we are in talks with [letters of intent], term sheets, etc.,” said Bankman-Fried. “I can’t promise anything.”
Reporting by Kadhim Shubber, Arash Massoudi, Joshua Oliver and Scott Chipolina in London; Ortenca Aliaj in New York; and Richard Waters and Tabby Children in San Francisco. Additional reporting by William Langley, Chan Ho-him and James Fontanella-Khan.