Sam Bankman-Fried tries to get FTX help from his home in the Bahamas

Sam Bankman-Fried, CEO and founder of FTX, walks near the U.S. Capitol on September 15, 2022 in Washington, DC.

Graeme Sloan | Sipa via AP Images

NASSAU, Bahamas – Despite being fired from the cryptocurrency giant he founded, Sam Bankman-Fried told CNBC he is trying to close a multibillion-dollar deal to escape FTX, which filed for Chapter 11 bankruptcy protection earlier this month.

In a brief interview with CNBC late Friday, the FTX founder declined to elaborate on the crypto conglomerate’s downfall or what he knows other than the liabilities, which are “billions of dollars bigger than I thought.” Bankman-Fried declined to do an on-camera interview or discuss the recording more broadly. He said he was focused on getting client funds and was still looking to close the deal.

Bankman-Fried told CNBC: “I think we should try to create as much value as possible for users. I hate what’s happening and I really wish I was more careful.”

Bankman-Fried also claimed there are “billions” of client assets in jurisdictions with “segregated balances,” including the U.S., and said “there are billions of dollars of potential funding opportunities out there” to make clients whole. .

The once $32 billion global empire has imploded in recent weeks. Rival Binance has signed a letter of intent to acquire FTX’s international business as it faces a liquidity crunch. But his team decided the exchange couldn’t save, with one Binance executive describing the balance sheet as if a “bomb went off.” FTX filed for Chapter 11 bankruptcy protection on Nov. 11 and appointed John Ray III, whose corporate experience includes restructuring Enron after its historic collapse, as its new CEO.

Despite losing her corporate email and access to all company systems, Bankman-Fried maintains she can play a role in the next steps. The 30-year-old has been making calls in recent weeks to try and secure funding, venture capital investors told CNBC. However, investors said they could not envision any firm with a large enough balance sheet or risk appetite to rescue the beleaguered FTX.

The lengthy, Bankman-Fried-brokered deal will be viewed like any competing bailout offer, legal experts said.

“He’s no different than any third-party bidder at this point, other than the fact that he’s the majority shareholder of FTX,” said Adam Levitin, a law professor at Georgetown University and director of Gordian Crypto Advisors. “He can come to Delaware with an unsolicited offer and say, ‘I want to buy out all the creditors for one price.’ But it has to be approved by the bankruptcy court — he can’t force a deal.”

The new CEO of FTX also said that he is open to the rescue package. On Saturday, Ray said he wants to sell or rebuild his crypto company’s global empire.

“Based on our research over the past week, we are pleased to learn that many of FTX’s regulated or licensed subsidiaries in the United States and abroad have solvent balance sheets, responsible management and valuable franchises,” said FTX CEO Ray. A statement added that it was a “priority” to “explore a sale, recapitalization or other strategic transaction” in the coming weeks.

After reviewing FTX’s finances last week, Ray said he had never seen “such a failure of corporate control and such a complete absence of reliable financial information” in his 40-year career. He added that Bankman-Fried and senior executives were “a very small group of inexperienced, underdeveloped and potentially compromised individuals,” calling the situation “unprecedented.”

Battle in the Bahamas

Part of Bankman-Fried’s ability to contract may hinge on which jurisdiction has more say in the bankruptcy process.

FTX’s new CEO, Ray, cited a conversation he had with a Vox reporter last week, suggesting that customers would be better off if “we” could win Bankman-Fried’s jurisdictional battle against Delaware. He also told Vox he “regretted” filing for Chapter 11 bankruptcy, which would take any restructuring of FTX out of his control, adding “fk regulators.”

Billions in FTX client assets are now in limbo between bankruptcy court in Delaware and liquidation in the Bahamas.

John Ray placed FTX and more than 100 subsidiaries into Chapter 11 bankruptcy protection in Delaware, but that did not include Bahamas-based FTX Digital Markets. The Nassau-based leg of FTX does not own or control any other entities, according to the organizational chart presented by Ray.

The Bahamas Securities Commission has hired its own liquidators to oversee asset recovery and is supporting a Chapter 15 proceeding in New York that allows foreign representatives to be recognized in U.S. proceedings. As part of that process, Bahamas regulators said they moved customers’ cryptocurrency to another account to “protect” creditors and customers. He also argued that the US Chapter 11 bankruptcy process does not apply to them.

The Bahamas action flies in the face of what is happening in Delaware.

The FTX estate claimed these withdrawals were “unauthorized” and accused the Bahamas government of working with Bankman-Fried in the transfer. FTX’s new management team challenged the Bahamian liquidators and asked a US court to intervene in enforcing the automatic stay — a standard feature of Chapter 11 proceedings. Typically, bankruptcy is designed to fence off assets to make sure they can’t be touched without court approval.

The FTX team claimed that the Bahamian group did not have the right to transfer funds and called their withdrawals from the Bahamas “unauthorized”. Data firm Elliptic estimated the value of the transfer, which was initially thought to be a hack, to be around $477 million.

“There are some issues that require either coordination or struggle to determine — there will be some jockeying when it comes to assets in the Bahamas and the United States,” said Loeb & Loeb partner Daniel Besikoff. “The Bahamas reads their mandate more broadly, while the US reads it more technically.”

The bankruptcy confusion is partly the result of sloppy accounting by the FTX. Under Bankman-Fried’s leadership, John Ray said the company “did not maintain centralized control of funds” – “did not have an accurate list of bank accounts and signatories” and “did not pay enough attention to the creditworthiness of its bank partners.”

Part of the Bahamas’ motivation for control may be due to economic interests. FTX hosted a high-level financial conference with SALT in Nassau and planned to invest $60 million in its new headquarters, which one senior executive likened to a Google or Apple campus in Silicon Valley.

“Some of it is about protecting local creditors — it’s a Bahamian company. There’s going to be a lot of money for local Bahamian law firms as well, you have the whole trickle-down effect,” Georgetown’s Levitin said. “There will be some level of competition between the Delaware bankruptcy court and the Bahamas regulator.”

The future of Bankman-Fried

Some experts say Bankman-Fried is set to receive bail money to reduce his criminal liability and possible prison time. Bankman-Fried did not respond to a request for comment on the potential charges.

Justin Danilewitz, a partner at Saul Ewing who focuses on white-collar crime, said that while the likelihood of anyone flocking to make FTX whole is “highly unlikely given the staggering losses,” reducing client losses could be a tactic to look better in the eyes. . of the court.

“If the defendant is in real trouble and the evidence is compelling, it’s often recommended — it’s a good idea to try to make amends as soon as possible,” Danilewitz said.

Some have compared the outcome to what happened at MF Global, which was previously run by former New Jersey Governor John Corzi. The company was accused of using customers’ money to pay the firm’s bills. But Corzine settled with the CFTC for $5 million without admitting or denying wrongdoing.

That approach can backfire, says Danilewitz. This action “may reflect a degree of guilt or be seen as an acknowledgment and responsibility for what happened.”

Even if Bankman-Fried manages to play a role in recovering the funds through a bailout or somehow gains more control through the Bahamas liquidation process, it could face years of legal battles ranging from possible wire fraud to civil litigation.

Wire fraud requires proving that the defendant engaged in a fraudulent scheme and used interstate wires to accomplish it. The statutory maximum term is imprisonment for a maximum term of 20 years in addition to fines. Danilewitz called it “a favorite tool in the federal prosecutor’s toolbox.” According to him, the main question will be about the intention of the defendant. “Was this all a big accident, or was there intentional wrongdoing that could lead to federal criminal liability?”

Others have compared Bankman-Fried’s legal situation to Bernie Madoff and Elizabeth Holmes, the latter of whom was sentenced to 11 years in prison on Friday for fraud after defrauding investors about the supposed efficacy of her company’s blood-testing technology.

“The Theranos verdict shouldn’t have made him feel good,” Georgetown’s Levitin said. “He has a real risk here. There’s criminal liability, there’s civil liability.”

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