FTX founder makes mea culpa in letter to former employees

Sam Bankman-Fried told former FTX employees that excessive borrowing by his own brokerage, Alameda Research, was responsible for FTX’s demise, insisting he was unaware of margin positions taken by brokers.

In a letter to former employees, FTX’s founder wrote: “…did not realize the full extent of the margin position, nor the magnitude of risk posed by a hypercorrelated breakout.”

FTX typically allowed customers to take out loans to increase their cryptocurrency stakes. But that practice allowed Alameda to take over extra-large positions, which Bankman-Fried claimed it did not monitor.

According to the letter, which was seen by the Financial Times, Alameda entered the crypto-crisis this spring, having borrowed $2 billion from FTX, backed by collateral for $60 billion, it alleged. But by the time Bankman-Fried’s crypto empire was collapsing, loans had ballooned to $8 billion and were backed by assets valued at just $9 billion.

“I deeply regret my failure to oversee. I lost track of the most important things in the turmoil of the company’s growth,” wrote Bankman-Fried.

The letter sent to employees at their companies is the most detailed account yet by Bankman-Fried of how FTX plummeted from one of the best-known names in digital assets to bankruptcy in less than two weeks.

Earlier on Tuesday, lawyers for FTX’s new managers criticized Bankman-Fried’s management of the cryptocurrency conglomerate, telling a U.S. bankruptcy court in Delaware that the former billionaire ran his company like a “personal feud” and that the group spent “substantial amounts” on non-business items such as vacation homes in the Bahamas. Past bankruptcy filings have pointed to “misuse of customer funds”.

Bankman-Fried said the slump in token prices and the credit “drought” in digital asset markets following the collapse of stablecoin Terra this spring had eroded Alameda’s collateral from around $60 billion to $25 billion.

The position deteriorated sharply in November, due to a “hypercorrelated crash…in a very short period of time”, an apparent allusion to the fall in the price of FTX’s own FTT crypto token earlier this month after CoinDesk , a news service covering digital currencies, revealed the central role it played in Alameda’s balance sheet. Rival exchange Binance responded to the news by announcing plans to sell its holdings of the coin.

The scale of the problem was magnified because Alameda held $8 billion in client funds belonging to FTX. Bankman-Fried claimed that Alameda held funds from FTX customers because it had received money from them before the exchange had its own bank account. Several FTX customers told the FT that they transferred money to Alameda which was later used on the exchange.

“As we frantically evaluated everything, it became clear that the position was higher than its display in admins/users, because of old deposits [em dinheiro] before FTX had bank accounts,” said Bankman-Fried.

Alameda’s assets included large venture capital investments and crypto tokens that could not be quickly turned into cash.

Bankman-Fried said he regrets putting the entire cryptocurrency group into Chapter 11 bankruptcy, “even entities that were solvent,” and apologized to customers and former employees.

“You were my family,” he wrote. “I lost it, and our old house is an empty warehouse of prefects. When I turn around, there’s no one else to talk to.”

Translated by Luiz Roberto M. Gonçalves