FTX seeks $9.4 billion in bailout funds from investors and rivals

Nov 10 (Reuters) – FTX is scrambling to raise about $9.4 billion from investors and competitors, a source said on Thursday, as chief executive Sam Bankman-Fried urgently seeks to save the cryptocurrency exchange that has been rocked by a rush of customer withdrawals.

Over the past few hours, Bankman-Fried has discussed raising $1 billion each from Justin Sun, the founder of crypto token Tron, rival exchange OKX and stablecoin platform Tether, according to the source who has direct knowledge of the matter.

He is seeking the rest from other funds, including current investors in FTX such as venture capital fund Sequoia Capital, the source added.

It was unclear, however, whether Bankman-Fried would be able to raise the funds it needed and those investors would participate.

Tether’s chief technology officer, Paolo Ardoino, tweeted that he had “no intention of investing or loaning assets to FTX”.

One of the 30-40 investors in FTX’s data room is Daniel Loeb’s third point, but according to a source familiar with the matter, the hedge fund is not considering giving FTX more money.

FTX and Sequoia did not immediately respond to requests for comment on the latest from the talks. OKX was also not immediately available to comment on the latest news from the talks. Earlier on Thursday, however, OKX told Reuters it had been approached this week by Bankman-Fried, who described $7 billion in liabilities that needed to be covered quickly.

“It was too much for us,” Lennix Lai, head of capital markets at OKX, told Reuters.

In a tweet, FTX said it had reached an agreement with Tron to establish a special facility that would allow customers to exchange certain crypto assets from FTX to external wallets. He said that initially $13 million in assets will be deployed to facilitate exchanges.

Earlier today, Bankman-Fried said in tweets and a note to employees seen by Reuters that he was in talks with “a number of players” in the crypto industry, including Sun, after a potential bailout deal with bigger rival Binance has collapsed. .

But he added that he wanted “nothing to say about the chances of success”.

Bankman-Fried also said his trading company Alameda Research, which sources say was partly to blame for FTX’s troubles, is shutting down operations.

FTX’s predicament marks a stunning downfall for the 30-year-old crypto executive who was once worth nearly $17 billion, but within days he went from being an industry savior to one in need of help. ‘to be saved.

Problems at FTX, one of the world’s largest crypto exchanges, sparked a wider crisis of confidence in cryptocurrencies, with bitcoin falling below $16,000 overnight for the first time since late 2020.

Reuters Charts Reuters Charts

However, an increase in the broader market after better-than-expected US inflation data also supported cryptocurrencies. FTX’s native token, FTT, was up nearly 140% at $3.61 as of midday, but was down more than 80% for the week. Bitcoin was trading at $17,563, up over 10.5%.

Trading volumes in bitcoin futures and exchange-traded funds soared amid the turmoil.

Bankman-Fried said FTX.US, the exchange’s US operations, were not financially affected.

RAISE FUNDS

The seeds for FTX’s downfall were sown months earlier, in mistakes made by Bankman-Fried after it intervened to rescue other crypto firms, sources said.

The sources told Reuters that FTX transferred at least $4 billion to Alameda, including some customer deposits, to prop up the trading company after a series of losses.

Bankman-Fried told investors Alameda owed about $10 billion to FTX, The Wall Street Journal reported. FTX had lent more than half of its clients’ funds to Alameda, the newspaper said.

The US securities regulator is investigating FTX.com’s handling of client funds and crypto lending activities, according to a source with knowledge of the investigation.

Reuters could not find out which specific activities were the focus of the investigation.

Users rushed to withdraw $6 billion worth of crypto tokens from FTX in days, after a news report earlier this month raised questions about Alameda’s balance sheet and Binance CEO Changpeng “CZ” Zhao tweeted that his company would sell its entire stake in FTT, which gives holders discounts on FTX trading fees. The outflow caused a liquidity crisis at FTX.

RISKS OF CONTAGION

Some investors were canceling funds invested in FTX. Sequoia rated $150 million exposure at zero on Wednesday. The Ontario Teachers’ Pension Plan of Canada, Tiger Global and Japan’s Softbank are also investors in FTX.

Investors are particularly focused on the unknown scale of customer losses and the impact on sentiment of the latest and perhaps the greatest collapse in an industry that has turned into a minefield for investors.

Crypto asset manager Coinshares said it has $30.3 million in total exposure to FTX.

Robinhood Broker (HOOD.O) said it had no direct exposure to FTX, but Bankman-Fried owns a stake in the company and its shares fell sharply on Tuesday and Wednesday.

Bankman-Fried, a California native but living in the Bahamas where FTX is based, said the company would look closely at governance and that he “wouldn’t be here if I’m not wanted.”

He also apologized several times. “I’m sorry. This is the most important thing,” he tweeted.

Reporting by Angus Berwick and Anirban Sen in New York, Georgina Lee in Hong Kong, Tom Westbrook in Singapore, Elizabeth Howcroft in London and Hannah Lang in Washington Writing by Paritosh Bansal Editing by Megan Davies, Anna Driver and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

Robert D. Coleman