Sam Bankman-Fried attempts to broker an FTX rescue operation from his home in the Bahamas

Sam Bankman-Fried attempts to broker FTX rescue packages

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

In a brief interview with CNBC late Friday, the FTX founder declined to provide details about his crypto conglomerate’s demise or what he knew about liabilities that were “billions of dollars larger than I thought.” Bankman-Fried declined an on-camera interview or wider discussion of the taping. He said he is focused on retrieving client funds and is still looking for a deal.

“I think we should try to offer users as much value as possible. I hate what happened and I really wish I had been more careful,” Bankman-Fried told CNBC.

Bankman-Fried also claimed that there are “billions” of dollars in client assets in jurisdictions “where there have been segregated assets,” including the U.S., and said “there are billions of dollars in potential funding opportunities” to keep clients sane make .

What was once a $32 trillion global empire has imploded in recent weeks. Rival Binance had signed a letter of intent to buy FTX’s international business as it faced a liquidity crisis. But his team decided the exchange was beyond salvage, and a Binance executive described the balance sheet as if “a bomb went off.” On November 10, FTX filed for Chapter 11 bankruptcy protection and appointed John Ray III as the new CEO, whose corporate experience includes restructuring Enron following its historic collapse.

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

Graeme Sloan | SIPA over AP images

Despite losing access to his company email and all company systems, Bankman-Fried claims he can play a role in the next steps. Venture capital investors have told CNBC that the 30-year-old has been calling for the past few weeks to try and secure funding. Still, investors said they couldn’t think of a company with a large enough balance sheet or appetite for risk to bail out the ailing FTX.

According to legal experts, a long-term deal brokered by Bankman-Fried would be considered the same as any competing bailout offer.

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

FTX’s new CEO has also said he’s open to a bailout. On Saturday, Ray said the crypto company was looking to sell or restructure its global empire.

“Based on our review over the past week, we are pleased to learn that many of FTX’s regulated or licensed subsidiaries inside and outside the United States have strong balance sheets, responsible management and valuable franchises,” FTX CEO Ray said in a statement adding that “a priority” in the coming weeks is “to explore sales, recapitalizations or other strategic transactions.”

After reviewing the state of FTX’s finances last week, Ray said he had never seen “such a complete failure of corporate controls and such a complete lack of trustworthy financial information” in his 40-year career. He added that Bankman-Fried and the top executives are “a very small group of inexperienced, inexperienced and potentially vulnerable individuals” and described the situation as “unprecedented.”

Battle of the Bahamas

Part of Bankman-Fried’s ability to sign a deal may depend on which jurisdiction has more say in the bankruptcy proceedings.

In a recently filed filing, Ray cited a conversation last week with a Vox reporter in which Bankman-Fried suggested that customers would be in a better position if “we” could “win a jurisdiction dispute against Delaware.” He also told Vox that he “regrets” having filed for Chapter 11 bankruptcy, which removed any FTX restructuring from his control, adding, “f—regulators.”

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

Ray placed FTX and more than 100 Delaware subsidiaries under Chapter 11 bankruptcy protection — but that didn’t include Bahamas-based FTX Digital Markets. According to the organizational chart submitted by Ray, the Nassau-based arm of FTX does not own or control any other companies.

The Securities Commission of the Bahamas has hired its own bankruptcy trustees to oversee asset recovery and is sponsoring a Chapter 15 process in New York that gives recognition to foreign representatives in US proceedings. As part of that process, Bahamian regulators said they were transferring customers’ cryptocurrency to another account to “protect” creditors and customers. It also said that the US Chapter 11 bankruptcy procedure does not apply to them.

The move of the Bahamas contradicts what happened in Delaware.

The FTX estate said these withdrawals were “unauthorized” and accused the Bahamas government of colluding with Bankman-Fried on this transfer. FTX’s new leadership team has challenged the Bahamian liquidators, asking the U.S. court to step in while enforcing an automatic stay – a standard feature of Chapter 11 proceedings judicial approval cannot be challenged.

The team at FTX said the Bahamian group had no right to move funds and called the withdrawals from the Bahamas “unauthorized”. The data company Elliptic estimated the value of the transfer, which was originally believed to be a hack, at around 477 million US dollars.

“There are some issues that will require either coordination or fighting to solve — there will be some scrambling when it comes to assets between the Bahamas and the US,” said Daniel Besikof, partner at Loeb & Loeb. “The people of the Bahamas interpret their mandate more broadly and the US more technically.”

The bankruptcy mess is in part the result of messy accounting on the part of FTX. Under Bankman-Fried’s leadership, Ray said the company had “no centralized control over its cash” — “there was no accurate list of bank accounts and signers” — and “insufficient attention to the creditworthiness of banking partners.”

Part of the Bahamas’ motivation for control may be due to economic interests. FTX hosted a high-profile financial conference with SALT in Nassau and planned to invest $60 million in a new headquarters that one top exec likened to Google’s or Apple’s Silicon Valley campus.

“Some are about protecting domestic creditors – this is a company in the Bahamas. There’s also a lot of money to be made for local law firms in the Bahamas, you have all the trickle-down effect,” Georgetown’s Levitin said. “There will be some deadlock between the Delaware bankruptcy court and the Bahamas regulator.”

Bankman-Fried’s future

Some experts say Bankman-Fried may be seeking a bailout to reduce his own criminal liability and possible prison sentence. Bankman-Fried did not respond to a request for comment on possible charges.

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

“This is often very advisable when a defendant is in a real crisis and the evidence is compelling – it’s a good idea to try to make amends as soon as possible,” Danilewitz said.

Some have compared this result to what happened at MF Global, formerly run by the former New Jersey governor. Jon Corzine. The company has been accused of using customer funds to pay bills for the company. But Corzine has settled $5 million with the CFTC without admitting or denying wrongdoing.

The approach could backfire, Danilewitz said. This move could “reflect a degree of guilt or be seen as an admission, and someone is taking responsibility for what happened.”

Even if Bankman-Fried does manage to play a role in recovering funds through a bailout or somehow gains more control through a Bahamas liquidation process, he could face years of litigation, from possible wire fraud to civil suits.

Wire fraud requires proof that an accused participated in a fraud scheme and used interstate wire transfers to accomplish it. The maximum legal penalty is 20 years imprisonment plus fines. Danilewitz called it a “favorite tool in the federal prosecutor’s toolbox”. The key question, he said, will have to do with the defendant’s intent. “Was this all a major accident or was there willful misconduct that could result in federal criminal liability?”

Others have compared Bankman-Fried’s legal position to Bernie Madoff and Elizabeth Holmes, who on Friday was sentenced to 11 years in prison for fraud after misleading investors about the alleged effectiveness of their company’s blood testing technology.

“The Theranos verdict shouldn’t have left him feeling good,” Georgetown’s Levitin said. “He has a real risk here. There is a possibility of criminal liability and civil liability.”

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