FTX investors warned of likely bankruptcy without new funds

SAM Bankman-Fried told FTX.com investors on Wednesday (Nov 9) that without a cash injection the company would need to file for bankruptcy, according to a person with direct knowledge of the matter.

Before Binance pulled an about-face and bailed on its takeover offer, Bankman-Fried informed investors his crypto exchange faced a shortfall of up to US$8 billion, said the person, who requested anonymity discussing private talks. FTX is attempting to raise rescue financing in the form of debt, equity, or a combination of the two, the person said.

An FTX representative declined to comment.

Bankman-Fried’s acknowledgement of his firm’s deep financial hole and limited options reflects the uncertain fate of FTX and its clients. It’s the latest twist in a stunning turn of events for the crypto industry’s onetime wunderkind, who was once worth US$26 billion and likened to John Pierpont Morgan.

Still, Bankman-Fried remained defiant during a hectic period of roughly 24 hours that included mounting speculation that Binance wouldn’t go through with the deal.

He repeatedly told investors during a conference call on Wednesday afternoon that it was simply not true that Changpeng Zhao was walking away from the takeover, the person said.

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About an hour later, Binance said it was indeed backing out.

“Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance, the crypto exchange founded by Zhao, said in a statement.

In addition to its financial strains, FTX is drawing attention from US regulators. The Securities and Exchange Commission and the Commodity Futures Trading Commission are investigating whether the firm properly handled customer funds, as well as its relationship with other parts of Bankman-Fried’s crypto empire, including his trading house Alameda Research, Bloomberg News reported Wednesday.

Zhao said in a memo earlier on Wednesday that there was no “master plan” to take over FTX, and that “user confidence is severely shaken”.

The renewed concern about contagion risk is showing up in the plunging prices of digital assets. Bitcoin fell below US$16,000, the lowest in two years, after Binance’s announcement.

Coinbase chief executive officer Brian Armstrong said on Tuesday in a Bloomberg TV interview that if the deal with Binance fell through, it would likely mean FTX customers would take losses.

“That’s a not a good thing for anybody,” he said. BLOOMBERG