FTX's Bankman-Fried scrambles for funds after Binance deal collapse

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By Angus Berwick, Georgina Lee and Tom Westbrook

HONG KONG/SINGAPORE/NEW YORK (Reuters) -FTX Chief Executive Sam Bankman-Fried on Thursday launched an urgent push to raise funds to save his firm as the crypto exchange looks to plug a reported $8 billion hole in its finances, according to tweets and a memo to employees.

Bankman-Fried said he was in talks with "a number of players" in the crypto sector, including Justin Sun who is the founder of crypto token Tron, 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."

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

The scramble marks a stunning downfall for the 30-year-old crypto executive, who 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.

However, a surge in the broader market after better than expected U.S. inflation data also buoyed cryptocurrencies in late morning trading. FTX's native token, FTT, is down more than 90% this week and was attempting to steady around $3.50. Bitcoin was trading at $17,428, up 11%. Sun, founder of cryptocurrency network Tron, 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.

An FTX spokesperson declined to provide additional details on the talks.

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.

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 FTX's token, FTT. The outflow caused a liquidity crunch at FTX.

In the memo, viewed by Reuters, Bankman-Fried said for the next week he would be "conducting a raise" to do right by customers and "possible new investors."

Another exchange, OKX, said 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.

Bloomberg reported that Bankman-Fried had told investors that FTX faced a shortfall of up to $8 billion and that the company would need to file for bankruptcy unless it received further funding.

CONTAGION RISKS

Some investors were writing off funds ploughed into FTX. Venture capital fund Sequoia Capital 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.

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.

A message on the FTX website said it was no longer processing withdrawals or accepting new users. Bankman-Fried said FTX.US, the U.S. operations of the exchange, however, had not been financially impacted.

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.