FTX seeks to cover $8 billion hole as regulators freeze assets

abdelaziz Fathi

The Securities Commission of the Bahamas is clamping down on distressed crypto exchange FTX, having frozen its local subsidiary’s assets just as its founder scrambles to raise billions in funds to stave off the collapse of his empire.

FTX

The Bahamas securities regulator said it had frozen the assets of FTX Digital Markets and related parties, suspended its registration in the country and appointed a provisional liquidator for the unit. The provisional liquidation is a regulatory act to safeguard all assets for the time being, as opposed to distributing the company’s assets to creditors.

In a statement, the SCB said “The powers of the dirsectors of FDM have been suspended and no assets of FDM, client assets or trust assets held by FDM, can be transferred, assigned or otherwise dealt with, without the written approval of the provisional liquidator”.

The commission added that the move comes as CEO Sam Bankman-Fried faces heightened scrutiny and it became aware of “public statements suggesting that clients’ assets were mishandled, mismanaged and/or transferred to Alameda Research.”

Elsewhere, the US Department of Justice and the Securities and Exchange Commission also launched joint investigations into Bankman-Fried’s business to determine whether any criminal activity or securities offences have been committed. Specifically, regulators are parsing whether FTX and its founder have been secretly trading with customer funds via Alameda.

Per leaked reports, FTX’s downfall stemmed from Bankman-Fried’s efforts to save other crypto firms, which ultimately left his trading unit in financial hole of up to $8 billion as customers rush for the exit. Concerns about the world’s second largest cryptocurrency exchange’s financial health reportedly triggered huge withdrawals in just three days.

However, the crisis only surfaced last week by reports that the balance sheet of Alameda Research was loaded with billions of dollars-worth of FTT tokens. The revelation implied that any volatility in the price of the exchange’s native FTT token could endanger the crypto hedge fund also owned by Bankman-Fried.

Stuck without a buyer, Bankman-Fried apologized to his staff and the crypto community, saying he had “fucked up” in his calculations and in his communications during the crisis. Now, the 30-year-old CEO is searching for alternative backers after Binance pulled out of the deal, citing its due diligence on FTX and reports about US investigations into the company.

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