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Exclusive: Behind FTX’s fall, battling billionaires and a failed bid to save crypto

November 10 (Reuters) – (This story contains language that some readers may find offensive in section 2)

On Tuesday morning, Sam Bankman-Fried, owner of the cryptocurrency exchange FTX, caught his employees off guard with a grim message.

“I’m sorry,” he told them. “I fucked up.”

The reason for the culpa: His announcement half an hour earlier that FTX’s arch-rival Binance planned to launch a shock takeover of its main trading platform to save it from a “liquidity crisis.” Binance founder Changpeng “CZ” Zhao, whom the billionaire had accused of sabotage, was now to become his white knight.

The seeds of FTX’s downfall were sown months earlier, stemming from mistakes Bankman-Fried made after he stepped in to bail out other crypto firms as the crypto market collapsed amid rising interest rates, according to interviews with several people close to Bankman-Fried and communications from both companies that not previously reported.

Some of those deals involving Bankman-Fried’s trading firm, Alameda Research, led to a series of losses that ultimately undid him, according to three people familiar with the company’s operations.

The interviews and messages also shed new light on the bitter rivalry between the two billionaires, who in recent months have competed for market share and publicly accused each other of trying to damage each other’s businesses. That culminated on Wednesday, with Binance pulling out of the deal, throwing FTX’s future into uncertainty.

Stuck without a buyer, Bankman-Fried was now looking for alternative backers, two people close to him said. After Binance pulled out, he told FTX employees in a message that Binance had not previously told them of any reservations about the deal and that he was “exploring all options.”

Neither Binance nor FTX responded to requests for comment. Bankman-Fried told Reuters on Tuesday that “I probably get too swamped” to do interviews. He did not respond to several messages.

Binance previously said it decided to pull out of the deal as a result of its due diligence on FTX and news reports about US investigations into the company.

Zhao’s unveiling of the planned takeover capped a stunning reversal for Bankman-Fried. The 30-year-old had set up Bahamas-based FTX in 2019 and led it to become one of the largest exchanges, amassing a fortune of almost $17 billion.

News of the liquidity crisis at FTX – valued in January at $32 billion with investors including SoftBank and BlackRock – sent reverberations through the crypto world.

The price of major coins plunged, with bitcoin falling to its lowest in nearly two years, adding further pain to a sector whose value has fallen by about two-thirds this year as central banks tightened credit.

By ditching the deal, Binance had also avoided the regulatory scrutiny that would likely have accompanied the takeover, which Zhao had flagged as a possibility in a memo to employees that he posted on Twitter.

Financial regulators around the world have issued warnings that Binance is operating without a license or violating anti-money laundering laws. The US Department of Justice is investigating Binance for possible money laundering and criminal sanctions violations. Reuters reported last month that Binance had helped Iranian firms trade $8 billion since 2018 despite US sanctions, part of a series of articles this year by the news agency on the exchange’s financial crime compliance.


Zhao and Bankman-Fried’s relationship began in 2019. Six months after FTX’s launch, Zhao bought 20% of the exchange for about $100 million, said a person with direct knowledge of the deal. At the time, Binance said the investment was “aimed at growing the crypto-economy together.”

Within 18 months, however, their relationship had soured.

FTX had grown rapidly and Zhao now saw it as a genuine competitor with global ambitions, former Binance employees said.

When FTX applied in May 2021 for a license in Gibraltar for a subsidiary, it had to submit information about its largest shareholders, but Binance shut down FTX’s requests for help, according to messages and emails between the exchanges seen by Reuters.

Between May and July, FTX lawyers and advisers wrote to Binance at least 20 times for details about Zhao’s sources of wealth, banking relationships and ownership of Binance, the filings show.

However, in June 2021, an FTX lawyer told Binance’s CFO that Binance was not “cooperating with us properly” and that they risked “seriously disrupting an important project for us.” A Binance legal officer responded to FTX to say that she tried to get answers from Zhao’s personal assistant, but the information requested was “too general” and they cannot provide everything.

In July of the same year, Bankman-Fried was tired of waiting. He bought back Zhao’s stake in FTX for about $2 billion, the person with direct knowledge of the deal said. Two months later, with Binance no longer involved, Gibraltar’s regulator granted FTX a license.

That sum was paid to Binance, partly in FTX’s own coin, FTT, Zhao said last Sunday — a holding he would later order Binance to sell, sparking the FTX crisis.

Reuters graphics


In May and June, Bankman-Fried’s trading firm, Alameda Research, suffered a series of losses from deals, according to three people familiar with the business. These included a $500 million loan deal with failed crypto lender Voyager Digital, two of the people said. Voyager filed for bankruptcy protection the following month, and FTX’s US arm paid $1.4 billion for its assets at an auction in September. Reuters could not determine the full extent of the losses Alameda suffered.

In an effort to prop up Alameda, which had nearly $15 billion in assets, Bankman-Fried transferred at least $4 billion in FTX funds, secured by assets including FTT and shares in trading platform Robinhood Markets Inc, the people said. Alameda had disclosed a 7.6% stake in Robinhood that May.

Some of those FTX funds were customer deposits, two of the people said, although Reuters could not determine the value.

Bankman-Fried did not tell other FTX executives about the move to shore up Alameda, the people said, adding that he was afraid it might leak.

However, on Nov. 2, a report by news outlet CoinDesk described a leaked balance sheet that allegedly showed much of Alameda’s $14.6 billion in assets was held in FTT. Alameda CEO Caroline Ellison tweeted that the balance sheet was only for a “subset of our corporate entities,” with over $10 billion of assets not reflected. Ellison did not return requests for comment.

That failed to quell growing speculation about what Alameda’s financial health might mean for FTX.

Then Zhao said that Binance would sell its entire stake in the token, FTT, worth at least $580 million, “due to recent revelations that have come to light.” The token’s price collapsed 80% over the next two days, and a stream of outflows from the exchange accelerated, blockchain data shows.


In his message to employees this week, Bankman-Fried said the firm saw a “huge withdrawal surge” as users rushed to withdraw $6 billion in crypto tokens from FTX in just 72 hours. Daily withdrawals normally amounted to tens of millions of dollars, Bankman-Fried told his employees.

Following Zhao’s tweet that Binance would sell its FTT holdings, Bankman-Fried expressed confidence that FTX would withstand its rival’s onslaught. He told employees at Slack that withdrawals were “not shocking, way up,” but they were able to process the requests.

“We’re chugging along,” he wrote. “Obviously, Binance is trying to go after us. So be it.”

But on Monday the situation became serious. Unable to quickly find a backer or sell other illiquid assets on short notice, Bankman-Fried contacted Zhao, according to a person familiar with the conversation. Zhao later confirmed that Bankman-Fried had called him.

Bankman-Fried signed a non-binding letter of intent for Binance to acquire FTX’s assets outside the US. That valued FTX at several billion dollars, two people familiar with the letter said — enough for the exchange to cover all withdrawal requests but a fraction of its January valuation.

Zhao announced the potential deal several hours later, with Bankman-Fried tweeting “a big thank you to CZ.”

“Let’s live to fight another day,” Bankman-Fried told employees on Slack.

His employees were shocked. Even executives had been in the dark about the Alameda shortfall and the takeover plan until Bankman-Fried informed them that morning, two people who worked with him said. Both people said they had not realized the withdrawal situation was so serious.

Then came Binance’s announcement on Wednesday to scrap the takeover. “The issues are beyond our control or ability to help,” Binance said. Zhao tweeted “Sad day. Tried” with a crying emoji.

Reporting by Angus Berwick in New York and Tom Wilson in London; additional reporting by Hannah Lang in Washington and Elizabeth Howcroft in London; Editing by Paritosh Bansal and Chris Sanders

Our standards: Thomson Reuters Trust Principles.

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