In an interview with Bloomberg, Sam Bankman-Fried (SBF) admitted that he had allowed Alameda Research to violate FTX margin restrictions.
He admitted that a post-LUNA crash meeting had taken place during which they discussed what to do about Alameda’s debt. It did not appear to be a crisis at the time.
All they wanted to do was give a little extra credit to a fund that already traded on margin while still having more than enough collateral to repay the loan, even though a large portion of the collateral was made up of shitcoins.
Alameda’s margin position on FTX at the time significantly increased its level of leverage. SBF claimed, however, that they should have simply declined the offer. He knew there was a chance it wouldn’t work, but he thought the risk was much lower.
When asked about the $8 billion in cash he thought he had, he said it was “misaccounted” for, explaining that customers occasionally wire funds to Alameda Research rather than transferring them directly to FTX. This occurred because some banks preferred to work with hedge funds rather than exchanges.
He claimed that this money was inadvertently double-counted by FTX’s internal accounting system, which credited it to both the exchange and the fund.
According to Bankman-Fried, the billions of dollars sent to Alameda by clients are gone because the companies’ expenses far outweighed their earnings. He maintains that because he paid such little attention to his expenses, he was unaware that his outgoings exceeded his ingoings.
SBF claimed that FTX was a respectable, thriving business, but he had erred by permitting a margin position to grow on it.
“It was a completely unnecessary and unforced error, which, like, maybe I got super unlucky on, but, like, that was my bad, “ he said.
He had lobbied regulators to deploy the FTX margining system on US exchanges rather than the more conventional safeguards because he was so proud of it. This contradicted his tweets from May, in which he stated that exchanges should never provide credit to a fund while putting the assets of other clients at risk.
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