Coinbase CEO Brian Armstrong is weighing in on the collapse of crypto exchange FTX, saying that the firm’s CEO Sam Bankman-Fried probably committed some form of fraud during the ordeal.
In a new interview on the All-In Podcast, Armstrong says he spoke to both Bankman-Fried and Binance CEO Changpeng Zhao (CZ), who briefly entertained the idea of acquiring FTX, as the collapse was unfolding.
“I spoke to Sam about – he was trying to raise emergency financing and things like that, and I spoke to CZ about why he was considering buying the [exchange], I thought it was a bad idea. But my understanding of what happened at this point is… FTX was in a position where they had this market maker, Alameda [Research], that was investing in risky things, and that’s fine. Market makers, hedge funds, they’re designed to take more risks. It appears that at this point back during the last shake-up in the crypto industry where Terra (LUNA) and Voyager and Celsius and Three Arrows [Capital] went under, it appears that Alameda took a big loss at that time as well.”
Armstrong says that instead of letting Alameda take the loss, the FTX CEO potentially committed fraud by moving customer funds from the crypto exchange over to his quant trading firm.
“They had this solvency issue and instead of just letting it blow up, Sam basically said, ‘Hey we have a bunch of customer assets over here at FTX’ or he somehow basically made a loan from FTX into Alameda trying to prop it up. I don’t know why he did that. That’s the moment in my mind where he crossed the line into probably committing fraud. I think he probably lied to users, lied to investors and he went around and tried to bail out these different companies like Voyager and BlockFi to sort of come off of this thing and maybe he thought he could trade his way out of it.”
The Coinbase CEO says there is a chance that a contagion could spread into the other areas of the crypto industry, negatively affecting other firms. He also reveals that multiple unnamed companies contacted Coinbase asking for emergency financing.
“I do think there is a some contagion risk here. I think there’s other firms that had money just sitting in FTX, and that’s now going through bankruptcy court. So that’s been bad. Multicoin [Capital] came out publicly and said that they had 10% of their portfolio sorted on FTX. There’s other firms that Alameda may have had loans with, and those firms are probably struggling.
I don’t want to say who, but we’ve received a couple of inbound calls from other people trying to get emergency financing. There’s people who may have just – totally different from FTX and Alameda – they may have just had their own portfolio that they took margin or leverage on to buy crypto and now that prices have come down a little bit, they’re getting stopped out, so that’s all been very challenging.”
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