Two observations on the FTX saga. The lack of ‘finance’ staff at FTX. And the Binance CEO’s reference to lobbying might have been misconstrued.
The fact that Sam Bankman-Fried (SBF) owned Alameda Research, the proprietary trading and market making firm, as well as running the FTX exchange has been known from the start. Somehow, it was considered okay. But there was another major red flag.
If you take a look at the about FTX page, it shows six senior team members: the CEO, the COO, two leaders on tech and two on compliance and legal. Something is missing. For a company managing billions of client funds, $16 billion according to the Wall Street Journal (WSJ), is it not odd that there is no Chief Financial Officer (CFO)? Wouldn’t you not only expect it to have a CFO but one with some street cred?
It’s not definitive that FTX didn’t have a Chief Financial Officer (CFO), but our desk research failed to uncover one. Certainly not one that has a LinkedIn profile. We found a CFO for FTX US derivatives, but he came with the acquisition of LedgerX. And another in Japan, which has more advanced legal requirements following the collapse of the Mount Gox crypto exchange in 2014. Not only was there no CFO, but there was hardly any finance staff and the only person with ‘risk’ management in their title is at the Japanese subsidiary.
Is it any wonder that Sam Bankman-Fried (SBF) ended up with inaccurate data on leverage? He said he thought it was zero when it was 1.7.
If the WSJ allegation that FTX lent SBF-owned market maker Alameda $10 billion is confirmed, a credible CFO might have prevented it or resigned under those circumstances.
And didn’t any of the venture capital backers, or even BlackRock funds, wonder about the need for a CFO? You know, when the company looks after $16 billion of client funds. The Information reported that SBF and his companies invested in some of the venture capital firms that backed FTX.
Now, we don’t believe Binance is an angel, but it has multiple CFOs for the group and regionally. Although last year its CFO departed abruptly. At the start of this year, the long-time Kraken exchange CFO took on the role of SVP Finance at Binance, and Kraken is viewed as one of the more conservative exchanges.
Was SBF lobbying behind anyone’s back?
On Sunday, Binance CEO Changpeng Zhao (CZ) made two impactful tweets. One said Binance was selling its FTT token holdings. And a second that compared FTX/FTT to the failed Terra/LUNA saga.
That second tweet also stated, “we won’t support people who lobby against other industry players behind their backs.” It’s possible this one has been misconstrued.
Bankman-Fried has become hugely unpopular in the past few weeks for supporting the Digital Commodities Consumer Protection Act (DCCPA) legislation. Many view this as restricting decentralized finance (DeFi).
CZ’s lobbying statement was widely construed as a reference to the DCCPA issue.
But it’s conceivable there’s something closer to home. SBF’s DCCPA opinions were extremely public and not behind anyone’s back.
In February, the Wall Street Journal reported that Binance.US was being investigated by the SEC. It alleges that in a similar way to FTX and Alameda having a relationship, Binance.US has a market-making relationship with two CZ-affiliated entities, Sigma Chain AG and Merit Peak Ltd. CZ was the founding Chairman of Sigma Chain but records show he stepped down a few months after formation, handing the reigns to Guangying Chen, a Binance employee.
Now we’re entering the realms of speculation. But perhaps CZ believes the SEC was tipped off about this. Particularly given SBF’s knowledge of the market-making space. In a September blog post CZ references Guangying Chen and misdeeds by competitors.
Additionally, Crypto Twitter is reading an awful lot into the fact that the FTX US General Counsel directly reported to Gary Gensler when Gensler headed the CFTC. Gensler currently Chairs the SEC.