Bankman-Fried Apologizes to FTX Employees and Explains Why the Crypto Exchange Collapsed

The founder of failed crypto exchange FTX, Sam Bankman-Fried, apologized in a letter to his former employees for his role in the collapse.

The letter, which was reviewed by The Block, says that a series of events resulted in the collapse of FTX. It started with the market's crash in Spring, followed by credit "drying up" and ending with customers withdrawing their funds en masse, Bankman-Fried said. Adding to those issues, FTX's poor margin management and risk controls ultimately led the company to file for bankruptcy protection, according to the letter.

"I never intended for this to happen. I did not realize the full extent of the margin position, nor did I realize the magnitude of the risk posed by a hyper-correlated crash," Bankman-Fried said in the letter. "The loans and secondary sales were generally used to reinvest in the business–including buying out Binance–and not for large amounts of personal consumption."

According to Bankman-Fried, FTX had around $60 billion in collateral and $2 billion in liabilities this spring, but a market crash meant the collateral's value was reduced to half. The drying up of credit in the industry meant FTX's collateral was worth around $25 billion, though liabilities jumped to $8 billion. Another crash in November "led to another roughly 50% reduction in the value of collateral over a very short period of time," at $17 billion at the time. Then a bank run, caused by what Bankman-Fried called "attacks" in November, reduced the collateral to $9 billion, he said.

"As we frantically put everything together, it became clear that the position was larger than its display on admin/users, because of old fiat deposits before FTX had bank accounts," the letter stated. "I did not realize the full extent of the margin position, nor did I realize the magnitude of the risk posed by a hyper-correlated crash."