Documents show financial hole in FTX crypto empire

Sam Bankman-Fried’s main international FTX exchange held just $US900 million ($1.3 billion) in easily sellable assets against $US9 billion of liabilities the day before it collapsed into bankruptcy, according to investment materials seen by the Financial Times.

The largest portion of those liquid assets listed on an FTX international balance sheet, dated Thursday (Friday AEDT), was $US470 million of Robinhood shares owned by a Bankman-Fried vehicle not listed in the following day’s bankruptcy filing, which included 134 corporate entities.

The document, shared with prospective investors before the bankruptcy, provides a detailed picture of the financial hole in the FTX crypto empire and suggests customers of FTX international may face steep losses on cash and crypto assets they held on the exchange.

FTX’s collapse has delivered a powerful blow to a crypto industry already reeling from a string of corporate failures this year.

Mr Bankman-Fried had been a leading figure in the sector and had presented himself as an entrepreneur keen to bring the Wild West crypto market in line with mainstream regulation.

The 30-year-old had secured backing from blue chip investors, became a major donor to the US Democratic Party, and plastered his FTX exchange’s logo on the Miami Heat arena during his meteoric rise following the founding of his trading venue in 2019.

Mr Bankman-Fried on Friday put his $US32 billion international exchange, along with FTX US and his trading firm Alameda Research, into bankruptcy proceedings in Federal Court in Delaware.

John J. Ray, the veteran insolvency practitioner brought in to run the bankruptcy as FTX chief executive, said on Friday that the cryptocurrency group “has valuable assets” and that the bankruptcy proceedings would allow the company to “assess the situation and ... maximise recoveries for stakeholders”.

The process had already run into issues after barely 24 hours, incorrectly listing entities FTX did not own in its initial filing and suffering an apparent hack on Friday night.

FTX declined to comment.

Friday’s bankruptcy filing provided few details on the group’s financial health, but said both assets and liabilities ranged between $US10 billion and $US50 billion, and that the number of creditors exceeded 100,000.

A spreadsheet listing FTX international’s assets and liabilities, seen by the Financial Times, points to the issues that brought Mr Bankman-Fried crashing back to earth.

It references $US5 billion of withdrawals last Sunday, and a negative $US8 billion entry described as “hidden, poorly internally labelled ‘fiat@’ account”.

‘Accidentally’ extended

Mr Bankman-Fried told the Financial Times the $US8 billion related to funds “accidentally” extended to his trading firm, Alameda, but declined to comment further.

Earlier last week, he tweeted that FTX international had $US4 billion in easily tradeable assets when it faced last Sunday’s $US5 billion surge of withdrawals.

“There were many things I wish I could do differently than I did, but the largest are represented by these two things: the poorly labelled internal bank-related account, and the size of customer withdrawals during a run on the bank,” the spreadsheet adds.

In the investment materials, FTX Trading Ltd, the company behind the main international exchange, is recorded as having liabilities of $US8.9 billion, the biggest portion of which is $US5.1 billion of US dollar balances.

Healthy companies typically have assets that match or exceed their liabilities. The spreadsheet says FTX Trading had a total of $US9.6 billion of assets, but it is unclear how much of that value could be realised.

The vast majority of FTX Trading’s recorded assets are either illiquid venture capital investments or crypto tokens that are not widely traded, according to the spreadsheet, which cautions that the figures “are rough values, and could be slightly off ... They also change a bit over time as trades happen”.

The company’s biggest asset as of Thursday was $US2.2 billion of a cryptocurrency called Serum. Serum’s total market value was $US88 million on Saturday, according to data provider CryptoCompare, suggesting FTX’s holdings would be worth far less if sold into the market. CryptoCompare’s figures take into account the coin’s liquidity.

On Friday, the Financial Times reported that Alameda and FTX between them had some $US5.4 billion of illiquid venture capital investments, according to other documents provided to investors earlier in the week.

Emergency funding

Mr Bankman-Fried had been racing to raise emergency funding but was unable to persuade investors to rescue his collapsed business empire.

The new investment materials show that he was seeking to raise between $US6 billion and $US10 billion, including from a convertible preferred stock paying a 10 per cent dividend that could later be converted into common equity in FTX international at a valuation of between $US12 billion and $US15 billion.

“This is just a lower bound on the terms investors can get,” the materials add.

Until Friday afternoon, Mr Bankman-Fried was looking to sell the $US472 million of Robinhood shares – the largest liquid asset listed for FTX Trading – in privately negotiated deals he was arranging on the messaging app Signal, according to a person directly involved in the negotiations.

The person noted that the Robinhood shares were held by an Antigua and Barbuda entity called Emergent Fidelity, which is personally controlled by Mr Bankman-Fried, according to US securities filings. Emergent Fidelity is not among the entities listed in Friday’s bankruptcy filing.

Mr Bankman-Fried was entertaining offers at a discount of about 20 per cent to Robinhood’s volume-weighted average price, or about $US9 per share, said the investor, who ultimately declined to buy due to perceived legal risks.

Mr Bankman-Fried acquired a 7.6 per cent stake in Robinhood in May and had intimated he was considering a full acquisition of the trading app.

The second-biggest liquid asset was $US200 million of cash held with Ledger Prime, a crypto investment firm owned by Alameda. The documents record no other US dollar balances held by FTX Trading.

Sam Bankman-Fried’s apology deserves as much value as the FTT token that once propped up his empire.

In all, the spreadsheet says FTX Trading’s assets were $US900 million of “liquid” assets, $US5.5 billion of “less liquid” assets consisting of crypto tokens, and $US3.2 billion of illiquid private equity investments.

There is also an obscure $US7 million holding called “TRUMPLOSE”. There are no bitcoin assets listed, despite bitcoin liabilities of $US1.4 billion.

Other documents provided to investors say that FTX US, Mr Bankman-Fried’s onshore exchange, held $US115 million of cash. Of that sum, $US48 million was listed as corresponding to customer US dollar balances of $US60 million.