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Tag Archives: Bells
Sam Bankman-Fried’s Alameda quietly used FTX customer funds without raising alarm bells, say sources
Tom Williams | CQ-Roll Call, Inc. | Getty Images
The quant trading firm Sam Bankman-Fried founded was able to quietly use customer funds from his exchange FTX in a way that flew under the radar of investors, employees and auditors in the process, according to a source.
The way they did it was by using billions from FTX users without their knowledge, says the source.
Alameda Research, the fund started by Bankman-Fried, borrowed billions in customer funds from its founder’s exchange, FTX, according to a source familiar with company operations, who asked not to be named because the details were confidential.
The crypto exchange drastically underestimated the amount FTX needed to keep on hand if someone wanted to cash out, according to the source. Trading platforms are required by their regulators to hold enough money to match what customers deposit. They need the same cushion, if not more, in the event that a user borrows money to make a trade. According to the source, FTX did not have nearly enough on hand.
Its biggest customer, according to a source, was the hedge fund Alameda. The fund was partially able to cover up this activity because the assets it was trading never touched its own balance sheet. Instead of holding any money, it was borrowing billions from FTX users, then trading it, the source said.
None of this was disclosed to customers, to CNBC’s knowledge. In general, mixing customer funds with counterparties and trading them without explicit consent, according to U.S. securities law, is illegal. It also violates FTX’s terms of service. Sam Bankman-Fried declined to comment on allegations of misappropriating customer funds, but did say its recent bankruptcy filing was a result of issues with a leveraged trading position.
“A margin position took a huge hit,” Bankman-Fried told CNBC.
In making some of these leveraged trades, the quant fund was using a cryptocurrency created by the exchange called FTT as collateral. In a lending agreement, collateral is typically the borrower’s pledge to secure repayment. It’s often dollars, or something else of value — like real estate. In this case, a source said Alameda was borrowing from FTX, and using the exchange’s in-house cryptocurrency, FTT token, to back those loans. The price of the FTT token nosedived 75% in a day, making the collateral insufficient to cover the trade.
In the past week, FTX has crashed from a $32 billion cryptocurrency powerhouse, into bankruptcy. The blurred lines between FTX and Alameda Research resulted in a massive liquidity crisis for both companies. Bankman-Fried stepped down as CEO of FTX and said Alameda Research is shutting down. The company has since said it’s removing trading and withdrawals, and moving digital assets offline after a suspected $477 million hack.
When asked about the blurred lines between his companies in August, Bankman-Fried denied any conflict of interest and said FTX was a “neutral piece of market infrastructure.”
“I put a lot of work over the last few years into trying to eliminate conflicts of interest there,” 30-year-old Bankman-Fried told CNBC in an interview. “I don’t run Alameda anymore. I don’t work for it, none of FTX does. We have separate staffs — we don’t want to have preferential treatment. We want as best as we can, to treat everyone fairly.”
Margin trading
Part of the issue, according to the same source, was FTX’s web of complicated leverage and margin trading. Its “spot margin” trading feature let users borrow from other customers on the platform. For example, if a customer deposited one bitcoin they could lend it to another user and earn yield on it.
But every time an asset was borrowed, FTX subtracted the borrowed assets from what it needed to keep in its wallets to match customer deposits, a source says. In a typical situation, an exchange’s wallets need to match what customers deposit. But because of this practice, assets were not backed one-to-one and the company was underestimating the amount they owed customers.
The trading firm Alameda was also able to take advantage of this spot margin feature. A source says Alameda was able to borrow customer funds, essentially for free.
The source explained that Alameda could post the FTT tokens it held as collateral and borrow customer funds. Even if FTX created more FTT tokens, it would not drive down the coin’s value because these coins never made it onto the open market. As a result, these tokens held their market value, allowing Alameda to borrow against them – essentially receiving free money to trade with.
FTX had been able to sustain this pattern as long as it maintained the price of FTT and there was not a flood of customer withdrawals on the exchange. In the week leading up to the bankruptcy filing, FTX did not have enough assets to match customer withdrawals, the source said.
Outside auditors likely missed this discrepancy because customer assets are an off balance sheet item, and therefore, would not be reported on FTX’s financial statements, the source said.
That all crumbled last week.
CoinDesk reported that the majority of Alameda’s balance sheet consisted of FTT tokens, shaking the confidence of consumers and investors. Changpeng Zhao (CZ), the CEO of one of its largest rivals, Binance, publicly threatened to sell his FTT tokens on the open market, crashing the price of FTT.
This chain of events sparked a run on the exchange, with customers withdrawing roughly $5 billion before FTX paused withdrawals. When customers went to pull their money out, FTX didn’t have the funds, sources say.
‘No one saw this coming’
Former employees also told CNBC that the financial information they had access to about the company was inaccurate as a result of these accounting methods. CNBC reviewed a screenshot of FTX’s financial data that a source said was taken last week. Although the company was insolvent at the time, a former employee says the data incorrectly suggested that even if all customers were to withdraw their funds, FTX would still have more than a billion dollars left over.
Three sources familiar with the company told CNBC that they were blindsided by the company’s actions and that, to their knowledge, only a small cohort knew that customer deposits were being misused. Employees said in some cases, their life savings are tied up on FTX.
“We’re just shocked and devastated,” a current FTX employee said. “I feel like I’m in a movie that’s playing out in real time. No one saw this coming.”
As a result of the public backlash FTX has faced over these missing funds, employees who say they were just as devastated as customers are now facing financial hardship, harassment surrounding their involvement with the company, and tarnished future employment prospects.
“We could not believe how we were being betrayed,” a former employee said.
Russia sends alarm bells ringing over Europe’s winter gas supplies
Gazprom’s Miller says he sees no solution to an ongoing equipment issue at part of the Nord Stream 1 pipeline.
Anadolu Agency | Anadolu Agency | Getty Images
LONDON — An ominous warning from Russia’s state-backed energy giant Gazprom has stoked fears of another turbulent winter for European gas supplies.
As a pre-summer heatwave hits western Europe this week, policymakers in the region are scrambling to fill underground storage with natural gas supplies to provide households with enough fuel to keep the lights on and homes warm before the cold returns.
Fears of a severe winter gas shortage are driven by the risk of a full supply disruption to the EU — which receives roughly 40% of its gas via Russian pipelines. The bloc is trying to rapidly reduce its reliance on Russian hydrocarbons in response to the Kremlin’s nearly four-month-long onslaught in Ukraine.
The worry for many is just how dependable Russian gas flows are to Europe as the conflict continues and as economic sanctions bite. Indeed, Moscow has already cut gas supplies to Finland, Poland, Bulgaria Denmark’s Orsted, Dutch firm Gasterra and energy giant Shell for its German contracts, all over a gas-for-rubles payment dispute.
More recently, Russia’s Gazprom opted to further limit supplies via the Nord Stream 1 pipeline that runs from Russia to Germany under the Baltic Sea, and reduced flows to Italy.
Gazprom on Wednesday cited a technical problem for the supply cut, saying the problem stemmed from the delayed return of equipment serviced by Germany’s Siemens Energy in Canada. Austria and Slovakia have also reported supply reductions from Russia.
What’s more, in fiery comments likely to have sent alarm bells ringing throughout the bloc, Gazprom CEO Alexei Miller said Thursday that Russia will play by its own rules after the firm halved supplies to Germany.
“Our product, our rules. We don’t play by rules we didn’t create,” Miller said during a panel session at the St. Petersburg International Economic Forum, according to The Moscow Times.
Miller reportedly said the return of equipment at the Portovaya compressor station — part of the Nord Stream 1 pipeline that carries Russian gas to Germany — had been hampered by an unprecedented barrage of economic sanctions. He added that he saw no solution to the problem.
Flow regulator valves at a natural gas measuring station in Moldova.
Bloomberg | Bloomberg | Getty Images
German Economy Minister Robert Habeck has rejected the claim that Western sanctions were to blame and slammed Russia’s supply curbs as a “political decision” designed to unsettle the region and ramp up gas prices.
Wholesale Dutch gas prices, a European benchmark for natural gas trading, jumped as much as 9% during Friday morning deals, before paring gains.
Energy rationing warning
The latest dispute appears to reaffirm the risk for European countries highly dependent on Russian gas, especially amid growing fears that Moscow could implement a broader squeeze on supplies in the coming months.
Underlining the seriousness of these concerns, IEA chief executive Faith Birol warned last week that EU countries may be at risk of winter energy rationing if member states do not take more steps to improve energy efficiency.
The European Commission, the executive arm of the EU, said on Friday it was aware of Gazprom’s announcements that it would reduce flows via Nord Stream 1 as well as deliveries to several companies across the EU.
A spokesperson for the bloc described the move as “yet another example of Gazprom and Russia’s use of its energy supplies as an instrument of blackmail.”
“Based on our exchange with the national authorities yesterday via the Gas Coordination Group, there is no indication of an immediate security of supply risk, but we will keep monitoring the situation very closely and remain in contact with the national authorities of the affected countries,” they added.
It is not yet known when or if Nord Stream 1 gas flows will return to normal levels.
Craft beer icon Bell’s Brewery bought by global conglomerate
Bell’s Brewery, one of the most iconic craft brewers in the U.S., is being acquired by a unit of global beverage conglomerate Kirin Group, adding to the long list of beer-industry consolidation in recent years.
Founder Larry Bell, who started the brewery in Kalamazoo, Mich., in 1985, is retiring and said Wednesday he is selling the company to Australia-based Lion Little World Beverages , which is owned by Japan’s Kirin
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The move will put Bell’s under the same corporate umbrella as Colorado-based New Belgium Brewery, which sold to Lion in 2019.
“This decision ultimately came down to two determining factors,” Bell said in a statement. “First, the folks at New Belgium share our ironclad commitment to the craft of brewing and the community-first way we’ve built our business. Second, this was the right time. I’ve been doing this for more than 36 years and recently battled some serious health issues. I want everyone who loves this company like I do to know we have found a partner that truly values our incredible beer, our culture, and the importance of our roots here in Michigan.”
The price of the deal was not disclosed, and no major changes or layoffs are expected for the time being. “Beer drinkers should expect no changes to Bell’s current beers,” the company added.
Bell’s Executive Vice President Carrie Yunker will continue to lead day-to-day operations, and will report to New Belgium Chief Executive Steve Fechheimer.
“In Bell’s, we see a likeminded group of people dedicated to making the world’s best beer — doing business in a way that improves the wellbeing of the people who power our success,” Fechheimer said in a statement. “We couldn’t be happier to welcome the entire Bell’s team.”
Bell’s is best known for its Two Hearted IPA, which in 2020 was named best beer in America for the fourth straight year by the American Homebrewers Association magazine Zymurgy. That same survey ranked Bell’s Hopslam the No. 5 beer, and Bell’s as the best brewery in America.
After enjoying boom years and rapid expansion in the late 2000s, the craft beer industry has sharply pulled back over the past decade, suffering from oversaturated markets, slower sales and competition from hard seltzers. Lion bought New Belgium, maker of Fat Tire, nearly two years ago for an undisclosed price, and Japan’s Sapporo Holdings Ltd.
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bought San Francisco’s Anchor Brewing, which billed itself as the oldest craft brewer in the U.S., in 2017 for about $85 million. In 2019, Boston Beer Co.
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bought Delaware’s Dogfish Head Brewery for about $300 million, and Anheuser-Busch InBev SA
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bought Kona Brewing Co. and Redhook Brewery in a deal valued at more than $200 million.
Dax Shepard Says Extracting Wife Kristen Bell’s Clogged Breast Was ‘Not Easy and Not Rewarding’
Dax Shepard is getting real about the time he came to his wife Kristen Bell’s aid during an uncomfortable breastfeeding experience.
In a clip from Wednesday’s episode of The Drew Barrymore Show, the talk show host asks the couple about when Shepard had to nurse out a breastfeeding clog that Bell encountered when she had mastitis. Bell first discussed the experience with Katie Lowes on her Daytime Emmy–nominated series Momsplaining with Kristen Bell back in 2018.
“Let’s just say that I extracted mastitis and we’ll leave everyone’s imagination to wander,” Shepard told Barrymore. “Let me also add that it is not easy and not rewarding.”
“I mean it is to know that you helped your partner but other than that it’s where the rubber meets the road. It’s down in the trenches you know?” the father of two added.
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RELATED: Kristen Bell and Katie Lowes Bond Over Husbands Being Willing to ‘Nurse Out’ a Breastfeeding Clog
Despite the unconventional experience, Bell told Barrymore that it made her “realize the level of commitment that this man had to me.”
When the Frozen actress — who shares daughters Lincoln, 8, and Delta, 6½, with her husband — initially discussed Shepard’s help in 2018, she recounted, “I said to my husband, ‘I really need you to suck this out. We could talk about it, we could be weird about it, or you could just go ahead and nurse.’ He pulled it out. He had a cup next to him. He was pulling out and spitting into this cup, and I’ve never been more in love in my life.”
Last month on an episode of Momsplaining, she chatted with Lowes for a second time about the experience and reiterated that the method is useful.
“It works!” said Bell, as Lowes said, “I know. I’ve asked my husband and to be honest with you guys, Adam has never had to nurse out a clog but he has said numerous times, ‘I would do it.’ “
“Because that’s my boy right there!” Bell responded while the Scandal alum clapped.
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