Market News

The firm of Donald Trump's one-time communications director was bailed out by Sam Bankman-Fried.

• LUC OLINGA

• NOV 15, 2022 7:01 PM EST

The abrupt implosion of the cryptocurrency exchange FTX, valued at $32 billion in February, resonated like an earthquake in the crypto industry and business circles.

Overnight, many retail and institutional investors lost their money. It will undoubtedly take many months to assess the damage caused and draw up the list of casualties. 

Crypto lender BlockFI is about to file for Chapter 11 bankruptcy. The firm had been bailed out by FTX and its founder and former CEO Bankman-Fried during the liquidity crisis that affected the sector last summer, after the collapse of sister cryptocurrencies Luna and UST, or TerraUSD.

"We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US," BlockFi said on November 14.

'We Lost Money in General'

Venture capital firm Sequoia Capital said it lost $210 million to FTX, while the Japanese firm Softbank has quantified its losses at $100 million.

Another big name in business circles has in turn revealed that he is affected by this debacle, with the bankruptcy filing of FTX on November 11 for lack of a savior.

"You lost money?" Anthony Scaramucci, the founder of alternative investment company SkyBridge Capital, was asked at the Bloomberg New Economy Forum in Singapore on November 15.

"I actually didn’t lose the money because Sam [Bankman-Fried] gave me the money," said Scaramucci, whose nickname is The Mooch. "But yes we lost money in general because the overall portfolio is going down as a result of this debacle, so yes I guess yes."

Last September, FTX had acquired 30% of SkyBridge Capital. 

The two sides didn't provide the financial terms of the transaction.

At the time, SkyBridge, which started out as a traditional hedge fund before pivoting into cryptocurrencies with investments in bitcoin (BTC) and other coins, saw its bets into digital assets turn sour.

SkyBridge had bet that BTC will reach $100,000 per unit. But the fall in the price of the cryptocurrency has undercut this bet, and specifically, it has made smaller funds, like Legion Strategies, vulnerable.

The Legion Strategies fund suspended withdrawals by its investors last July.

The exodus of investors also affected Skybridge Capital's flagship fund, Skybridge Multi-Adviser Hedge Fund Portfolios, which had $2 billion under management at the end of March.

'Misrepresentation'

Bankman-Fried and FTX were also the main sponsor of the annual SALT conference, organized by SkyBridge, which brings together hedge funds. They signed a 3-year contract. The Mooch also revealed that he was in the Middle East -- Saudi Arabia, Abu Dhabi -- recently with Bankman-Fried who wanted to raise new money.

"I think it is very hard to protect yourself against that sort of misrepresentation," Scaramucci said about revelations that Bankman-Fried may have altered his firm’s balance sheet. "If you’ve been shown a balance sheet that may or may not be accurate; if you've been shown income statements that may or may not be accurate, that have been validated by third parties that s pretty rough, that’s very hard to see through."

He continued: "If you are running a background check on someone like Sam you are not going to find anything, he was unblemished, if you will, prior to this incident."

"He was giving me the money I was looking and I was doing a lot of due diligence on him, but clearly not enough; so it’s important to explain that to people, to share that with people."

The Mooch indicated on November 11, in an interview with CNBC, that he was planning to buy back his equity in SkyBridge from FTX. But he didn't provide additional details during that interview how he will finance the deal. Does SkyBridge has enough cash for the transaction, given the fact that the firm was bailed out only two months ago?

The other point is also that the assets of FTX were seized or transferred as part of the bankruptcy. And it is not certain that during the liquidation, SkyBridge will have a say.

FTX faces a shortfall of $1.7 billion, one source told Reuters, while another source said that between $1 billion and $2 billion were missing. Bankman-Fried, who resigned as CEO on November 12, was once hailed as the savior of the sector during the liquidity crisis of last summer.

FTX's financials also showed that there was a "back door" in the books, created with "bespoke software," according to the news outlet. It was described as a way for Bankman-Fried to alter the firm's financial records without raising any alerts.

But Bankman-Fried denied the existence of a "back door."