The Bahamian securities regulator froze 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 rushed 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 the crypto trading business of Bankman-Fried.
Bankman-Fried was looking to raise up to $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, suspended customer withdrawals.
BlockFi said on Thursday that it could not operate business as usual due to the “lack of clarity on the status” of FTX and Alameda. Amid a cryptocurrency meltdown this year, the FTX chief had bailed out BlockFi with a $250 million loan.
The 30-year-old conceded on Twitter that the FTX trading platform had an insufficient reserve of readily available funds to meet customer demands. Investors described a chaotic call from the lowly crypto chief executive to plug his company’s financial hole.
The outcome of the Bankman-Fried cash rush will determine the fate of FTX amid growing doubt about its ability to stay afloat without capital injections and anxiety for customers with cash stuck 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.
FTX’s Australian business was placed in receivership on Friday. Its customers have been advised not to deposit money or make any transactions. Japan ordered the local FTX subsidiary to suspend some of its operations.
Investors estimate Bankman-Fried is looking for $6 billion to $8 billion. Alameda Research, his trading company, owes FTX $10 billion, two people familiar with the matter said.
Several investors have cut their stakes in FTX to zero, including Paradigm, which held a $300 million stake, and 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: “We were asked if we were interested in investing or lending money. We said no. 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.
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.”
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 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 tweeted.
He promised that current assets and any money raised would first be used to reimburse customers – and offered to step down as chief executive if the business survived.
“There are a number of players we’re in talks with,” 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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