Tag: Cryptocurrencies

(Reuters) – FTX’s Bahamas unit, FTX Digital Markets, is seeking protection from creditors in the United States under Chapter 15 of the U.S. Bankruptcy Code, a court filing showed on Tuesday.

Such a move allows a foreign debtor to shield assets in the country. Non U.S.-companies use the measure to block creditors who want to file lawsuits or tie up assets in the United States.

Parent FTX filed for bankruptcy on Friday in one of the highest-profile crypto blowups, after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.

(Reporting by Akriti Sharma in Bengaluru; Editing by Clarence Fernandez)

(Reuters) – Genesis is temporarily suspending redemptions and new loan originations at its lending business, the crypto broker said in a tweet on Wednesday.

(Reporting by Mehnaz Yasmin in Bengaluru; Editing by Shounak Dasgupta)

By Angus Berwick, Anirban Sen, Elizabeth Howcroft and Lawrence Delevingne

(Reuters) – As customers withdrew billions of dollars from crypto exchange FTX one frantic Sunday this month, founder Sam Bankman-Fried worked the phones in a futile bid to raise $7 billion in emergency funds.

Hunkered in his Bahamas apartment, Bankman-Fried toiled through the night, calling some of the world’s biggest investors, including Sequoia Capital, Apollo Global Management Inc and TPG Inc, according to three people with knowledge of the matter.

Sequoia was among investors that lined up only months before to pump money into Bankman-Fried’s empire. But not now. Sequoia was shocked at the amount of money Bankman-Fried needed to save FTX, according to the sources, while Apollo first asked for more information, only to later decline. Both firms and TPG declined to comment for this article.

In the end, the calls came to naught and FTX filed for bankruptcy on Nov. 11, leaving an estimated 1 million customers and other investors facing total losses in the billions of dollars. The collapse reverberated across the crypto world and sent bitcoin and other digital assets plummeting.

Some details of what happened at FTX have already emerged: Reuters reported Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business, for instance, and that at least $1 billion of those deposits had vanished.

Now, a review of dozens of company documents and interviews with current and former executives and investors provide the most comprehensive picture so far of how Bankman-Fried, the 30-year-old son of Stanford University professors, became one of the richest men in the world in just a couple of years, then came crashing down.

The documents, reported here for the first time, include financial statements, business updates, company messages and letters to investors. They, along with the interviews, reveal that:

— In presentations to investors, some of the same assets appeared simultaneously on the balance sheets of FTX and of Bankman-Fried’s trading firm, Alameda Research – despite claims by FTX that Alameda operated independently.

— One of Bankman-Fried’s close aides tweaked FTX’s accounting software. This enabled Bankman-Fried to hide the transfer of customer money from FTX to Alameda. A screenshot of FTX’s book-keeping system showed that even after the massive customer withdrawals, some $10 billion in deposits remained, plus a surplus of $1.5 billion. This led employees to believe wrongly that FTX was on a solid financial footing.

— FTX made about $400 million in “software royalty” payments to Alameda over the years. Alameda used the funds to buy FTX’s digital coin FTT, reducing supply of the coin and supporting its price.

— In the second quarter of this year, FTX posted a $161 million loss. Bankman-Fried, meanwhile, had spent some $2 billion on acquisitions.

— As Bankman-Fried tried to rescue FTX in its frantic final days, he sought emergency investments from financial behemoths in Saudi Arabia and Japan – and was joined at his Bahamas headquarters by his law professor father.

Bankman-Fried told Reuters in an email that due to a “confusing internal account,” Alameda’s leverage was substantially higher than he believed it was. He added that FTX processed roughly $6 billion of client withdrawals.

He said FTX and Alameda together made a profit of roughly $1.5 billion in 2021, which was more than all of the expenses put together of both organizations since their founding. “I was unfortunately unable to communicate much of what was going on to the broader company in real time because much of what I posted in Slack appeared on Twitter soon after,” he added.

FTX did not respond to questions for this article.

The U.S. Department of Justice, Securities and Exchange Commission and Commodity Futures Trading Commission are now all investigating FTX, including how it handled customer funds, Reuters has reported. The collapse has shaken investor confidence in cryptocurrencies and led to calls from lawmakers and others for greater regulation of the industry. The CFTC and DOJ declined to comment for this article. The SEC did not respond.

A LIFE IN THE BAHAMAS

Born in 1992, Bankman-Fried grew up around Stanford University’s Palo Alto-area campus, where both his parents taught at the law school. He landed at the Massachusetts Institute of Technology, where he studied math and physics and embraced the idea of effective altruism, a movement that encourages people to prioritize donations to charities.

After graduating from MIT in 2014, he took a job on Wall Street with a quantitative trading firm. Bankman-Fried founded Alameda Research three years later, billing it as “a crypto quant trading firm.”

Rejected initially by venture investors, he cobbled together loans and assembled a team of young traders and programmers, many of them sleeping and working in a small walkup apartment in the San Francisco area, according to a profile that later appeared on the website of FTX investor Sequoia.

Alameda found early trading success by arbitraging cryptocurrency prices on international markets, with half of profits going to charity, according to the same profile. By 2019, the company handled $55 million for clients, an Alameda company booklet said. Reuters could not independently confirm these details.

The booklet flagged the risks of crypto trading, particularly how sudden sales of tokens could trigger a “domino effect” that would lead to a “cascading set of liquidity failures.” It noted that “nothing fundamental” backed bitcoin’s value.

Using profits from Alameda, Bankman-Fried launched FTX in 2019. His aim was to build an “FTX Superapp” that combined cryptocurrency trading, betting markets, stock trading, banking, and peer-to-peer and business payments, according to an FTX marketing document from earlier this year.

The company’s growth over the next two years was only surpassed by his vision.

FTX’s revenues grew from $10 million in 2019 to $1 billion in 2021. From almost nothing in 2019, FTX handled about 10% of global crypto trading this year, a September document shows. It spent roughly $2 billion buying companies, the document shows.

GRAPHIC: Exponential growth – https://graphics.reuters.com/FINTECH-CRYPTO/gdpzqyyxmvw/chart.png

In an undated document, titled ‘FTX Roadmap 2022,’ the company laid out its goals for the next five to 10 years. It hoped to be “the largest global financial exchange,” with $30 billion in annual revenue, more than what U.S. retail brokerage giant Fidelity Investments earned in revenues last year.

In October 2021, Bankman-Fried, then 29 years old, landed on the cover of Forbes, which pegged his net worth at $26.5 billion – the 25th richest person in America. FTX said on its website that “FTX, its affiliates, and its employees have donated over $10m to help save lives, prevent suffering, and ensure a brighter future.”

Bankman-Fried’s personal finances suggest he lived frugally for a billionaire. A financial statement reviewed by Reuters shows that for 2021, he drew an annual salary of $200,000, declared $1 million in real estate assets, and spent $50,000 on personal expenses.

But in the Bahamas, his lifestyle was more luxurious than his finances showed. At one point, he lived in a penthouse overlooking the Caribbean, valued at almost $40 million, according to two people who worked with FTX.

Bankman-Fried told Reuters he lived in a house with nine other colleagues. For his employees, he said FTX provided free meals and an “in-house Uber-like” service around the island.

“ULTIMATE SOURCE OF TRUTH”

This year began with FTX seemingly everywhere.

Its logo was emblazoned on a major sports arena in Miami and on Major League Baseball umpire uniforms. Sports stars and celebrities including Tom Brady, Gisele Bundchen and Steph Curry became partners in promoting the company. None of them commented for this article. Bankman-Fried became a regular presence in Washington, donating tens of millions of dollars to politicians and lobbying lawmakers on crypto markets.

FTX was also planning partnerships with some of the world’s largest companies. An FTX document from June 2022, which has not been previously reported, shows a list of FTX’s “select partners” for business-to-business (B2B) services. Prospective partners included retail giant Walmart Inc, social media titan Meta Platforms Inc, payment-system provider Stripe, and financial website Yahoo! Finance, according to the document.

A Yahoo spokesperson said, “While we were in very early stages of a prospective partnership with FTX, nothing was close to completion when the events of last week occurred.”

A person with knowledge of the matter said Stripe has no contract with FTX to enable Stripe users to accept crypto payments. Walmart didn’t respond to a request for comment about a proposed partnership with FTX for employee investing. Meta too didn’t comment about discussions to make FTX a digital-wallet provider for Instagram users.

Investors loved Bankman-Fried’s ambition. FTX had already received more than $2 billion from backers including Sequoia, SoftBank Group Corp, BlackRock Inc and Temasek. In January, FTX raised a further $400 million, valuing the business at $32 billion.

FTX expected to take its international and U.S. businesses public, an investor due-diligence document from this June said. The document is reported here for the first time.

At the peak of his powers, Bankman-Fried urged the crypto industry to help governments shape laws to supervise it, saying FTX’s goal was to become “one of the most regulated exchanges in the world.” “FTX has the cleanest brand in crypto,” it proclaimed earlier this year.

Behind his rapid growth, there was a secret Bankman-Fried kept from most other employees: he had dipped into customer funds to pay for some of his projects, according to company documents and people briefed on FTX’s finances. Doing so was explicitly barred in the exchange’s terms of use, which affirmed user deposits “shall at all times remain with you.”

FTX generated 2 cents in fees for every $100 traded, documents seen by Reuters show, reaping hundreds of millions of dollars in revenue by 2021. Nonetheless, FTX barely broke even during its first two years, 2019 and 2020. It generated around $450 million in profit in 2021, when crypto markets boomed, but it slumped to a $161 million loss in the second quarter of this year, according to financial records, which are reported here for the first time.

Some of the $10 billion in removed customers’ money went to cover losses that Alameda sustained earlier this year on a series of bailouts, including in failed crypto lender Voyager Digital, according to the three FTX sources briefed on the company’s finances.

FTX also financed acquisitions such as the purchase in May of a $640 million stake in trading platform Robinhood Markets Inc. Robinhood didn’t respond to a request for comment.

Bankman-Fried told Reuters he did not believe that Alameda had substantial losses, including on Voyager, without providing further details.

Around $1 billion of the $10 billion sum is not accounted for among Alameda’s assets, Reuters reported on Friday. Reuters has not been able to trace these missing funds.

According to the three FTX sources, only Bankman-Fried’s innermost circle of associates knew about his use of client deposits: his co-founder and chief technology officer, Gary Wang; the head of engineering, Nishad Singh; and Caroline Ellison, chief executive of Alameda. Wang and Singh both worked with Bankman-Fried at Alameda previously.

Wang, Singh and Ellison did not return requests for comment.

To conceal the transfers of customer funds to Alameda, Wang, a former Google software developer, built a backdoor in FTX’s book-keeping software, the people said.

Bankman-Fried often told employees tasked with monitoring the company’s financials that the book-keeping system was “the ultimate source of truth” about the company’s accounts, two of the people said. But the backdoor, known only to his most trusted lieutenants, allowed Alameda to withdraw crypto deposits without triggering internal red flags, they said.

FTX also had a vulnerability: its bespoke cryptocurrency.

Shortly after its launch, FTX introduced its own digital token, called FTT, described on its website as the exchange’s “backbone.” Staff could opt to receive pay and bonuses in the token, and many of them accumulated fortunes in FTT as its value exploded in 2021, according to the three current and former executives. One executive invested all their savings in FTT, worth millions of dollars, the executive said, “because of loyalty to Sam.”

According to a June 2022 due diligence document Bankman-Fried sent to a potential investor and the company’s financial records, FTX paid $400 million to an Alameda subsidiary since 2019 as “software royalty” payments for development work. The subsidiary used the funds to buy FTT and remove the digital tokens from supply, so supporting the price.

FTX disclosed on its website that it was using part of its trading fees to buy FTT. It did not reveal the arrangement with Alameda.

Over the years, Alameda accumulated a huge holding of FTT, valued at around $6 billion before last week, according to a balance sheet later sent to investors. It used the FTT reserves to secure corporate loans, people familiar with its finances said. This meant that Bankman-Fried’s business empire was dependent on the token.

That little-known holding became Bankman-Fried’s undoing.

PRESSURE BUILDS

On Nov. 2, news outlet CoinDesk reported a leaked balance sheet disclosing Alameda’s reliance on FTT. The head of the world’s largest crypto exchange – Bankman-Fried’s chief rival – pounced on that report. Binance CEO Changpeng Zhao, citing “recent revelations,” said Binance would sell its entire FTT holding due to “risk management.”

Bankman-Fried retorted on Twitter that Zhao was spreading “false rumors.” In a since-deleted tweet, he wrote: “FTX has enough to cover all client holdings. We don’t invest client assets.”

Nonetheless, FTT came under intense selling pressure, forcing Alameda to buy more of the tokens in an attempt to stabilize the price, a person with knowledge of the trades said. Customers panicked and rushed to withdraw deposits from FTX, with over $100 million flowing out of the firm each hour that Sunday, company documents reviewed by Reuters show.

In his email to Reuters, Bankman-Fried said, “To my knowledge, Alameda did not buy very much FTT during the crash to stabilize it.”

Staff initially remained calm. The finance team could still see ample assets on the book-keeping portal as of last week. About $10 billion in client deposits remained, with a $1.5 billion surplus to cover any further withdrawals, according to a screenshot of the database seen by Reuters.

In reality, those funds were gone.

Several hours after Zhao’s Sunday tweet, Bankman-Fried has told Reuters, he gathered his lieutenants Wang and Singh at his apartment to decide on a plan. It was a “rough weekend,” he messaged staff on Slack that evening, but “we’re chugging along.”

The following day, he summoned several other senior managers to his home to join Wang and Singh. He broke the news to them: FTX was almost out of money.

This account of the scramble that ensued is based on interviews with three current and former FTX executives briefed by top staff and documents that Reuters reviewed.

Bankman-Fried showed the executives spreadsheets that revealed there was a $10 billion hole in FTX’s finances – because customer deposits had been transferred to Alameda and mostly spent on other assets. The executives were shocked. One of them told Bankman-Fried the spreadsheet presentation contradicted what FTX told regulators about its use of client funds.

To make up the shortfall, they calculated that Alameda could sell around $3 billion of the assets within hours, mainly money held in company trading accounts on other crypto exchanges. The rest would take days or weeks to offload because it was hard to trade those assets. And FTX urgently needed a further $7 billion in cash to survive.

So began Bankman-Fried’s search for a savior.

While money continued to drain away from FTX, the three sources told Reuters, he and his aides worked through the night, contacting about a dozen potential investors.

He turned to the crypto community, too, ringing up the organization behind Tether, the world’s largest stablecoin, and asking for a loan. His father, Joseph Bankman, a Stanford Law professor, also arrived to advise his son. Bankman did not respond to a request for comment. In return for any funding, Bankman-Fried pledged to investors most of Alameda’s assets, including its holding of FTT, along with his own 75% stake in FTX. But no one came through with an offer.

One of the investors who turned down Bankman-Fried said his numbers were “very amateurish,” without elaborating. Another red flag was that the spreadsheets showed ties between FTX and Alameda, the investor said.

Around 3 a.m., Bankman-Fried resorted to Zhao, his archrival at Binance. Zhao, widely known by the initials CZ, came to the phone. A few hours later, Zhao sent over a non-binding letter of intent to acquire FTX.com, which Bankman-Fried signed. The pair tweeted a joint announcement later that morning.

For most FTX employees, this was the first they heard about the company’s dire situation. “Just complete disbelief and feelings of betrayal,” Zane Tackett, FTX’s head of institutional sales, wrote on Twitter the day after. He declined to comment.

Tackett and some others resigned. “I can’t do it any more,” another FTX team member texted colleagues.

To worsen the pain, the price of the FTT token crashed 80% within three hours of the news, shrinking Alameda’s assets further and wiping out many employees’ net worth. The executive with millions of dollars in FTT said watching it collapse “was like seeing my world diminishing.”

Bankman-Fried pleaded for employees’ forgiveness on Slack, saying he “fucked up” but that the Binance deal allowed them to “fight another day.” Less than 30 hours later, Binance pulled out, citing its due diligence. Sequoia then wrote off its $150 million investment in FTX.

Scrambling to find a savior, Bankman-Fried expanded his search around the world. “I’ll keep fighting,” he messaged staff.

He sought to persuade officials at major financial institutions such as Saudi Arabia’s Public Investment Fund and Japanese investment bank Nomura Holdings Inc to invest, according to a message he sent on Thursday to advisors, along with two other people familiar with the talks. Those appeals are reported here for the first time. PIF and Nomura did not comment.

Bankman-Fried also tried to get a group of crypto firms to each pitch in $1 billion. But a balance sheet FTX sent to investors, showing only $900 million in liquid assets, spooked them, according to two people familiar with the matter.

By Friday, when FTX filed for bankruptcy in the United States, “we were all doomed,” an executive said.

GRAPHIC: FTX’s liquid assets – https://graphics.reuters.com/FINTECH-CRYPTO/byvrljjzbve/chart.png

GRAPHIC: FTX’s less liquid assets – https://graphics.reuters.com/FINTECH-CRYPTO/gdvzqyyzmpw/chart.png

(Reporting by Angus Berwick and Anirban Sen in NEW YORK, Elizabeth Howcroft in LONDON and Lawrence Delevingne in BOSTON; additional reporting by Tom Wilson in LONDON, Greg Roumeliotis in NEW YORK and Hannah Lang in WASHINGTON; editing by Paritosh Bansal and Janet McBride)

ABU DHABI (Reuters) – Binance chief executive Changpeng Zhao said on Wednesday there was significant interest from industry players in a recovery fund his company plans to launch to help crypto projects facing a liquidity squeeze following the collapse of rival FTX.

Speaking at a conference in Abu Dhabi, Zhao said that he doesn’t have a specific limit in mind for the size of the recovery fund.

“There are players that have strong financials and we should band together; we’ve got significant interest so far,” he said declining to give any names at this point.

Zhao said Binance has healthy reserves but did not give a figure for how much the company would contribute to the fund.

“Crypto doesn’t need saving,” Zhao said. “Crypto will be fine.”

More details concerning the fund will be available over the next two weeks, Zhao said.

(Reporting by Rachna Uppal; Writing by Lina Najem)

By Kevin Buckland and Ankur Banerjee

TOKYO (Reuters) – The safe-haven U.S. dollar firmed in volatile trading on Wednesday as markets took stock of geopolitical risks following news of a Russian-made rocket striking NATO-member Poland.

U.S. President Joe Biden said early information suggested the blast in Poland may not have been caused by a missile fired from Russia, even as the United States and its NATO allies investigated the blast, which killed two.

Russia denied it was responsible for the explosion but the report sparked turbulent trading overnight as fears of the war in Ukraine spilling over to its neighbors rattled investors.

Biden was speaking after global leaders held an emergency meeting on Wednesday following the deadly explosions that Ukraine and Polish authorities said were caused by Russian-made missiles.

“The market is trying to size up the risk and what that really means,” said Moh Siong Sim, currency strategist at Bank of Singapore. “Is that something that is going to lead to further tension or perhaps this is something that will deescalate over the next few days.”

“Right now, it’s a bit of a tussle in the market as to how to price this risk,” he added.

The turbulent trading saw major currencies swing between gains and losses, with the U.S. dollar index, which measures the currency against six peers and weights the euro most heavily, rising as much as 0.31% to 106.76 before last trading 0.13% higher at 106.57.

The euro was up 0.11% at $1.0361, having slipped 0.18% earlier in Asian trade. The currency saw similar moves overnight.

Sterling was last trading at $1.1873, up 0.13% after reversing its losses from earlier in the day. The Japanese yen weakened 0.38% versus the greenback to 139.82 per dollar.

“The currency market is stabilising, toying with the notion that this was a stray missile or an intercepted missile and doesn’t necessarily imply an escalation in the war, with NATO needing to get involved,” said Rodrigo Catril, a senior currency strategist at National Australia Bank.

Risk-sensitive Antipodean currencies slipped, with Australian dollar down 0.09% versus the greenback at $0.675, while the kiwi fell 0.23% to $0.614.

========================================================

Currency bid prices at 0347 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0359 $1.0351 +0.10% -8.87% +1.0387 +1.0331

Dollar/Yen

140.0450 139.3100 +0.57% +21.81% +140.1850 +138.9100

Euro/Yen

145.09 144.14 +0.66% +11.33% +145.2600 +143.5800

Dollar/Swiss

0.9456 0.9447 +0.11% +3.67% +0.9458 +0.9431

Sterling/Dollar

1.1855 1.1868 -0.04% -12.28% +1.1886 +1.1834

Dollar/Canadian

1.3285 1.3278 +0.08% +5.11% +1.3304 +1.3256

Aussie/Dollar

0.6750 0.6756 -0.08% -7.13% +0.6771 +0.6733

NZ

Dollar/Dollar 0.6145 0.6158 -0.19% -10.21% +0.6168 +0.6132

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Kevin Buckland and Ankur Banerjee in Singapore; Editing by Edmund Klamann and Bradley Perrett)

By Akriti Sharma and Daniel Leussink

(Reuters) – Collapsed crypto exchange FTX outlined a “severe liquidity crisis” in U.S. bankruptcy filings, which said the group could have more than 1 million creditors, as regulators opened probes and the crypto pain spread with the Wall Street Journal reporting BlockFi was planning layoffs and a possible bankruptcy filing.

FTX’s late Monday filing to a U.S. bankruptcy court said it was in contact with dozens of global regulators and had appointed five new independent directors at each of its main companies, including its sibling trading firm Alameda Research.

The exchange, which had been among the world’s largest, filed for bankruptcy protection on Friday in one of the highest-profile crypto blowups after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

Top crypto exchanges by volume https://graphics.reuters.com/FINTECH-CRYPTO/zdpxdyzzgpx/index.html

“FTX faced a severe liquidity crisis that necessitated the filing of these cases on an emergency basis last Friday,” the court filing stated.

FTX’s bankruptcy case includes more than 100,000 creditors, and this number could surpass 1 million, the filings said. The numbers were disclosed as FTX requested that multiple FTX group companies file one consolidated list of major creditors, rather than separate ones.

The documents also confirmed that FTX had responded to a cyber attack on Nov. 11, after saying on Saturday it had seen “unauthorized transactions” on its platform.

FTX engaged Alvarez & Marsal as financial adviser, and said it has been in contact with the U.S. Attorney’s Office, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and dozens of federal, state and international regulatory agencies over the past 72 hours.

The fallout has so far been limited to crypto exchanges and traders, but is featuring in mainstream policy discussions too.

Michael Barr, the Federal Reserve’s top Wall Street cop, on Tuesday said he is concerned about risks from the nonbank sector for which the U.S. central bank and other regulators have poor visibility.

“That includes obviously crypto activity, but more broadly risks in parts of the financial system where we don’t have good visibility, we don’t have good transparency, we don’t have good data. That can create risks that blow back to the financial system that we do regulate,” he told the Senate Banking Committee.

Crypto industry peers and partners have been quick to distance themselves from FTX and tout their sound financials, though some, including U.S. cryptocurrency broker Genesis Trading, have disclosed they are exposed to FTX, either having held tokens on the exchange or by owning FTX’s native token, FTT.

FTT plunged around 94% last week, while bitcoin lost 22%.

Crypto lender BlockFi, which previously acknowledged it has significant exposure to FTX, plans to lay off workers while preparing to file for bankruptcy, the Wall Street Journal reported. The newspaper reported that BlockFi was recently working with Kenric Kattner, a bankruptcy partner at Haynes & Boone, citing people familiar with the situation. BlockFi and Kattner did not immediately respond to a request for comment.

Separately, bankrupt crypto lender Voyager Digital no longer plans to sell itself to FTX, Bloomberg reported, while Canadian crypto exchange Bitvo said it terminated its deal to be bought by FTX.

FTX founder and former chief executive Sam Bankman-Fried said his main goal is “to do right by customers,” in a tweet on Tuesday.

“I’m contributing what I can to doing so. I’m meeting in-person with regulators and working with the teams to do what we can for customers,” he said on Twitter.

Bloomberg reported that American and Bahamian authorities had been talking about bringing Bankman-Fried to the United States for questioning.

Bankman-Fried tried to raise cash from investors over the weekend to repay FTX clients even after the company had sought bankruptcy protection and he had resigned as CEO, the Wall Street Journal reported.

Bankman-Fried said he expanded his business too fast and failed to notice red flags at the exchange, in an interview with the New York Times published late on Monday.

REGULATORY SCRUTINY

The sudden collapse of FTX, once a seen as a mainstay of the crypto industry with a $32 billion valuation as of January, has sparked investigations by financial regulators and other supervisory bodies around the world.

The Securities Commission of the Bahamas, in a statement dated Monday, said two PwC partners had been approved by the Supreme Court as joint provisional liquidators for FTX.

Several global regulators have removed licenses from local FTX units, and are looking into the company, and investigations by the U.S. Justice Department, the SEC and CFTC are also under way, a source with knowledge of the investigations told Reuters.

Some argued regulators should have taken action earlier.

Ken Griffin, founder and CEO of hedge fund Citadel, told the Bloomberg New Economy Forum in Singapore: “FTX is one of these absolute travesties in the history of financial markets. People will lose billions of dollars collectively and that undermines trust in all financial markets.”

(Additional reporting by Anshuman Daga in Singapore; Writing by Vidya Ranganathan, Alun John and John McCrank; Editing by Megan Davies, Jane Merriman and Matthew Lewis)

(Reuters) – American and Bahamian authorities are discussing the possibility of bringing FTX founder Sam Bankman-Fried to the United States for questioning, Bloomberg News reported on Tuesday, citing three people familiar with the matter.

SBF’s collapsed crypto exchange FTX, which filed for bankruptcy in the United States last week, has fanned fears about the future of the crypto industry after it outlined a “severe liquidity crisis”.

Since then regulators have opened investigations and lawmakers have called for clearer rules on how the industry operates.

Several crypto firms have also been bracing for a fallout of the FTX collapse with several counting their exposure in millions to the beleaguered exchange.

A spokesperson for the Manhattan U.S. Attorney’s office declined to comment on the matter. FTX did not immediately respond to a Reuters request for comment.

(Reporting by Manya Saini in Bengaluru; Editing by Maju Samuel)

(Reuters) – The Australian securities regulator said on Wednesday it has suspended the licence of the local arm of collapsed-crypto exchange FTX until mid-May next year, days after the local unit was placed under voluntary administration.

(Reporting by Sameer Manekar in Bengaluru; Editing by Shailesh Kuber)

By Lananh Nguyen

NEW YORK (Reuters) – Global banking giants are starting a 12-week digital dollar pilot with the Federal Reserve Bank of New York, the participants announced on Tuesday.

Citigroup Inc, HSBC Holdings Plc, Mastercard Inc and Wells Fargo & Co are among the financial companies participating in the experiment alongside the New York Fed’s innovation center, they said in a statement. The project, which is called the regulated liability network, will be conducted in a test environment and use simulated data, the New York Fed said.

The pilot will test how banks using digital dollar tokens in a common database can help speed up payments.

Earlier this month, Michelle Neal, head of the New York Fed’s market’s group, said it sees promise in using a central bank digital dollar to speed up settlement time in currency markets.

(Reporting by Lananh Nguyen; Editing by Chizu Nomiyama)

By Sinéad Carew and Joice Alves

NEW YORK/LONDON (Reuters) – Trading in the dollar and the euro was volatile on Tuesday, with both currencies trading below their session highs as investors tried to interpret reports that stray Russian missiles may have hit NATO member Poland, killing two people.

The euro had lost ground sharply against the safe-haven dollar while equities pared gains after the Poland reports fueled fears that the nine-month war between Russia and Ukraine could escalate.

Firefighters said two people were killed in an explosion in Przewodow, a village in eastern Poland near the border with Ukraine, while a NATO official said the alliance was investigating reports that the blast was from Russian missiles.

But Russia’s defence ministry said “no strikes on targets near the Ukrainian-Polish state border were made by Russian means of destruction”.

Meanwhile, the Pentagon said it could not confirm the reports and the White House said it was working with the Polish government to gather information.

“The market is particularly sensitive now that Ukraine has taken back more territory that Russia had captured after the war began,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

The euro was last up 0.38% at $1.0364 after falling as much as 0.44% following the reports from Poland. The dollar index, which measures the greenback against a basket of major currencies was last down 0.23% after rising as much as 0.42% after the reports out of Poland.

News of the explosions had overshadowed earlier gains in the euro after U.S. economic data suggested easing U.S. inflation.

The U.S. producer price index (PPI) increased 8.0% for the 12 months through October compared with economist expectations for 8.3% and September’s 8.4% increase, according to the Labor Department data.

The data, following last week’s smaller-than-expected increase in consumer prices for October, encouraged investors who have been closely monitoring inflation data for signs that the Federal Reserve could slow its interest rate hikes, which are aimed at dampening soaring prices.

“Risk appetite has improved. That tends to weaken the dollar,” said Karl Schamotta, chief market strategist at payments company, Corpay.

“Fed officials will need to see many months of this before they pause the rate hike cycle but overall price pressures appear to be going in the right direction,” said the strategist who says the dollar likely peaked in September.

Before the U.S. data the euro, sterling and the Swedish crown had already risen sharply against the dollar as traders assessed a slew of economic data, including British and euro zone job figures, plus German economic sentiment.

In Europe traders were also eying encouraging data such as German economic sentiment ZEW index, which rose in November.

Data also showed employment in the single currency area rose in the third quarter.

The dollar index had fallen earlier in the day to a session low of 105.34, its lowest point since August.

The greenback was last down 0.65% against Japan’s yen at 139.025.

Sterling was up 0.95% at $1.1870 after earlier rising as much as 2.27%, which put it at a three-month high against the dollar.

This was ahead of a tough UK government budget plan due out later this week and after data showing Britain’s unemployment rate unexpectedly rose and vacancies fell for a fifth report in a row as employers worried about the economy.

========================================================

Currency bid prices at 3:42PM (2042 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0364 $1.0325 +0.38% -8.84% +$1.0481 +$1.0280

Dollar/Yen 139.0250 139.9250 -0.65% +20.76% +140.6000 +137.6650

Euro/Yen 144.10 144.44 -0.24% +10.57% +145.3600 +143.3600

Dollar/Swiss 0.9430 0.9431 +0.00% +3.39% +0.9474 +0.9357

Sterling/Dollar $1.1870 $1.1760 +0.95% -12.22% +$1.2028 +$1.1745

Dollar/Canadian 1.3268 1.3316 -0.38% +4.92% +1.3335 +1.3226

Aussie/Dollar $0.6772 $0.6702 +1.05% -6.83% +$0.6797 +$0.6686

Euro/Swiss 0.9773 0.9738 +0.36% -5.75% +0.9840 +0.9724

Euro/Sterling 0.8728 0.8783 -0.63% +3.90% +0.8805 +0.8710

NZ $0.6169 $0.6097 +1.24% -9.83% +$0.6203 +$0.6087

Dollar/Dollar

Dollar/Norway 9.9810 10.0310 -0.51% +13.29% +10.0510 +9.8930

Euro/Norway 10.3500 10.3629 -0.12% +3.37% +10.3967 +10.3207

Dollar/Sweden 10.4630 10.4750 +0.24% +16.02% +10.5583 +10.3049

Euro/Sweden 10.8480 10.8221 +0.24% +5.96% +10.8602 +10.7840

(Reporting by Sinéad Carew and Herbert Lash in New York, Joice Alves in London; Editing by Andrew Cawthorne, Angus MacSwan, Andrea Ricci and Alex Richardson)

NEW YORK (Reuters) – The U.S. Securities and Exchange Commission on Tuesday delayed a decision on whether to allow a spot bitcoin exchange-traded fund by stock-picker Cathie Wood’s Ark Invest and crypto investment product firm 21Shares US to list and trade on Cboe Global Markets until Jan. 27.

The delayed decision on the ARK 21Shares Bitcoin ETF follows a series of rejections this year by the market regulator on ETFs that track bitcoin, including proposals from Grayscale, Fidelity, and NYDIG.

(Reporting by John McCrank; editing by Jonathan Oatis)

(Reuters) – Michael Barr, the Federal Reserve’s top financial regulatory official, on Tuesday said he is concerned about risks from the nonbank sector, including cryptocurrencies, for which the U.S. central bank and other regulators have poor visibility.

“We’re concerned about the risks that we don’t know about in the nonbank sector,” Barr said in response to a question during an appearance before the Senate Banking Committee. “That includes obviously crypto activity, but more broadly risks in parts of the financial system where we don’t have good visibility, we don’t have good transparency, we don’t have good data. That can create risks that blow back to the financial system that we do regulate.”

(Reporting By Dan Burns)

By Huw Jones

LONDON (Reuters) – Britain’s Financial Conduct Authority (FCA) on Tuesday called on lawmakers to show their support for its unpopular decision not to grant licences to scores of crypto exchanges like FTX, which has just collapsed.

The FCA has come under pressure as 85% of licence applications from crypto trading firms have either been rejected or withdrawn, the watchdog’s chief executive Nikhil Rathi said.

Crypto exchanges like leader Binance, and FTX, cannot operate in Britain as they don’t have FCA approval for their anti-money laundering controls.

The FCA is set to have a new objective of keeping Britain a globally competitive financial centre, piling pressure on the watchdog to keep its doors open.

“We have taken quite a bit of heat from people saying we are allowing this innovative activity to move to other jurisdictions, and that other jurisdictions are stealing a march,” FCA chief executive Nikhil Rathi told a committee in parliament’s upper chamber, the House of Lords.

“That means sometimes turning down some of the largest players in the global market.”

FTX obtained a now suspended licence from the Cyprus regulator. Binance has obtained approval from some EU member state regulators.

Rathi said he stood by decisions to ban such platforms.

“That does require I think to have parliamentary support and political support when we take some of those robust decisions,” he said.

There are no consumer protections for crypto investments, and the FCA has no information on how much money UK consumers have put into cryptoasset platforms operated overseas.

“If they want to they can go all around the world and deposit money by credit card that we don’t track, and we have no means of tracking it,” Rathi said.

Cryptoassets are unregulated in Britain, but a new financial services and markets bill now being approved by parliament is expected to bring marketing of cryptoassets under the regulatory net, giving the FCA powers to protect consumers.

(Reporting by Huw Jones; Editing by Mark Potter)

(Reuters) – Founder of bankrupt cryptocurrency exchange FTX, Sam Bankman-Fried, is seeking commitments from investors to raise fresh cash, the Wall Street Journal reported on Tuesday, citing people familiar with the matter.

The former chief executive and a few remaining employees at FTX have spent the past weekend calling around in search of commitments from investors, the report said.

The Wall Street Journal could not determine if any investors have committed. A spokesperson for FTX did not immediately respond to a Reuters request for comment.

The company has been scrambling for funds since earlier this month after larger rival Binance backed out of a deal to buy FTX.

(Reporting by Niket Nishant in Bengaluru; Editing by Arun Koyyur)

By Dietrich Knauth and Brendan Pierson

(Reuters) – FTX Trading’s new CEO John J. Ray III, a lawyer tapped to lead the collapsed crypto exchange’s restructuring, previously oversaw the $23 billion bankruptcy of energy firm Enron Corp and has a reputation for boosting creditor recoveries.

Ray took over from founder Sam Bankman-Fried as FTX’s chief executive after a disastrous week for the company that started with a quickly abandoned buyout effort from rival exchange Binance Inc and culminated in a Chapter 11 filing in Delaware on Friday.

In Ray’s first few days as boss, the company has been hit by regulatory probes in various jurisdictions and reports of a hack of FTX apps and $1 billion of missing customer funds.

Ray said on Saturday the company was working with law enforcement and regulators to mitigate the problems and making “every effort” to secure assets.

FTX has yet to provide the Delaware bankruptcy court with any of the information that is customary in the first few days after a bankruptcy filing, a sign that Ray and the company’s lawyers are still trying to understand its operations and past transactions following its “crash landing”, according to Jared Elias, a professor of bankruptcy law at Harvard University.

Ray, 63, on Monday declined to comment on his initial priorities as FTX’s CEO. When asked about recent work, he pointed to his role in the bankruptcy of mortgage lender Residential Capital, in which he helped recover $1.8 billion for creditors by suing mortgage originators.

Ray is no stranger to high-profile restructurings and is perhaps best known for his work on Enron, which filed for bankruptcy in 2001 amid revelations of widespread accounting fraud and corruption.

Serving as Enron’s CEO throughout its years-long bankruptcy, Ray’s work resulted in major settlements with banks accused of helping Enron deceive investors, including a $1.66 billion settlement with Citigroup in 2008.

Mark Lichtenstein, an attorney who worked on Enron’s bankruptcy, saw many parallels between FTX and that case.

“You’ve got such a meltdown, similar to Enron, sort of a run on the bank,” Lichtenstein said. “He had the calm and the gravitas to step into a firestorm.”

Attorneys who worked on Enron’s bankruptcy, one of the largest in history, said it resulted in a better-than-expected outcome for creditors, thanks to Ray’s doggedness in clawing back money based on claims of fraud, accounting malpractice and preferential payouts.

“I have seen him go head to head with some of the most prominent people in the industry,” said John Delnero, an attorney who represented the Enron entity charged with recovering money for creditors. “John doesn’t blink.”

Ray has also worked as a restructuring executive or overseen litigation to benefit creditors in the bankruptcies of telecommunications company Nortel Networks, tanker operator Overseas Shipholding Group, Apple parts supplier GT Technologies, underwear maker Fruit of the Loom and camera company Polaroid Corporation.

(Reporting by Dietrich Knauth and Brendan Pierson in New York, Editing by Alexia Garamfalvi and Sam Holmes)

By Lisa Pauline Mattackal and Medha Singh

(Reuters) – Solana, a poster coin of the crypto future, is in trouble.

The cryptocurrency, which had been lauded by FTX’s founder Sam Bankman-Fried, has been hit harder than any other major coin by the collapse of the exchange.

The Solana token, or SOL, has dropped 53.8% since the furor began unfolding on Nov. 2. By comparison, ether has fallen about 20% and bitcoin 19%.

“In the current crypto shakeout, the most unfortunate innocent victim is the Solana ecosystem,” said Stefan Rust, CEO of blockchain wallet company Laguna Labs. He and several other crypto players said FTX and sister firm Alameda Research likely sold a large amount of the coin in an attempt to stay afloat.

Many investors and app developers look to be leaving the Solana blockchain, which is widely used for decentralized finance applications; the number of SOL coins deposited there has fallen to 24.74 million, some way south of the 68.2 million seen in June, according to data from aggregator DeFiLlama.

FTX and Alameda Research didn’t respond to requests for comment. Solana co-founder Anatoly Yakovenko tweeted that development company Solana Labs didn’t hold any assets on FTX and had enough financial runway for around 30 months. Another co-founder, Raj Gokal, said this was a “crucible” moment for the ecosystem, adding “each time, we’re stronger”.

Nonetheless, uncertainty stalks the blockchain that’s been dubbed an “Ethereum killer” in the past because of its lower transaction fees, faster processing speed and potential to scale.

“It’s not the end for Solana,” said Adam Struck, at LA-based venture firm Struck Capital. “It has established itself as a thriving ecosystem and competitor to Ethereum. But do I think valuation is a little frothy? Yes.”

Some see a silver lining.

“It’s much better for Solana that the connection with Sam Bankman-Fried’s empire is ending now, even if the result is serious short-term pain,” said Jack Saracco, co-founder of digital bank and payments solutions firm Ping.

SOL’s market capitalization has shrunk about 55% since Nov. 2, from $11.6 billion to $5.1 billion, according to data from CoinGecko. Ether’s market cap has fallen 21% to $150.7 billion, while bitcoin’s has fallen 18% to $319 billion.

‘BLOOD IN THE STREETS’

The FTX saga began unfolding in early November when news website CoinDesk reported a leaked balance sheet that showed Alameda Research was heavily dependent on FTX’s native token, FTT. Reuters was unable to verify the report. See timeline.

The exchange filed for bankruptcy on Friday after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival Binance abandoned a proposed rescue deal.

The collapse of the company has seen more than $190 billion wiped from the value of the overall crypto market.

“This is what the old guys used to call ‘blood in the streets’,” said Martin Leinweber, digital asset product strategist at MarketVector Indexes. “There is no Fed or Treasury here to support prices, so the market simply cleans things up.”

Yet even amidst the blood-letting, there was some unexpected stability from stablecoins, which are pegged to the value of mainstream assets such as the U.S. dollar in an effort to reduce tame crypto volatility.

Despite the biggest stablecoin Tether having a brief wobble when it touched $0.985, according to CoinMarketCap, it managed to maintain its peg to the dollar, as did USDCoin, the second largest.

“Most stablecoins performed within their normal volatility bands with the exception of some small algorithmic ones,” Leinweber added.

That’s a reversal from earlier in the year when these coins, notably Tether, lost their peg as the market was hit by volatility following the collapse of the TerraUSD stablecoin..

Some investors attributed the new resilience of the stablecoins, often used to move funds between crypto and regular cash, to greater transparency over their reserves.

“Everyone expected Tether would be the first to fall but it hasn’t,” said Saracco at Ping. “I think a lot of observers don’t realize how battle-tested Tether really is.”

GRAPHIC: Pegged cryptos remain steady (https://graphics.reuters.com/FINTECH-CRYPTO/WEEKLY/jnpwyegnopw/chart.png)

(Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Pravin Char)

(Reuters) – Financial regulators in the Bahamas on Monday appointed liquidators to run FTX’s unit in the country, just days after authorities said they were looking for any “criminal misconduct” by the collapsed crypto exchange.

The Securities Commission of The Bahamas said it had won court approval and appointed two members from PwC to oversee FTX Digital Markets Ltd, a subsidiary of FTX licensed in the country.

FTX filed for bankruptcy on Friday, one of the highest profile crypto blowups, after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.

“Given the magnitude, urgency, and international implications of the unfolding events with regard to FTX, the Commission recognized that it had to, and moved swiftly… to further protect the interests of clients, creditors, and other stakeholders globally,” the regulator said in a statement.

FTX did not respond to a Reuters’ request for comment.

FTX founder Sam Bankman-Fried, who lives in the Bahamas, has also been the subject of speculation about his whereabouts and he denied rumors on Twitter that he had flown to South America.

When asked by Reuters on Saturday whether he had flown to Argentina, he responded in a text message: “Nope”. He told Reuters he was in the Bahamas.

(Reporting by Akriti Sharma in Bengaluru; Editing by Subhranshu Sahu)

TOKYO (Reuters) – The European Central Bank (ECB) will probably continue to raise interest rates beyond 2%, but “jumbo” rate hikes will not become a new habit, France’s central bank chief said in a speech in Tokyo on Tuesday.

The ECB has increased rates at its fastest pace on record recently, hiking them by a combined 200 basis points to 1.5% in just three months.

“We are clearly approaching what I would call the ‘normalisation range’ which can be estimated at around 2%. We should reach this level by December,” French central bank Governor Francois Villeroy de Galhau said in the speech.

“Beyond this level, we will probably continue to raise rates, but we may do so in a more flexible and possibly less rapid manner. Jumbo rate hikes will not become a new habit.”

(Reporting by Daniel Leussink; Editing by Himani Sarkar)

(Reuters) – FTX founder and former Chief Executive Sam Bankman-Fried said he expanded his business too fast and failed to notice signs of trouble at the exchange, whose downfall sent shock waves through the crypto industry, the New York Times reported late on Monday.

“Had I been a bit more concentrated on what I was doing, I would have been able to be more thorough,” Bankman-Fried said in an interview with the newspaper.

FTX filed for bankruptcy on Friday, one of the highest-profile crypto blowups, after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.

The U.S. Justice Department, the Securities and Exchange Commission and the Commodity Futures Trading Commission are now all investigating how FTX handled customer funds, a source told Reuters.

Bankman-Fried, who is based in the Bahamas, declined to comment on his current location, citing safety concerns, the newspaper said.

When asked whether FTX used customer funds to prop up the trading firm Alameda Research that he founded, Bankman-Fried told the New York Times that Alameda had accumulated a large “margin position” on FTX.

“It was substantially larger than I had thought it was,” he said and added without providing details that the size of the position was in the billions.

Reuters reported last week that Bankman-Fried had secretly transferred $10 billion of customer funds from FTX to Alameda.

(Reporting by Ann Maria Shibu and Jaiveer Singh Shekhawat in Bengaluru; Editing by Leslie Adler)

(Reuters) – Michael Barr, the Federal Reserve’s top regulatory official, signaled on Monday that stiffer oversight of cryptocurrency is in the offing, after the collapse last week of crypto exchange FTX that sent shock waves through the industry.

Crypto-asset-related activity “requires effective oversight that includes safeguards to ensure that crypto companies are subject to similar regulatory safeguards as other financial services providers,” Barr said in written testimony released Monday ahead of an appearance at the Senate Banking committee Tuesday, his first before Congress since assuming the role of Fed vice chair for supervision. “We do not want to stifle innovation, but when regulation is lax or behind the curve, it can facilitate risk taking and a race to the bottom that puts consumers, businesses, and the economy in danger and discredits new products and services with consumers and investors.”

(This story has been refiled to correct ‘wages’ to ‘waves’ in the first paragraph)

(Reporting Ann Saphir and Lindsay Dunsmuir; Editing by Leslie Adler)