FTX looks for $9.4 billion in rescue funds from investors, rivals -source

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By Angus Berwick and Tom Westbrook

(Reuters) - FTX is scrambling to raise about $9.4 billion from investors and rivals, a source said on Thursday, as Chief Executive Sam Bankman-Fried urgently seeks to save the cryptocurrency exchange that has been buffeted by a rush of customer withdrawals.

Over the past few hours, Bankman-Fried has discussed raising $1 billion each from Justin Sun, the founder of crypto token Tron, rival exchange OKC and stablecoin platform Tether, according to the source who has direct knowledge of the matter.

He is seeking the remainder from other funds, including current investors in FTX such as venture capital fund Sequoia Capital, the source added. One of the investors in talks with FTX is Daniel Loeb's hedge fund, Third Point, according to the source.

Bankman-Fried has said in tweets and a memo to employees seen by Reuters that he was in talks with "a number of players" in the crypto sector, including Sun, after a potential rescue deal with larger rival Binance fell apart. But he added in the memo that he did not want to "imply anything about the odds of success."

Bankman-Fried also said his trading firm Alameda Research, which sources have said was partly behind FTX's problems, was winding down trading.

It was not clear whether Bankman-Fried will be able to raise the funds he needs.

Earlier on Thursday, OKX told Reuters it had been approached earlier in the week by Bankman-Fried, who described liabilities of $7 billion that needed covering fast.

"That was too much for us," Lennix Lai, director of financial markets at OKX, told Reuters.

FTX, Sun, OKX, Sequoia Third Point did not immediately respond to requests for comment on the latest news of talks.

FTX's predicament marks a stunning downfall for the 30-year-old crypto executive who was once worth nearly $17 billion, but in a matter of days transformed from his status of industry savior to the one who needed saving.

The problems at FTX, one of the world's largest crypto exchanges, have triggered a broader crisis of confidence in cryptocurrencies, with bitcoin falling below $16,000 overnight for the first time since late 2020.

GRAPHIC: pain in crypto land Pain in crypto land - https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/lbvggrkadvq/chart.png

However, a surge in the broader market after better than expected U.S. inflation data also buoyed cryptocurrencies. FTX's native token, FTT, was up nearly 140% at $3.61 in midday trading but down more than 80% for the week. Bitcoin was trading at $17,563, up more than 10.5%. Tron's Sun said in a tweet on Thursday "we are putting together a solution together with #FTX to initiate a pathway forward," without giving further details. Sun did not respond to a request for comment.

A message on the FTX website said it was no longer processing withdrawals or accepting new users. But Coindesk later cited analytics firm Nansen to report FTX had reopened withdrawals.

Bankman-Fried said FTX.US, the U.S. operations of the exchange, had not been financially impacted.

RAISING FUNDS

The seeds of FTX's downfall were sown months earlier, in mistakes made by Bankman-Fried after he stepped in to save other crypto firms, sources have said.

Sources told Reuters that FTX transferred at least $4 billion to Alameda, including some customer deposits, to prop up the trading firm after a series of losses.

Bankman-Fried told investors that Alameda owes FTX about $10 billion, the Wall Street Journal reported. FTX had lent more than half of its customer funds to Alameda, the newspaper said.

The U.S. securities regulator is investigating FTX.com's handling of customer funds and crypto-lending activities, according to a source with knowledge of the inquiry.

Reuters could not learn what specific activities were the focus of the probe.

Users rushed to withdraw $6 billion in crypto tokens from FTX within days, after a news report earlier this month raised questions about Alameda's balance sheet and Binance CEO Changpeng “CZ” Zhao tweeted that his firm would sell its entire share in FTT, which gives holders discounts on FTX trading fees. The outflow caused a liquidity crunch at FTX.

CONTAGION RISKS

Some investors were writing off funds ploughed into FTX. Sequoia wrote down a $150 million exposure to zero on Wednesday. Canada's Ontario Teachers Pension Plan, Tiger Global and Japan's Softbank (OTC:SFTBY) are also FTX investors.

One focus among investors is on the unknown size of customer losses and the hit to sentiment from the latest and possibly largest collapse in an industry that has turned into a minefield for investors.

Crypto asset manager Coinshares said it has $30.3 million total exposure to FTX.

Broker Robinhood (NASDAQ:HOOD) said it has no direct exposure to FTX, but Bankman-Fried holds a stake in the firm and its shares fell heavily on Tuesday and Wednesday.

"A top exchange failing - that's on a different level," said Danny Chong, CEO of decentralised finance firm Tranchess, with potentially wider ramifications than the failure of stablecoin TerraUSD and crypto hedge fund Three Arrows Capital this year.

Bankman-Fried, who is from California but lives in the Bahamas where FTX is based, said the company would take a "hard look" at governance. "I will not be around if I'm not wanted," he wrote in a tweet thread.

In his tweets and memo, he also repeatedly apologized. "I am sorry. That's the biggest thing," he tweeted.