Sam Bankman-Fried, co-founder and CEO of FTX, in Hong Kong, China on Tuesday, May 11, 2021.
Lam Yik | Bloomberg | Getty Images
Sam Bankman-Fried became a crypto billionaire and one of the most famous players in the industry by creating cryptocurrency exchanges FTX in a primary site used by traders and investors.
His company was valued at $32 billion in January and currently has over a million users averaging nearly $10 billion in the daily trading volume. But it is still privately owned, so the public does not know to what extent it has been harmed by the “crypto winter” of recent months. For reference, Coinbase, which is public, has lost about two-thirds of its value this year, and mining company Marathon Digital is down more than half.
Although Bankman-Fried, who lives in the Bahamas, has the financial benefit of obscurity, his exposure to broader industry attrition became apparent last week during a five-hour Chapter 11 bankruptcy hearing in the Southern District of New York for a beleaguered crypto brokerage. Voyager Digital.
Voyager is among a growing crop of crypto companies seeking bankruptcy protection amid a spate of customer withdrawals that followed the fall of bitcoin, ethereum and other digital currencies. Bankman-Fried’s role in the quagmire is further complicated, because it also controls the quantitative trading firm Alameda Research, which lent hundreds of millions of dollars of Voyager and became a major equity investor before turning around and offering a rescue package for the company.
Meanwhile, Bankman-Fried is trying to play the role of industry consolidator, acquiring distressed assets both as a bet on its eventual recovery and to bolster its position in the U.S. In July, FTX bought crypto-lending firm BlockFi and two months before Bankman. -Fried disclosed a 7.6% stake in defeated trading app Robinhood. Bloomberg even reported that FTX was trying to buy Robinhood, although Bankman-Fried has denied that there are active discussions.
Outside the US, FTX bought Japanese crypto exchange Liquid and has been in discussions to acquire South Korean crypto exchange owner Bithumb.
With his activity in hyperdrive, it has become abundantly clear that Bankman-Fried is not immune to the contagion that has infected the cryptocurrency industry.
Last week, lawyers for Alameda Research and Voyager faced off in court over what was revealed to be a deep and complex relationship between the two companies. Documents reviewed by CNBC show ties extending to September 2021. En Voyager bankruptcy filingsthe company disclosed that Alameda owed the company more than $370 million, but did not say how long Alameda had been a Voyager borrower.
Voyager filed for bankruptcy in early July after suffering huge losses from its exposure to crypto hedge fund Three Arrows Capital, also known as 3AC, which collapsed after defaulting on loans from a number of companies in the sector, including more than $650 million from Voyager.
Court documents and Voyager’s financial statements show that Alameda moved from borrower to lender within weeks of the 3AC debacle leaving Voyager in a desperate spot. Bankman-Fried’s firm provided a $500 million bailout for Voyager in late June.
Joshua Sussberg, a Kirkland & Ellis partner representing Voyager, told the court that Bankman-Fried “wore many hats” during Voyager’s rapid journey from prosperity to bankruptcy. In fact, a few weeks after Voyager filed for bankruptcy, FTX and Alameda moved together as a potential bidder for Voyager’s client accounts, with Bankman-Fried saying his priority was to offer them liquidity.
Bankman-Fried took to Twitter to make her case, turning a typically boring process into a bit of a circus. Voyager’s legal team was not satisfied and suggested the billionaire was trying to create leverage for himself in a potential transaction.
“Parties in our process have expressly expressed to us the concern that FTX has an advantage and is working behind the scenes to force itself,” he said. “I want to assure all parties, the court and our clients, that we will not stand for this.”
Andrew Dietderich, an Alameda attorney and partner at Sullivan & Cromwell, said the bailout agreement provides a faster timeline than Voyager’s, but had been “violently rejected”.
Michael Wiles, a U.S. bankruptcy judge for the Southern District of New York, didn’t like where the arguments were headed.
Addressing the lawyers, Wiles said he had no intention of turning the hearings into “some kind of cable news show with people accusing each other and giving extremely characterizations of what their previous proposals or discussions were “.
Voyager was first an Alameda lender
Zoom in on the Arrows icon pointing outwards
Alameda’s lawyers acknowledged that the business ties between Voyager and their client ran deeper than a simple lending relationship, and that the company borrowed approx. Voyager’s $377 million.
Voyager’s financial documents, which are public because the company’s stock was traded in Canada, appear to show that Alameda initially borrowed much more than that. December of the firm Books 2021 refers to a $1.6 billion crypto asset loan, at rates of 1% to 11%, to an entity based in the British Virgin Islands.
Alameda is registered in the British Virgin Islands, based in Tortola, and it is the only counterpart found there. He was one of at least seven entities which borrowed heavily from Voyager. The same Voyager document that disclosed 3AC’s default also includes a “Counterparty A,” a company registered in the British Virgin Islands, that owes Voyager $376.784 million. In the company’s bankruptcy filing, the company lists Alameda as owing Voyager $377 million. In another presentationthe loan amount is linked to a company with a borrowing rate of 1% to 11.5%.
A Voyager representative declined to comment. Alameda did not respond to a request for comment.
Loan balances at the British Virgin Islands-based fund fell to $728 million in March 2022, representing 36% of Voyager’s lent crypto assets, before falling to around $377 million three months later . Disclosure data were provided by FactSet and sourced from Canadian securities managers.
Voyager’s relationship with Alameda would quickly shift from lender to borrower as 3AC’s default on the $654 million owed to Voyager drove the company into the ground.
Alameda intervened with a rescue on June 22, but with restrictions. The $500 million bailout ($200 million in cash and USDC and approximately $300 million in bitcoins, based on prevailing market prices) had a capped withdrawal rate, limiting the amount of funding to $75 million over a period of 30 days.
Alameda’s lawyers told the court Thursday that the loan was made “unsecured” at the specific request of Voyager management.
At the time, Bankman-Fried was already a major shareholder in Voyager through two equity investments in Alameda.
At the end of 2021, Alameda closed a Purchase of shares for 75 million dollarsnetting 7.72 million shares at $9.71 a piece, according to Voyager’s filing for the period ended Dec. 31. In May of this year, Alameda spent another $35 million by about 15 million shares, and the share price has fallen to $2.34.
The combined purchases gave Alameda an 11.56% stake in Voyager and made it the largest shareholder. The following month, when Alameda completed the bailout, its $110 million equity investment was worth only about $17 million.
As the holder of at least 10% of Voyager’s equity, Alameda was required to file disclosures with Canadian securities regulators. But on June 22, rescue day, Alameda given up a block of 4.5 million shares, which reduces his ownership to 9.49% and waiver of reporting requirementsunder Canadian regulations and Voyager’s own archive. This same sheet shows that the ceded shares “were subsequently canceled by Voyager.”
Disclosure of the sale said that by taking its ownership below the 10% threshold, Alameda was giving away a 2.29% stake worth about $2.6 million.
The failure of Voyager
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Neither Bankman-Fried’s capital infusion nor bailout financing could stem the tide, as customer refunds swallowed up Voyager’s cash. Nine days after announcing the $500 million package, Voyager freeze customer withdrawals and trading. On July 6, Voyager filed for Chapter 11 bankruptcy.
To reassure the platform’s millions of users, Voyager CEO Stephen Ehrlich tweeted that after the company goes through bankruptcy proceedings, members with crypto on their account could be eligible for a bag of clothes, including a combination of some amount of their holdings, common. shares in the reorganized Voyager, Voyager tokens, and any profits they might get from the defaulted loan to 3AC.
None of this is guaranteed. Voyager customers scored a small victory in bankruptcy court on Thursday, after the the court granted them access to $270 million in cash Voyager in the hands of the Metropolitan Commercial Bank. Users, however, are still out of luck when it comes to everything else.
Bankman-Fried says she’s here to help customers get back up and running and get back what they can. Voyager’s lawyers, on the other hand, are portraying the FTX-Alameda offer as a fire sale.
Whatever happens, this could be Bankman-Fried’s last best option to get some value out of his big financial commitment. In a July press release, he tried to spin his offer as a benefit to Voyager customers who were suddenly embroiled in an “insolvent crypto business.”
Bankman-Fried said in the statement that the deal would allow Voyager’s clients to “obtain early liquidity and recover a portion of their assets without forcing them to speculate on bankruptcy outcomes and take unilateral risks.”
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