Technology

Sam Bankman-Fried tries to broker FTX bailout from his home in the Bahamas, despite being booted from the crypto company

Published

2 years ago

November 21, 2022

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Sam Bankman-Fried, CEO and Founder of FTX, walks near the U.S. Capitol, in Washington, D.C., September 15, 2022.

Graeme Sloan | Sipa via AP Images

NASSAU, Bahamas — Despite being pushed out of the cryptocurrency giant he founded, Sam Bankman-Fried told CNBC he is trying to lock down a multibillion-dollar deal to bail out FTX, which filed for Chapter 11 bankruptcy protection earlier this month.

In a brief interview with CNBC late Friday, the FTX founder declined to give details about the downfall of his crypto conglomerate, or what he knew beyond liabilities being “billions of dollars larger than I thought.” Bankman-Fried declined an on-camera interview or broader discussion on the record. He said he was focused on retrieving customer funds and is still on a quest to secure a deal.

“I think we should be trying to get as much value to users as possible. I hate what happened and deeply wish that I had been more careful,” Bankman-Fried told CNBC.

Bankman-Fried also maintained that there are “billions” of dollars in customer assets in jurisdictions “where there were segregated balances,” including in the U.S., and said “there are billions of dollars of potential funding opportunities out there” to make customers whole.

What was once a $32 billion global empire has imploded in recent weeks. Rival Binance had signed a letter of intent to buy FTX’s international business as it faced a liquidity crunch. But its team decided the exchange was beyond saving, with one Binance executive describing the balance sheet as if “a bomb went off.” FTX filed for Chapter 11 bankruptcy protection on Nov. 11 and appointed John Ray III as the new CEO, whose corporate experience includes restructuring Enron in the wake of its historic collapse.

Despite losing access to his corporate email and all company systems, Bankman-Fried maintains that he can play a role in the next steps. Venture capital investors have told CNBC the 30-year-old had been calling to try and secure funding in recent weeks. Still, investors said they couldn’t imagine any firm with a large enough balance sheet or risk appetite to bail out the beleaguered FTX.

A long-shot, Bankman-Fried-brokered deal would be viewed in the same way as any competitive bailout offer, according to legal experts.

“He’s no different than any third-party suitor at this point, other than the fact that he’s a majority FTX shareholder,” said Adam Levitin, a Georgetown University law professor and principal at Gordian Crypto Advisors. “He could come into Delaware with an unsolicited offer, and say I want to buy out all the creditors for a price. But that would have to be approved by the bankruptcy court — he can’t force a deal.”

FTX’s new CEO has also said he’s open to a bailout. On Saturday, Ray said the crypto company is looking to sell or restructure its global empire.

“Based on our review over the past week, we are pleased to learn that many regulated or licensed subsidiaries of FTX, within and outside of the United States, have solvent balance sheets, responsible management and valuable franchises,” FTX chief Ray, said in a statement, adding it is “a priority” in the coming weeks to “explore sales, recapitalizations or other strategic transactions.”

After reviewing the state of FTX’s finances last week, Ray said he’s never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information” in his 40-year career. He added that Bankman-Fried and the top executives were “a very small group of inexperienced, unsophisticated and potentially compromised individuals,” calling the situation “unprecedented.”

Battle in the Bahamas

Part of Bankman-Fried’s ability to sign a deal may come down to which jurisdiction has more say in the bankruptcy process.

In a recent filing, Ray cited a conversation with a Vox reporter last week in which Bankman-Fried suggested that customers would be in a better position if “we” can “win a jurisdictional battle versus Delaware.” He also told Vox he “regrets” filing for Chapter 11 bankruptcy, which took any FTX restructuring out of his control, adding “f— regulators.”

Billions in FTX customer assets are now caught in limbo between a bankruptcy court in Delaware, and liquidation in the Bahamas.

Ray put FTX and more than 100 subsidiaries under Chapter 11 bankruptcy protection in Delaware — but that didn’t include FTX Digital Markets, which is based in the Bahamas. The Nassau-based leg of FTX doesn’t own or control any other entities, according to the organizational chart filed by Ray.

The Securities Commission of the Bahamas has hired its own liquidators to oversee the recovery of assets and is backing a Chapter 15 process in New York, which gives foreign representatives recognition in U.S. proceedings. As part of that process, Bahamas regulators said they transferred customers’ cryptocurrency to another account to “protect” creditors and clients. It also said the U.S. Chapter 11 bankruptcy process doesn’t apply to them.

The Bahamas move flies in the face of what’s happening in Delaware.

The FTX estate said that those withdrawals were “unauthorized” and accused the Bahamas government of working with Bankman-Fried on that transfer. FTX’s new leadership team has challenged Bahamian liquidators, and asked the U.S. court to intervene while enforcing an automatic stay — a standard feature of Chapter 11 proceedings. Typically, bankruptcy is meant to fence off assets to make sure they can’t be touched without court approval.

FTX’s team said the Bahamian group had no right to move money and called the Bahamas withdrawals “unauthorized.” Data firm Elliptic estimated the value of the transfer, which was initially thought to be a hack, to be around $477 million.

“There are some issues that require either coordination or fighting to figure out — there’s going to be some jockeying when it comes to assets in the Bahamas vs. the U.S.,” said Daniel Besikof, partner at Loeb & Loeb. “The Bahamas folks are taking a broader read of their mandate and the U.S. is taking a more technical read.”

The bankruptcy mayhem is partly a result of messy accounting on the part of FTX. Under Bankman-Fried’s leadership, Ray said the company “did not maintain centralized control of its cash” — “there was no accurate list of bank accounts and signatories” — and “an insufficient attention to the creditworthiness of banking partners.”

Part of the Bahamas’ motivation for control may come down to economic interests. FTX hosted a high-profile finance conference with SALT in Nassau and planned to invest $60 million in a new headquarters that one top executive likened to Google’s or Apple’s campus in Silicon Valley.

“Some of it is about protecting domestic creditors — this is a Bahamas company. There’s also a lot of money to be made for local Bahamian law firms, you have the whole trickle down effect,” said Georgetown’s Levitin. “There’s going to be some level of a staring contest between the Delaware bankruptcy court and the Bahamas regulator.”

Bankman-Fried’s future

Some experts say Bankman-Fried may be gunning for a bailout to reduce his own criminal liability and possible jail time. Bankman-Fried did not respond to a request for comment on potential charges.

Justin Danilewitz, a partner at Saul Ewing who focuses on white-collar crime, said while the odds of anyone flocking to make FTX whole are “highly unlikely given the staggering losses,” mitigating client losses can be a tactic to look better in the eyes of the court.

“That’s often highly advisable if a defendant is in a real pickle and the proof is compelling — it’s a good idea to try and make amends as promptly as possible,” Danilewitz said.

Some have likened that outcome to what happened at MF Global, formerly run by ex New Jersey Gov. Jon Corzine. The company was accused of using customer money to pay bills for the firm. But Corzine settled with the CFTC for $5 million, without admitting or denying misconduct.

The approach could backfire, Danilewitz said. That move could “reflect a degree of culpability or be viewed as an admission, and someone taking responsibility for what happened.”

Even if Bankman-Fried manages to play a role in recovering funds through a bailout, or somehow gains more control through a Bahamas liquidation process, he may face years of legal fights from possible wire fraud to civil litigation.

Wire fraud requires proof that a defendant engaged in a scheme to defraud, and used interstate wires to achieve that. The statutory maximum term is a 20-year sentence, in addition to fines. Danilewitz called it a “federal prosecutor’s favorite tool in the toolbox.” The key question, he said, will have to do with the defendant’s intent. “Was this all a big mishap, or was there intentional misconduct that could give rise to federal criminal liability?”

Others have likened Bankman-Fried’s legal situation to Bernie Madoff and Elizabeth Holmes, the latter of whom on Friday was sentenced to 11 years in prison for fraud after deceiving investors about the purported efficacy of her company’s blood-testing technology.

“The Theranos verdict should not have left him feeling good,” said Georgetown’s Levitin. “He has a real risk here. There’s the possibility of criminal liability, and civil liability.”

Technology

Palantir jumps 9% to a record after announcing move to Nasdaq

Published

1 day ago

November 15, 2024

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Palantir jumps 9% to a record after announcing move to Nasdaq

Alex Karp, CEO of Palantir Technologies speaks during the Digital X event on September 07, 2021 in Cologne, Germany.

Andreas Rentz | Getty Images

Palantir shares continued their torrid run on Friday, soaring as much as 9% to a record, after the developer of software for the military announced plans to transfer its listing to the Nasdaq from the New York Stock Exchange.

The stock jumped past $64.50 in afternoon trading, lifting the company’s market cap to $147 billion. The shares are now up more than 50% since Palantir’s better-than-expected earnings report last week and have almost quadrupled in value this year.

Palantir said late Thursday that it expects to begin trading on the Nasdaq on Nov. 26, under its existing ticker symbol “PLTR.” While changing listing sites does nothing to alter a company’s fundamentals, board member Alexander Moore, a partner at venture firm 8VC, suggested in a post on X that the move could be a win for retail investors because “it will force” billions of dollars in purchases by exchange-traded funds.

“Everything we do is to reward and support our retail diamondhands following,” Moore wrote, referring to a term popularized in the crypto community for long-term believers.

Moore appears to have subsequently deleted his X account. His firm, 8VC, didn’t immediately respond to a request for comment.

Last Monday after market close, Palantir reported third-quarter earnings and revenue that topped estimates and issued a fourth-quarter forecast that was also ahead of Wall Street’s expectations. CEO Alex Karp wrote in the earnings release that the company “absolutely eviscerated this quarter,” driven by demand for artificial intelligence technologies.

U.S. government revenue increased 40% from a year earlier to $320 million, while U.S. commercial revenue rose 54% to $179 million. On the earnings call, the company highlighted a five-year contract to expand its Maven technology across the U.S. military. Palantir established Maven in 2017 to provide AI tools to the Department of Defense.

The post-earnings rally coincides with the period following last week’s presidential election. Palantir is seen as a potential beneficiary given the company’s ties to the Trump camp. Co-founder and Chairman Peter Thiel was a major booster of Donald Trump’s first victorious campaign, though he had a public falling out with Trump in the ensuing years.

When asked in June about his position on the 2024 election, Thiel said, “If you hold a gun to my head I’ll vote for Trump.”

Thiel’s Palantir holdings have increased in value by about $3.2 billion since the earnings report and $2 billion since the election.

In September, S&P Global announced Palantir would join the S&P 500 stock index.

Analysts at Argus Research say the rally has pushed the stock too high given the current financials and growth projections. The analysts still have a long-term buy rating on the stock and said in a report last week that the company had a “stellar” quarter, but they downgraded their 12-month recommendation to a hold.

The stock “may be getting ahead of what the company fundamentals can support,” the analysts wrote.

WATCH: Palantir hits record as defense adopts AI tech

Palantir hits record high as defense adopts AI tech

Technology

Super Micro faces deadline to keep Nasdaq listing after 85% plunge in stock

Published

1 day ago

November 15, 2024

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Super Micro faces deadline to keep Nasdaq listing after 85% plunge in stock

Charles Liang, chief executive officer of Super Micro Computer Inc., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024. The trade show runs through June 7.

Annabelle Chih | Bloomberg | Getty Images

Super Micro Computer could be headed down a path to getting kicked off the Nasdaq as soon as Monday.

That’s the potential fate for the server company if it fails to file a viable plan for becoming compliant with Nasdaq regulations. Super Micro is late in filing its 2024 year-end report with the SEC, and has yet to replace its accounting firm. Many investors were expecting clarity from Super Micro when the company reported preliminary quarterly results last week. But they didn’t get it.

The primary component of that plan is how and when Super Micro will file its 2024 year-end report with the Securities and Exchange Commission, and why it was late. That report is something many expected would be filed alongside the company’s June fourth-quarter earnings but was not.

The Nasdaq delisting process represents a crossroads for Super Micro, which has been one of the primary beneficiaries of the artificial intelligence boom due to its longstanding relationship with Nvidia and surging demand for the chipmaker’s graphics processing units.

The one-time AI darling is reeling after a stretch of bad news. After Super Micro failed to file its annual report over the summer, activist short seller Hindenburg Research targeted the company in August, alleging accounting fraud and export control issues. The company’s auditor, Ernst & Young, stepped down in October, and Super Micro said last week that it was still trying to find a new one.

The stock is getting hammered. After the shares soared more than 14-fold from the end of 2022 to their peak in March of this year, they’ve since plummeted by 85%. Super Micro’s stock is now equal to where it was trading in May 2022, after falling another 11% on Thursday.

Getting delisted from the Nasdaq could be next if Super Micro doesn’t file a compliance plan by the Monday deadline or if the exchange rejects the company’s submission. Super Micro could also get an extension from the Nasdaq, giving it months to come into compliance. The company said Thursday that it would provide a plan to the Nasdaq in time.

A spokesperson told CNBC the company “intends to take all necessary steps to achieve compliance with the Nasdaq continued listing requirements as soon as possible.”

While the delisting issue mainly affects the stock, it could also hurt Super Micro’s reputation and standing with its customers, who may prefer to simply avoid the drama and buy AI servers from rivals such as Dell or HPE.

“Given that Super Micro’s accounting concerns have become more acute since Super Micro’s quarter ended, its weakness could ultimately benefit Dell more in the coming quarter,” Bernstein analyst Toni Sacconaghi wrote in a note this week.

A representative for the Nasdaq said the exchange doesn’t comment on the delisting process for individual companies, but the rules suggest the process could take about a year before a final decision.

A plan of compliance

The Nasdaq warned Super Micro on Sept. 17 that it was at risk of being delisted. That gave the company 60 days to submit a plan of compliance to the exchange, and because the deadline falls on a Sunday, the effective date for the submission is Monday.

If Super Micro’s plan is acceptable to Nasdaq staff, the company is eligible for an extension of up to 180 days to file its year-end report. The Nasdaq wants to see if Super Micro’s board of directors has investigated the company’s accounting problem, what the exact reason for the late filing was and a timeline of actions taken by the board.

The Nasdaq says it looks at several factors when evaluating a plan of compliance, including the reasons for the late filing, upcoming corporate events, the overall financial status of the company and the likelihood of a company filing an audited report within 180 days. The review can also look at information provided by outside auditors, the SEC or other regulators.

Lightning Round: Super Micro is still a sell due to accounting irregularities

Last week, Super Micro said it was doing everything it could to remain listed on the Nasdaq, and said a special committee of its board had investigated and found no wrongdoing. Super Micro CEO Charles Liang said the company would receive the board committee’s report as soon as last week. A company spokesperson didn’t respond when asked by CNBC if that report had been received.

If the Nasdaq rejects Super Micro’s compliance plan, the company can request a hearing from the exchange’s Hearings Panel to review the decision. Super Micro won’t be immediately kicked off the exchange – the hearing panel request starts a 15-day stay for delisting, and the panel can decide to extend the deadline for up to 180 days.

If the panel rejects that request or if Super Micro gets an extension and fails to file the updated financials, the company can still appeal the decision to another Nasdaq body called the Listing Council, which can grant an exception.

Ultimately, the Nasdaq says the extensions have a limit: 360 days from when the company’s first late filing was due.

A poor track record

There’s one factor at play that could hurt Super Micro’s chances of an extension. The exchange considers whether the company has any history of being out of compliance with SEC regulations.

Between 2015 and 2017, Super Micro misstated financials and published key filings late, according to the SEC. It was delisted from the Nasdaq in 2017 and was relisted two years later.

Super Micro “might have a more difficult time obtaining extensions as the Nasdaq’s literature indicates it will in part ‘consider the company’s specific circumstances, including the company’s past compliance history’ when determining whether an extension is warranted,” Wedbush analyst Matt Bryson wrote in a note earlier this month. He has a neutral rating on the stock.

History also reveals just how long the delisting process can take.

Charles Liang, chief executive officer of Super Micro Computer Inc., right, and Jensen Huang, co-founder and chief executive officer of Nvidia Corp., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024.

Annabelle Chih | Bloomberg | Getty Images

Super Micro missed an annual report filing deadline in June 2017, got an extension to December and finally got a hearing in May 2018, which gave it another extension to August of that year. It was only when it missed that deadline that the stock was delisted.

In the short term, the bigger worry for Super Micro is whether customers and suppliers start to bail.

Aside from the compliance problems, Super Micro is a fast-growing company making one of the most in-demand products in the technology industry. Sales more than doubled last year to nearly $15 billion, according to unaudited financial reports, and the company has ample cash on its balance sheet, analysts say. Wall Street is expecting even more growth to about $25 billion in sales in its fiscal 2025, according to FactSet.

Super Micro said last week that the filing delay has “had a bit of an impact to orders.” In its unaudited September quarter results reported last week, the company showed growth that was slower than Wall Street expected. It also provided light guidance.

The company said one reason for its weak results was that it hadn’t yet obtained enough supply of Nvidia’s next-generation chip, called Blackwell, raising questions about Super Micro’s relationship with its most important supplier.

“We don’t believe that Super Micro’s issues are a big deal for Nvidia, although it could move some sales around in the near term from one quarter to the next as customers direct orders toward Dell and others,” wrote Melius Research analyst Ben Reitzes in a note this week.

Super Micro’s head of corporate development, Michael Staiger, told investors on a call last week that “we’ve spoken to Nvidia and they’ve confirmed they’ve made no changes to allocations. We maintain a strong relationship with them.”

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Technology

Alibaba posts profit beat as China looks to prop up tepid consumer spend

Published

1 day ago

November 15, 2024

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Alibaba posts profit beat as China looks to prop up tepid consumer spend

Alibaba Offices In Beijing

Bloomberg | Bloomberg | Getty Images

Chinese e-commerce behemoth Alibaba on Friday beat profit expectations in its September quarter, but sales fell short as sluggishness in the world’s second-largest economy hit consumer spending.

Alibaba said net income rose 58% year on year to 43.9 billion yuan ($6.07 billion) in the company’s quarter ended Sept. 30, on the back of the performance of its equity investments. This compares with an LSEG forecast of 25.83 billion yuan.

“The year-over-year increases were primarily attributable to the mark-to-market changes from our equity investments, decrease in impairment of our investments and increase in income from operations,” the company said of the annual profit jump in its earnings statement.

Revenue, meanwhile, came in at 236.5 billion yuan, 5% higher year on year but below an analyst forecast of 238.9 billion yuan, according to LSEG data.

The company’s New York-listed shares have gained ground this year to date, up more than 13%. The stock fell more than 2% in morning trading on Friday, after the release of the quarterly earnings.

Sales sentiment

Investors are closely watching the performance of Alibaba’s main business units, Taobao and Tmall Group, which reported a 1% annual uptick in revenue to 98.99 billion yuan in the September quarter.

The results come at a tricky time for Chinese commerce businesses, given a tepid retail environment in the country. Chinese e-commerce group JD.com also missed revenue expectations on Thursday, according to Reuters.

Markets are now watching whether a slew of recent stimulus measures from Beijing, including a five-year 1.4 trillion yuan package announced last week, will help resuscitate the country’s growth and curtail a long-lived real estate market slump.

The impact on the retail space looks promising so far, with sales rising by a better-than-expected 4.8% year on year in October, while China’s recent Singles’ Day shopping holiday — widely seen as a barometer for national consumer sentiment — regained some of its luster.

Alibaba touted “robust growth” in gross merchandise volume — an industry measure of sales over time that does not equate to the company’s revenue — for its Taobao and Tmall Group businesses during the festival, along with a “record number of active buyers.”

“Alibaba’s outlook remains closely aligned with the trajectory of the Chinese economy and evolving regulatory policies,” ING analysts said Thursday, noting that the company’s Friday report will shed light on the Chinese economy’s growth momentum.

The e-commerce giant’s overseas online shopping businesses, such as Lazada and Aliexpress, meanwhile posted a 29% year-on-year hike in sales to 31.67 billion yuan.

Cloud business accelerates

Alibaba’s Cloud Intelligence Group reported year-on-year sales growth of 7% to 29.6 billion yuan in the September quarter, compared with a 6% annual hike in the three-month period ended in June. The slight acceleration comes amid ongoing efforts by the company to leverage its cloud infrastructure and reposition itself as a leader in the booming artificial intelligence space.

“Growth in our Cloud business accelerated from prior quarters, with revenues from public cloud products growing in double digits and AI-related product revenue delivering triple-digit growth. We are more confident in our core businesses than ever and will continue to invest in supporting long-term growth,” Alibaba CEO Eddie Wu said in a statement Friday.

Stymied by Beijing’s sweeping 2022 crackdown on large internet and tech companies, Alibaba last year overhauled the division’s leadership and has been shaping it as a future growth driver, stepping up competition with rivals including Baidu and Huawei domestically, and Microsoft and OpenAI in the U.S.

Alibaba, which rolled out its own ChatGPT-style product Tongyi Qianwen last year, this week unveiled its own AI-powered search tool for small businesses in Europe and the Americas, and clinched a key five-year partnership to supply cloud services to Indonesian tech giant GoTo in September.

Speaking at the Apsara Conference in September, Alibaba’s Wu said the company’s cloud unit is investing “with unprecedented intensity, in the research and development of AI technology and the building of its global infrastructure,” noting that the future of AI is “only beginning.”

Correction: This article has been updated to reflect that Alibaba’s Cloud Intelligence Group reported quarterly revenue of 29.6 billion yuan in the September quarter.