Former FTX chief Sam Bankman-Fried explained in a letter to employees the causes of the collapse and did not rule out the possibility of the platform resuming operations. The document was obtained by The Block.
According to Bankman-Fried, FTX’s problems began with a spring market crash, followed by deleveraging and mass client withdrawals. Poor margin management and risk controls led to the filing for bankruptcy.
“I never imagined this could happen. I did not fully appreciate the nature of the leveraged position and the risk associated with a highly correlated downturn. Loans and secondary sales were typically used to reinvest in the business, including a buyback of [shares] from Binance, rather than to finance personal needs on a large scale,” — he admitted.
According to the former CEO, in spring FTX had liabilities of $2 billion and $60 billion in collateral. In light of deleveraging on the market, the first figure jumped to $8 billion, while the second shrank to $25 billion.
A further crash in November led to a new ~50% drop in collateral value over a very short period, to $17 billion. Then a bank run occurred due to “attacks,” which brought the metric to $9 billion.
“When we hastily pulled it all together, it became clear that the position was larger than what the administrators/users showed. The discrepancy was related to “old” fiat deposits before FTX had bank accounts,” — Bankman-Fried explained.
In the letter, the former CEO did not comment on claims that the related Alameda Research used the exchange’s client deposits. He also did not explain why the latter were collateralised with illiquid tokens, the publication noted.
The former FTX chief said he felt pressure to file for bankruptcy, something he said he deeply regrets.
“In the course of the process, all companies were included, even those that were solvent. We could likely have attracted substantial financing. Eight minutes after the filing, there was corresponding interest. Given billions of dollars of collateral and the interest earned, we could have restored substantial value to clients and saved the business,” — he modelled.
Bankman-Fried remains convinced that not all is lost for FTX.
“I believe there are potential investors. But I cannot promise you anything, because that is not my decision,” — he explained.
In November, Bankman-Fried presented the chronology of events leading up to the collapse and also expressed regret over filing for bankruptcy. The new FTX CEO John Ray urged readers not to rely on such statements.
Lawyers surveyed by Fortune previously said that the US DOJ has all that is necessary to bring criminal charges against Bankman-Fried and other executives of the defunct exchange.
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