Copy of 2023-01-03T202521Z_1007909930_RC28JY9RC4AB_RTRMADP_3_FINTECH-CRYPTO-FTX-PLEA-1673535832186
Bankman-Fried again complained that he’s lost access to much of his data following the bankruptcy of the sprawling FTX group. Image Credit: REUTERS

California: Sam Bankman-Fried offered one of his most detailed descriptions yet of the FTX debacle as he prepares to fight fraud charges, blaming crashing markets and an attack from a rival for the eventual bankruptcy of his exchange.

“I didn’t steal funds, and I certainly didn’t stash billions away,” the former crypto magnate wrote in a blog post Thursday. “I’ve been, regrettably, slow to respond to public misperceptions and material misstatements.”

The latest version of events, drawing on Bankman-Fried’s memory of balance sheets at FTX and sister trading house Alameda Research, doesn’t go into accounting issues that he had earlier cited as among the reasons for the wipeout of his empire in November. He also doesn’t address allegations that he allowed Alameda to siphon customer funds from FTX for high-risk trading.

Biggest scams in US history

Bankman-Fried, 30, is on bail and wearing an electronic monitoring bracelet while living at his parents’ home in California. He faces trial in October after pleading not guilty to fraud and campaign-finance law charges. Bankman-Fried has previously mentioned many of the points in his latest account.

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Prosecutors allege he’s behind one of the biggest scams in US history after fraudulently raising $1.8 billion from investors under the guise of FTX having appropriate controls and risk management. He’s also accused of misusing customer funds at FTX to cover personal expenses, real-estate purchases and trading at the now-collapsed Alameda.

Bankman-Fried again complained that he’s lost access to much of his data following the bankruptcy of the sprawling FTX group. He said that he hadn’t run Alameda over the past few years.

He argued Alameda was strongly capitalized entering 2022, but that it wasn’t adequately hedged for the extent of the rout in digital assets that unfolded. It ultimately was tipped over when a rival’s “targeted attack” set off a run, eventually toppling FTX, he said.

By Bankman-Fried’s calculations, Alameda had $100 billion of net asset value in 2021. But he said it wasn’t hedged enough against the “risk of an extreme market crash” ahead of the deep rout that unfolded in digital assets in 2022.

‘Fateful tweet’

On November 6 Changpeng ‘CZ’ Zhao, the CEO of Binance Holdings Ltd., the largest crypto exchange, tweeted about selling a large chunk of FTX’s native token FTT. That exacerbated worries about Bankman-Fried’s business and FTX quickly unraveled.

“Then came CZ’s fateful tweet, following an extremely effective months-long PR campaign against FTX “and the crash,” Bankman-Fried wrote in the blog.

He added that “Alameda became illiquid, FTX International did as well, because Alameda had a margin position open on FTX; and the run on the bank turned that illiquidity into insolvency.”

Zhao has previously said that he didn’t realize the tweet “would cause so much change.”

‘Misleading’ statements

Alameda’s former CEO Caroline Ellison has pleaded guilty to fraud charges and is cooperating with prosecutors. In her plea hearing last month, Ellison said she and Bankman-Fried knowingly misled lenders about how much Alameda was borrowing from the crypto exchange. She said the two of them also crafted false financial statements.

In the blog post, Bankman-Fried reiterated claims that FTX’s US operation was solvent and that, with time, he could have made customers of the international division “substantially whole” after getting interest from investors.

Restructuring expert John J. Ray III stepped in as CEO of FTX when the company slid into bankruptcy. He’s painted a picture of FTX as a mismanaged, largely out-of-control company bathed in conflicts and lacking basic accounting practices, calling it the worst failure of corporate controls he’d ever seen.