FTX funds frozen by Bahamas regulator as crypto exchange struggles for survival

FTX funds frozen by Bahamas regulator as crypto exchange struggles for survival

FTX funds frozen by Bahamas regulator as crypto exchange struggles for survival

The Bahamian 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 entrepreneur races to raise as much as $8 billion to save FTX.

The Bahamas Securities Commission took action against FTX Digital Markets, a Bahamian subsidiary, on Thursday FTX. No assets belonging to the business can be transferred without the approval of the 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 were mishandled, mismanaged and/or transferred to Alameda Research,” the statement said. Alameda is Bankman-Fried’s crypto trading business.

Bankman-Fried was trying to raise as much as $8 billion to save his crypto company on Thursday, as more of his former backers wrote down their investments in FTX.

The crisis caused contagion in the crypto sector as BlockFi, a digital asset lending platform, paused withdrawals.

On Thursday, BlockFi said it could not do business as usual due to a “lack of clarity on the status” of FTX and Alameda. Amidst the fall of cryptocurrencies this year, the head of FTX had saved BlockFi with $250 million in credit.

The 30-year-old admitted on Twitter that trading platform FTX did not have enough storage of readily available funds to meet client requests. Investors described the disgraced crypto CEO’s chaotic call to plug his company’s financial hole.

The outcome of Bankman-Fried’s scramble for cash will determine FTX’s fate amid growing doubts about its ability to stay afloat without an injection of capital and concerns for clients who have money stuck in a frozen stock market.

In a sign of growing pressure on its affiliates, FTX US, which is separate from the international exchange, said it may halt trading on its platform in the coming days.

FTX’s Australian business was placed into administration on Friday. His clients were advised not to deposit money or trade. Japan ordered the local subsidiary of FTX to suspend some of its operations.

Investors estimate that Bankman-Fried is seeking $6 billion to $8 billion. Alameda Research, his trading firm, owes $10 billion to FTX, two people familiar with the matter said.

Several investors reduced their equity stakes in FTX to zero, including Paradigm, which had a $300 million stake, and venture capital firm Sequoia, which announced the move on Wednesday.

One investor said Bankman-Fried wants to use crypto exchange OKX, stablemate Tether and Tron founder Justin Sun to raise funds.

Tether chief technology officer Paolo Ardoino told the Financial Times: “We were asked if we were interested in investing or lending money. We said no.” He said Bankman-Fried had been in touch a few days ago, before the aborted Binance bailout was announced, to ask for the stablecoin issuer’s help.

Sun did not respond to a request for comment, but said on Twitter: “We are putting together a solution together with FTX to initiate a path forward.”

On Thursday, FTX said it had reached an agreement with Tron to establish a “special facility” that would allow holders of certain crypto tokens to exchange funds one-to-one from FTX to external wallets.

OKX on Tuesday rejected an exclusive deal to rescue FTX, but is still considering whether to fork over the 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.

Investors and buyers have approached prominent U.S. litigator David Boies about filing the lawsuit, people familiar with the matter said. Meanwhile, Bankman-Fried hired Paul Weiss partner Martin Flumenbaum, known for representing junk bond trader Michael Milken who was jailed for violating US securities laws and later pardoned.

Boies declined to comment, while Flumenbaum did not immediately respond to a request for comment.

The fundraising effort comes less than a month after FTX was poised to take a Series C round of funding matching its $32 billion valuation in January.

One investor said Bankman-Fried appeared to be managing the attempted financial rescue without professional advisers. “It seems like he’s leading this process himself via text message. He doesn’t have a boyfriend,” the investor added.

Bankman-Fried blamed poor internal record-keeping for the stock market’s miscalculation of leverage and liquidity. “I’m sorry . . . I screwed up,” he wrote on Twitter.

He promised that current assets and any cash raised would first be used to repay customers – and offered to step down as chief executive if the company survived.

“There’s a number of players we’re talking to,” Bankman-Fried said. “We’ll see how it ends.”

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 in Hong Kong, James Fontanella-Khan in New York and Nic Fildes in Sydney.

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