The embattled cryptocurrency executive Sam Bankman-Fried struggled on Thursday to find a lifeline for his collapsed exchange, FTX, with crypto markets still rattled and his company facing mounting legal and regulatory threats.
After a deal to sell FTX to its top rival, Binance, collapsed, Mr. Bankman-Fried told employees that he would spend the next week trying to raise money, though he acknowledged that new funding might not be possible. He said he was in talks with Justin Sun, a prominent crypto entrepreneur, about a plan to help FTX, even as some of his biggest financial backers said their nine-figure investments in his company were now essentially worthless.
And as he fought to keep his company alive, Mr. Bankman-Fried faced a growing array of legal and regulatory threats, including investigations by the Securities and Exchange Commission and U.S. prosecutors in New York. Lawmakers in Washington also raised questions about FTX’s behavior, as the regulators and law enforcement officials examined whether it had improperly used customer funds to prop up a trading firm that Mr. Bankman-Fried founded, Alameda Research.
“I don’t want to give any sense of confidence in what will happen, and don’t want to imply anything about the odds of success here,” Mr. Bankman-Fried said in a note to staff on Thursday explaining his fund-raising plans. “But, for the next week, this will be my top priority.”
FTX collapsed on Tuesday after a run on deposits that sent the crypto industry into a meltdown. Mr. Bankman-Fried struck a deal with Binance to sell FTX, which was recently valued at $32 billion. But the bigger firm pulled out, leaving FTX to search for other options.
In the note to employees, Mr. Bankman-Fried said FTX had “a lot theoretically in and/or potentially for the raise,” referring to the funding he was seeking, but acknowledged that those deals might not come together.
“The goal of the raise will be first to do right by customers; second by current and possible new investors,” he wrote in the memo to employees, which was obtained by The New York Times. “Third all of you guys.”
FTX’s downfall has set back years of efforts to pull the crypto industry into the mainstream of finance. Crypto companies were already reeling from a damaging crash in the spring, and the chaos at FTX has caused the prices of the popular virtual currencies Bitcoin and Ether to plunge even further.
It’s unclear who, if anyone, might be willing to put money into FTX after Binance backed out of its deal.
At least one investor has declined to provide help because of concerns about the relationship between FTX’s customer deposits and Alameda Research, according to a person with knowledge of the situation, who was not authorized to discuss it. Another person familiar with FTX’s finances said the exchange had lent as much as $10 billion in customer funds to Alameda. The figure was reported earlier by The Wall Street Journal.
The total amount of money that FTX still owes remains unclear, but it could be as much as $8 billion, according to three people familiar with the figures, who were not authorized to discuss them.
An FTX spokesman declined to comment. Mr. Bankman-Fried’s memo to staff was reported earlier by Reuters.
Until this week, Mr. Bankman-Fried was considered one of the most trusted and powerful figures in the crypto industry. He spent hundreds of millions of dollars in an effort to bail out other crypto companies and became a frequent presence in the halls of Congress, where he tried to shape crypto regulations.
That all changed last weekend when Changpeng Zhao, the Binance chief executive, expressed concerns about FTX’s financial stability in a series of viral Twitter posts. FTX faced a flood of withdrawal requests that it was unable to meet. On Tuesday, Binance announced that it had tentatively agreed to buy FTX, only to pull out of the deal a day later, citing regulatory concerns and issues with “corporate due diligence.”
Shortly before the deal fell through, Mr. Bankman-Fried held a call with FTX’s investors, appearing disheveled, apologizing repeatedly and using an expletive to emphasize how much he had messed up, said a person familiar with the call.
Mr. Bankman-Fried attributed some of FTX’s struggles to a negative public-relations campaign against the firm that he said had been going on for about a month. He also insisted that the Binance transaction would go through, the person said, and explained that FTX had some assets available — but that it would be unable to liquidate them quickly enough to meet the customer demand for withdrawals.
The swift collapse of FTX seemed to surprise a number of deep-pocketed institutional investors that pride themselves on doing due diligence on companies before committing money to them.
On Wednesday evening, Sequoia Capital, one of FTX’s largest backers, said it considered its $213 million investment worthless. In a letter to its own investors, the firm said FTX was at risk of bankruptcy, though it didn’t know “the full nature and extent” of the risk.
Paradigm, a crypto-focused investment fund, had put $278 million into FTX. In a letter to its investors viewed by The Times, the firm said its investment was likely to go to zero. FTX’s problems “will take many months to fully understand,” the firm wrote.
Dozens of other venture investors, including major firms like Lightspeed Venture Partners, BlackRock and Thoma Bravo, previously committed money to FTX, which was once considered one of the most promising and stable crypto exchanges.
In all, investors sank nearly $2 billion into FTX, according to PitchBook, including some $95 million from a venture capital fund affiliated with the Ontario Teachers’ Pension Plan. The pension said it expected any loss to cause “limited impact.”
Last week, FTX executives were seeking funding from investors in the Middle East, though it was unclear whether the effort was related to the problems that surfaced over the weekend, two people familiar with the matter said.
And in recent days, Mr. Bankman-Fried held talks with Mr. Sun, the creator of the cryptocurrency project Tron. On Thursday, FTX announced an agreement with Tron that would allow customers to withdraw a small set of cryptocurrencies, with the help of an injection of $13 million.
“We are putting together a solution together with FTX to initiate a pathway forward,” Mr. Sun said on Twitter on Wednesday night. He did not respond to a request for comment.
Mr. Bankman-Fried is also facing dissent from within the senior ranks of FTX. On Wednesday night, the general counsel for FTX’s U.S. arm wrote on an internal messaging system that he had “advised U.S. regulators of my instruction to founders to turn off functionality” of the websites for FTX and the U.S. arm, according to two people who saw the message and a screenshot that has circulated on Twitter.
“Sam has a different perspective than me on this,” wrote the lawyer, Ryne Miller. He added that “we should not be optimistic for an outcome that is positive.” The post was swiftly deleted.
In a sign that FTX’s collapse was rippling across the crypto industry, the crypto lending firm BlockFi — which had received bailout funding from FTX earlier this year — said on Thursday night that it was freezing operations. “Give the lack of clarity on the status of FTX.com, FTX US and Alameda, we are not able to operate business as usual,” the company said. A BlockFi spokeswoman did not immediately respond to a request for comment.
Scrutiny of Mr. Bankman-Fried is growing in Washington. For several months, the S.E.C. had been asking the company to voluntarily turn over information. Now it’s pursuing an investigation into FTX’s collapse, two people familiar with the matter said. The Commodity Futures Trading Commission is also looking into the crisis. And federal prosecutors in Manhattan have started an inquiry, a person briefed on it said.
The Justice Department has contacted at least one third party seeking information about FTX’s finances, according to a person familiar with the matter. One issue that the federal authorities are examining is whether FTX misused customer funds to prop up Alameda. The two companies are technically separate, but they have close financial ties: Both were founded by Mr. Bankman-Fried, and Alameda conducts trades on FTX’s platform.
“The recent collapse of FTX is a loud warning bell that cryptocurrencies can fail,” Senator Sherrod Brown, the Ohio Democrat who leads the Senate’s banking committee, said in a statement. “It is crucial that our financial watchdogs look into what led to FTX’s collapse so we can fully understand the misconduct and abuses that took place.”
The collapse of FTX has also shaken its employees, some of whom say they feel betrayed. Many received their salaries through deposits into their FTX accounts, meaning the implosion of the company could drain their savings, a person familiar with the matter said.
In the memo to employees, Mr. Bankman-Fried apologized for the chaos. “Ultimately it’s my responsibility to make sure the right things happen,” he said.
He said that two executives, Mr. Miller and Zach Dexter, were handling day-to-day operations at the firm’s U.S. arm, and that Constance Wang, the firm’s chief operating officer, was involved in the fund-raising efforts.
Mr. Bankman-Fried, in a somewhat unusual move, also took to Twitter on Thursday morning to post a mea culpa of sorts, in which he said, “I’m sorry” and “should have done better.” In a series of posts, he said he could not communicate more with customers and investors because his “hands were tied during the duration of the possible Binance deal.”
A lawyer for Mr. Bankman-Fried at the law firm Paul Weiss did not return a request for comment.
