Sam Bankman-Fried seemed to admit in his latest interview that the failed FTX crypto exchange mixed funds that were supposed to be held in segregated customer accounts with other company business, making it difficult for investors who thought they had simple positions to get their money out as digital-asset prices plunged early last month.
When asked why customers could not retrieve their holdings as a crisis in digital assets blossomed, despite terms of service that stated the investments were not allowed to be used by FTX, the former CEO said that the exchange would have been able to make those investors whole if it could have settled its other positions. But that raised the question of why the funds were tied up with margin and futures positions in other kinds of accounts.
Speaking Thursday evening New York time in a Twitter conversation with crypto personalities Mario Nawfal, Simon Dixon and Chet Long that garnered nearly 40,000 listeners, Bankman-Fried said: “So that was one piece of the terms of service. But there are many pieces of the terms of service concerning other parts of the exchanges.”
“Parts of the terms of service are overridden by other parts of the terms of service,” he added.
Posting on Twitter as the interview progressed, the former Kraken exchange CEO Jesse Powell exclaimed “He’s saying that the whole exchange operated on a net account equity model and anybody could borrow anything (in any amount?) from client funds or from nowhere. That’s not how it should work.”
Bankman-Fried had previously told the New York Times
NYT
Want to read more? Subscribe to Forbes’ CryptoAsset and Blockchain advisor.
On Thursday, Bankman-Fried went on to shed some light on the relationship between FTX and Alameda. When he couldn’t get a bank account opened for FTX in the early days of the exchange, over-the-counter investors would wire the money to Alameda and be credited on FTX after a ledger transfer. Though Bankman-Fried said that process was “phased out,” he admitted some of the funds never made it to FTX.
“When you pulled up in a dashboard what the accounts looked like it wouldn’t display the transfers and balances related to those transfers.”
He also blamed the fall in value of FTX collateral, which “decreased by billions of dollars” in a period of two days in its last week before the filing for bankruptcy protection, he said.
Starting on November 6, the value of collateral for open positions in the exchange drastically declined, he said. The founder of the crippled company did not specify the composition of that collateral, but if a report by Reuters last month is correct, Bankman-Fried had lent his trading company, Alameda, billions of dollars in FTX customer funds.
Those loans seem to have been collateralized by FTX tokens (FTT), a cryptocurrency that plunged that week as doubts about the exchange’s solvency permeated the digital-assets markets. FTT lost 77% of its value from November 4 to November 8 and most of the major crypto coins and tokens slid that week. Investors who sought to withdraw their funds from FTX reported the company was slow to allow them access to their holdings, which led to the equivalent of a bank run on an exchange whose loan assets could be perceived as having been backed by diminishing collateral.
Bankman-Fried maintained that some of his subsidiaries, like FTX US, are still able to meet customer withdrawals and that he was pressured to put them all into bankruptcy by people who he no longer believes “hold the best interest of the customers.”
His own financial situation is precarious, he said, refusing to explain how he was paying his lawyers. The former billionaire suggested his costs may be covered by directors and officers insurance.
The conversation was interrupted by technology failures, with Bankman-Fried’s connection cutting off several times. Meanwhile, the interviewers jostled among themselves to pose questions. At one point, Bankman-Fried appeared to be on the verge of divulging how much he owned of Alameda when one of the panel members interrupted him and changed the subject.
Earlier in the day, Bankman-Fried admitted to poor risk oversight in a morning interview with the ABC network’s Good Morning America television show. “I wasn’t spending any time or effort trying to manage risk on FTX,” he told correspondent George Stephanopoulos.
“If I had been spending an hour a day thinking about risk management on FTX, I don’t think that would have happened.”