Babel Finance loses over $280 million trading client funds

The crypto-financial services provider Babel Finance recorded losses exceeding $280 million as a result of ill-advised trading decisions with client funds. The figures are laid out in the restructuring proposal, writes The Block.

«During that volatile week in June, when Bitcoin fell sharply from $30,000 to $20 000, unhedged positions on [proprietary trading] accounts led to significant losses. As a result, there was a forced liquidation with losses of 8,000 BTC and ~56,000 ETH», — the document says.

As a result, Babel Finance’s lending and trading desks were unable to meet counterparties’ margin calls.

«The actions of this unit were not overseen by the trading department. For its staff, risk-control criteria were not introduced, they did not report profits and losses. For trades, indicative terms were not set, they were not registered in the system.»,

— the document says.

The firm’s wallet-management team ‘issued an unlimited amount of funds’ to trading accounts managed by its own trading team, Babel Finance admitted.

In 2020 there were suspicions that the company was engaging in a ‘leverage play’ on client funds. At the time, the provider’s counterparties did not attach much significance to the rumors. Babel Finance avoided bankruptcy with the help of Tether Limited, which extended the loan repayment period from 48 hours to a month.

In a conversation with the publication, representatives said that ‘they closely cooperate with clients, investors, other stakeholders and external advisers’.

The company aims to convert the $150 million debt into convertible bonds and to raise an additional $250-300 million under this issue. Babel Finance also hopes to secure a revolving credit line of $200 million.

In May, the crypto-financial services provider closed a Series B round of $80 million at a $2 billion valuation.

Earlier, in June 2022, the company said it halted payments and withdrawals from its own products due to liquidity shortages.

Subsequently, Babel Finance representatives denied insolvency reports and spoke of reaching ‘preliminary agreements’ to repay part of the debts.

To restructure the business, top management engaged the law firm Kirkland & Ellis and financial adviser Hulihan Lokey.

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