Bankman-Fried Empire Includes Billions of Dollars of Illiquid Investments
Sam Bankman-Fried’s business empire includes billions of dollars of illiquid venture capital investments, according to internal records seen by the Financial Times, underscoring the uncertain recovery facing customers of his collapsed FTX exchange.
The 30-year-old entrepreneur, once a star of the crypto industry, on Friday placed FTX international, its independent US arm, and his proprietary trading firm Alameda Research into a joint bankruptcy process in Delaware federal court.
Initial filings listed both assets and liabilities of the group at between $10bn and $50bn. FTX’s new chief executive John Ray, who was brought in to chair Enron during its liquidation, said the companies had “valuable assets” and that the bankruptcy would maximise recoveries.
The sprawling venture capital portfolio will add to the complexity of the insolvency proceedings, which itself includes more than 130 companies controlled by Bankman-Fried. FTX’s collapse is among the most dramatic failures in the crypto industry not just this year, but since the creation of bitcoin more than a decade ago.
FTX and its affiliates have not yet disclosed the exact size of their liabilities and assets, and the shortfall that likely exists. FTX’s recently departed head of institutional sales, Zane Tackett, said on Twitter on Friday that the shortfall ran into billions of dollars. FTX did not immediately respond to a request for comment.
Any gap between assets and liabilities will be influenced by the value that can be recovered from almost $5.4bn that FTX and Alameda invested in almost 500 crypto companies and venture capital funds, according to the records seen by the FT.
The largest of those investments is $1.15bn that Alameda ploughed into crypto mining group Genesis Digital Assets between August 2021 and April 2022, the records show.
Publicly traded mining companies have sold off sharply over the past year as the crypto market has declined. The HashRate crypto mining index, which tracks such stocks, is down 75 per cent since August 2021. Genesis did not immediately respond to a request for comment.
The records also list more than $1bn invested across about 40 funds run by venture capital firms, including some that were investors in FTX such as Sequoia Capital. Those holdings include a $300mn investment by Alameda in K5 Global, the firm run by Michael Kives. The investment amounts to 30 per cent of K5’s general partnership, and $225mn of the total sits in Elon Musk’s SpaceX and Boring Company, and other unidentified businesses, according to the records.
Earlier this year, texts released during Musk’s litigation with Twitter showed Kives suggesting Bankman-Fried as a co-investor in the social media company. Musk was dismissive of the FTX founder and ultimately took money from the head of rival exchange Binance, Changpeng Zhao.
Other big bets detailed in the records include a $500mn investment in Anthropic, an artificial intelligence “safety and research company”, made by Bankman-Fried through Alameda earlier this year. Anthropic did not immediately respond to a request for comment.
Source Here: ft.com
Sam Bankman-Fried’s $32bn FTX Crypto Empire Files for Bankruptcy
FTX, the once high-flying crypto currency group, has filed for bankruptcy protection in the US, marking a stunning collapse of the $32bn empire built by the colourful 30-year-old entrepreneur Sam Bankman-Fried.
The filing in Delaware federal court on Friday included the main FTX international exchange, a US crypto marketplace, Bankman-Fried’s proprietary trading group Alameda Research and about 130 affiliated companies.
FTX’s failure came after Bankman-Fried desperately sought billions of dollars to save the exchange this week after it was unable to meet a torrent of customer withdrawals in a run prompted by concerns over its financial health and links to Alameda.
The collapse of such a prominent group, which advertised during the US Superbowl and whose shorts-wearing, charismatic founder was a leading donor to the Democratic party, has rocked the notoriously volatile crypto industry.
Bitcoin dropped 5 per cent to a fresh two-year low of $16,492 after the FTX bankruptcy was announced. Changpeng Zhao, chief executive of Binance, earlier on Friday said the fall of FTX left crypto facing a financial crisis akin to 2008 and that more businesses could fail in its wake.
Bankman-Fried, who one week ago was among the most respected figures in the sector with a $24bn personal fortune and close links with Wall Street and celebrities, resigned as FTX’s chief executive on Friday. John R Ray, a restructuring specialist who oversaw the Enron and Nortel Networks bankruptcy cases, will take the reins.
“The FTX Group has valuable assets that can only be effectively administered in an organised, joint process,” Ray said.
In just over three years, FTX had secured a $32bn valuation and had wooed a roster of blue-chip investors, including Paradigm, SoftBank, Sequoia Capital and Singapore’s Temasek. Venture capital firms Sequoia and Paradigm have in recent days marked their investment down to zero.
The sprawling business empire run by a tight-knit group of longtime associates around Bankman-Fried, many of whom lived together in a Nassau penthouse in the Bahamas, has around 100,000 creditors and $10-50bn of assets and liabilities, according to the filing.
The US Securities and Exchange Commission is investigating FTX, which includes examining the platform’s cryptocurrency lending products and the management of customer funds, according to a person familiar with the matter.
The bankruptcy filing follows a frantic week in digital asset markets. Rumours about the financial health of FTX and its trading affiliate Alameda Research culminated on Monday in a run on the exchange with insufficient readily accessible assets to meet $5bn in customer withdrawals.
After appeals to its investors and rival exchanges, FTX halted the demands on Tuesday and agreed a rescue by the world’s largest crypto bourse, Binance, led by Zhao, a one-time partner turned arch-rival of Bankman-Fried.
That deal fell through a day later after Binance said due diligence revealed insurmountable financial problems at FTX. Last-ditch efforts to find another investor to supply up to $8bn failed in recent days.
FTX Digital Markets Ltd, the group’s subsidiary in the Bahamas, where it is headquartered, is not included in the bankruptcy proceedings. The Securities Commission of The Bahamas froze the subsidiary’s assets on Thursday and appointed a provisional liquidator.
LedgerX, a regulated US futures exchange, and a subsidiary in Australia are among other units not included in the filing. The group’s Australian business has already been placed into administration while Japanese watchdogs suspended operations of FTX’s affiliate in the country.
Bankman-Fried has blamed mistaken accounting of the exchange’s liquidity and leverage for the collapse.
“I’m really sorry, again, that we ended up here,” he said following Friday’s filing. “I’m piecing together all of the details, but I was shocked to see things unravel the way they did earlier this week.”
Additional reporting by Stefania Palma in Washington
US Stocks Waver As Traders Scrutinise Jobs Data and Fed Comments
US stocks wavered and the dollar slipped on Friday after a mixed report on the country’s jobs market and a duo of senior Federal Reserve officials backed a slower pace of increases in borrowing costs.
The blue-chip S&P 500 rose 0.1 per cent, while the tech-heavy Nasdaq Composite slipped 0.3 per cent. In Europe, the regional Stoxx Europe 600 added 1.8 per cent.
The US dollar index, which tracks the currency against six major peers, fell 1.6 per cent. The move came after Susan Collins and Thomas Barkin, heads of the Boston and Richmond Fed branches, respectively, said the central bank should start considering a slowdown in its interest rate rises.
Investors also scrutinised data show the US added 261,000 jobs in October, exceeding Wall Street expectations of 200,000. The unemployment rate, however, increased by 0.2 percentage points to 3.7 per cent in October, higher than the 3.6 per cent predicted.
Wages, meanwhile, rose 0.4 per cent from the previous month, the report showed — higher than the 0.3 per cent rise forecast.
Quincy Krosby, chief global strategist at LPL Financial, said the jobs report bolstered the argument for a smaller 0.5 percentage point rise at the Fed’s December meeting and “helped the equities market” because higher unemployment figures implied payroll numbers are “shifting lower but not collapsing”.
The Fed implemented its fourth consecutive 0.75 percentage point rate rise on Wednesday as it attempts to bring inflation down to its target of 2 per cent. Powell’s warning that recent data suggest “the ultimate level of interest rates will be higher than expected” sent US stocks lower and led to a sharp jump in US short-term government bond yields.
The yield on the two-year Treasury, which is particularly sensitive to short-term monetary policy expectations, declined from its Thursday peak, when it reached its highest level since mid-2007. The yield on the note fell 0.03 percentage points to 4.67 per cent on Friday.
Chinese stocks soared, extending their weekly gains on hopes that Beijing would change its longstanding zero-Covid policy. The CSI 300 index of Shanghai and Shenzhen-listed shares gained 3.3 per cent.
Industrial metal prices skyrocketed on the news. Combined with a weaker dollar, some key commodities were on track for historic daily gains.
Copper, a barometer of health for the global economy, powered 6.5 per cent higher to breach $8,000 a tonne for the first time in two months. Other base metals nickel, zinc and tin also jumped up by more than 5 per cent after sliding lower since March on macroeconomic fears that have trumped supply concerns.
Gold gained 2.8 per cent to $1,677 per troy ounce, putting it on course for its best day since March when the Russia-Ukraine conflict shook global markets.
That also spurred gains for mining groups Anglo American, up 11 per cent, and Rio Tinto, up 8 per cent in London. The FTSE 100 rose 2 per cent.
Reports that US regulators had completed a review of Chinese audit reports earlier than expected added to investor optimism around Chinese stocks, with the Hang Seng in Hong Kong closing up 5.4 per cent.
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