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FTX Warns of Bankruptcy Without Rescue for $8 Billion Deficit

Sam Bankman-Fried told FTX.com investors on Wednesday that the company would have to file for bankruptcy without a cash injection.

Sam Bankman-Fried told FTX.com investors on Wednesday that the company would have to file for bankruptcy without a cash injection, according to a person with direct knowledge of the matter.

During a phone call before Binance reversed and turned in its takeover bid, Bankman-Fried informed investors that its crypto exchange had a deficit of up to $8 billion and needed $4 billion to remain solvent, said the person, who asked not to. to be called to discuss private conversations. FTX is trying to raise rescue funding in the form of debt, equity or a combination of both, the person said.

“I’m lost,” Bankman-Fried told investors during the call, according to people with knowledge of the conversation. He said he would be “incredibly, incredibly grateful” if investors could help.

An FTX representative declined to comment.

The recognition of his company’s mounting problems and limited options is a stunning turn of events for the crypto industry’s one-time prodigy, which was once worth $26 billion and has been compared to John Pierpont Morgan. It also underscores the uncertainty that hangs over FTX, its customers and cryptocurrency markets.

Staying on the line as the stock market falters is the fate not only of its investors and lenders, but of anyone who has been unable to recover customer assets since it halted some withdrawals earlier this week. The failure of crypto firms Celsius and Voyager left billions in customer money stuck in bankruptcy proceedings.

FTX has a prominent list of lenders such as Sequoia Capital, BlackRock Inc., Tiger Global Management and SoftBank Group Corp. Sequoia has written down the full value of its holdings in FTX.com and FTX.us, an indication that the company has no clear way to recoup its investment.

Still, Bankman-Fried remained defiant over a hectic period of about 24 hours, including mounting speculation that Binance would not go through with the deal.

He repeatedly told investors during the conference call on Wednesday afternoon that it was simply not true that Changpeng Zhao was walking away from the acquisition, the person said.

About an hour later, Binance said it was indeed declining.

Read More: Binance Pulls Out of FTX Rescue, Citing Finances, Investigations

“Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance, the crypto exchange founded by Zhao, said in a statement.

In addition to the financial tensions, FTX is attracting the attention of the US authorities.

The Securities and Exchange Commission and the Commodity Futures Trading Commission are investigating whether the company was properly handling customers’ money, as well as its relationship with other parts of Bankman-Fried’s crypto empire, including its trading house Alameda Research, Bloomberg News reported Wednesday. Justice Department officials are also working with SEC lawyers, one of the people said.

Zhao said in a memo earlier on Wednesday that there was no “master plan” to acquire FTX and that “users’ trust is being shaken.”

Renewed concerns about contagion risk are reflected in falling prices of digital assets. Bitcoin fell below $16,000, its lowest level in two years, following Binance’s announcement.

Coinbase Chief Executive Officer Brian Armstrong said in a Bloomberg TV interview on Tuesday that if the Binance deal falls through, it would likely mean FTX customers would suffer losses.

“That’s not good for anyone,” he said.

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