Sam Bankman-Fried, CEO of cryptocurrency exchange FTX, at the Bitcoin 2021 conference in Miami, Florida on June 5, 2021.
Eva Marie Uzcategui | Bloomberg | Getty Images
Sam Bankman-Fried, co-founder of bankrupt crypto firm FTX, spent almost a year convincing regulators to let him launch a derivatives product that would allow retail investors to trade with borrowed money, according to Rostin Behnam, chairman of Commodity Futures trade commission.
In an interview with CNBC’s “Squawk Box” on Wednesday, Behnam said Bankman-Fried lobbied the CFTC to change the rules so FTX could allow users to trade derivatives on margin instead of paying upfront. He also wanted to offer the contracts directly to users without having to go through a futures commission dealer.
“It would have been a non-intermediate model with margins,” said Behnam, who called the proposal a “very difficult issue from a risk perspective.”
Before filing for bankruptcy last week, FTX had a derivatives platform registered with the CFTC called FTX US Derivatives. The platform was a Renaming of LedgerXa company that FTX was acquired in 2021.
FTX US Derivatives is one of the few FTX-related properties that is not part of the bankruptcy proceedings and remains in operation to this day. However, it appears to be using the LedgerX brand again. If you go to the FTX US Derivatives website, you will be directed there ledgerx.com. And Zach Dexter, who was CEO of FTX US Derivatives, says about his LinkedIn profile that he is CEO at LedgerX. Traders can buy options, swaps and futures on the platform Bitcoin and ether.
Beginning in December 2021, Bankman-Fried and his leadership team made frequent visits to the CFTC to advocate for a change to its existing license, Behnam said.
Asked what Behnam thought of Bankman-Fried over the course of the nearly year-long meeting with Bankman-Fried, the chairman said the former FTX chief “knows the markets, at least that’s what he’s trying to suggest” and he “really wanted to.” aggressively passed change.”
FTX, valued at $32 billion by retail investors earlier this year, spiraling in spectacular fashion last week, as reports of liquidity problems caused customers to withdraw billions of dollars from their accounts every day. However, FTX did not have the capital to accommodate these requests as it had used customer deposits for a variety of purposes including trade at Bankman Fried’s hedge fund Alameda Research. Bankman-Fried also announced on Twitter on Wednesday that FTX had built up around $13 billion in leverage.
Behnam said his agency’s staff was still reviewing FTX’s application for an amended license when FTX and about 130 other affiliates, including Alameda and FTX’s U.S. subsidiary, jointly filed for bankruptcy protection.
Since then, LedgerX reportedly withdrew its application for trading leveraged derivatives.
Prior to the implosion, Bankman-Fried had attempted to play the role of industry savior as the crypto market plummeted and lenders and hedge funds went bust. He also bought a 7.6% stake in the trading app in May Robin Hood, which had lost more than three-quarters of its value since going public last year. In April, Bought FTX a stake in the IEX stock exchange.