FTX’s acquisition of creditors was a ploy to buy time and slow down a margin call, Ram Ahluwalia, the CEO of crypto-native investment advisor Lumida Wealth Management says.
Sam Bankman-Fried’s FTX, Alameda and over 100 affiliate companies filed for bankruptcy last week, a development that shocked the crypto world and helped train the regulatory flood lights on the industry. And in all the astonishment that has followed, there is one major question: why did former FTX CEO Sam Bankman-Fried lead everyone to believe in a nasty lie.
Why FTX moved for Voyager and BlockFi
The Lumida CEO posited the hypothesis as it appeared FTX had quietly moved customer funds to its trading platform Alameda Research. But the quant trading firm blew the billions of dollars it “borrowed” from FTX, with the native FTT as collateral.
At the same time, FTX positioned itself as a rescuer to struggling BlockFi, extending a credit facility and agreeing a term sheet for an acquisition. The SBF-led exchange also bid for and won an auction for the sale of bankrupt crypto lender Voyager. But the events of last few days have put these developments into sharp focus.
Ahluwalia said in Twitter thread:
“Why would FTX acquire Voyager and BlockFi if they had no cash and were insolvent? What were they thinking? It’s truly Machiavellian.”
In short, Ahluwalia says FTX had tried to “buy time” as things spiraled out of control and acquiring creditors seems to have been the strategy. He add in his hypothesis:
“FTX was acquiring their creditors to buy time and slow down a margin call. Recall, it was known that FTX had hundreds of millions in loans outstanding to Voyager. When you can’t pay off your debt, the debtors wipe out your equity and own your company.”
According to him, FTX was trying to prevent this scenario as Bankman-Fried plotted how to preserve his assumed “white knight” outlook. The exchange was also trying to forestall any would-be forced liquidation of its tokens, including SOL and FTT, as was bound to happen in a bankruptcy process.
FTX and Alameda being insolvent, also wanted to expand the business’ asset side on its balance sheet.
“Acquiring Voyager and BlockFi temporarily fixes both problems. It requires the ‘target’ to have credibility in the acquirer and also requires reverse due diligence (since the form of payment is FTX equity). If this hypothesis is true, this would mean the fraud perpetuated by FTX is truly epic. This is not merely a ‘lie’, or lack of disclosure of conflicts, gross negligence, or a breach of client duty, or self-dealing — any of which are damning in their own right.”