The founder of the FTX cryptocurrency exchange, Sam Bankman-Fried (SBF)has apologized to the employees of the business and to his former colleagues explaining the reason for FTX’s collapse.
In an internal letter, SBF explained that a series of events led to the collapse of FTX. He explained that it started during the market crisis earlier this year, which was followed by the “exhaustion» of credit. The market crash reduced FTX’s $60 billion of collateral to about $25 billion.
Letter SBF sent today to FTX employees h/t @CoinDesk pic.twitter.com/YERO3yfKnI
—Liz Hoffman (@lizrhoffman) November 22, 2022
Meanwhile, FTX’s liabilities, which were about $2 billion before the market crash, skyrocketed to $8 billion. Another crash in November «caused another reduction of approximately 50% of the value of the guarantees in a very short period of time“, which shot up to nearly $17 billion at the time.
Bankman-Fried was Pressured to File Bankruptcy
In the letter, SBF noted,
“I never intended for this to happen. I did not realize the full extent of the margin position, nor the magnitude of the risk that a hyper-correlated failure posed.”
The former CEO of FTX claimed that poor margin management and risk controls at the cryptocurrency exchange ended up leading the company to file for bankruptcy protection. SBF said he felt “deeply sorry for what happened” and that was pressured to declare bankruptcy. Furthermore, he wrote that after Binance to walk away from the bailout deal citing regulatory investigations and reports of mishandled funds, FTX rushed to process the withdrawal requests. Bankman-Fried wrote,
“I froze at the pressure and the leaks and the [carta de intención de compra de FTX] from Binance and I didn’t say anything”
SBF also suggested that FTX could have returned a significant portion of the funds to clients if it had not filed for bankruptcy out of desperation. He added that FTX could have secured significant funding. Bankman-Fried said,
“The potential interest in billions of dollars of financing came about eight minutes after I signed the Chapter 11 documents. Among those funds, the billions of dollars of collateral the company still had and the interest we had received from other parties, I think we probably could have returned a lot of value to customers and saved the business.”
Misappropriation of Client Funds Not Addressed
However, the former FTX CEO did not address concerns about misappropriation of client funds or other issues, such as client funds being sent from FTX to Alameda, the hedge fund run by Bankman -Fried.
SBF concluded by hoping that there is still a chance to “save FTX”. added,
“I think there are billions of dollars of genuine interest from new investors that could go toward winning back customers. But I can’t promise that anything will happen, because it’s not my decision.
