Sam Bankman-Fried’s Alameda, Voyager Digital spar in bankruptcy court

Sam Bankman-Fried became a crypto billionaire and one of the most famous players in the industry by building cryptocurrency exchange FTX into a top site used by traders and investors.

His company was valued at $32 billion in January and currently has more than a million users averaging a total of nearly $10 billion in daily trading volume. But it’s still privately held, so the public doesn’t know how badly it’s been harmed by the “crypto winter” of the last few months. As a point of reference, Coinbase, which is public, has lost roughly two-thirds of its value this year, and mining company Marathon Digital is down by more than half.

While Bankman-Fried, who lives in the Bahamas, has the financial benefit of opacity, his exposure to the broader industry washout became readily apparent last week during a five-hour Chapter 11 bankruptcy hearing in the Southern District of New York for beleaguered crypto brokerage Voyager Digital.

Voyager is among a growing crop of crypto firms to seek bankruptcy protection amid a flood of client withdrawals that followed the plunge in bitcoin, ethereum and other digital currencies. Bankman-Fried’s role in the morass is further complicated, because he also controls quantitative trading firm Alameda Research, which borrowed hundreds of millions of dollars from Voyager and became a major equity investor before turning around and offering a bailout package to the firm.

Meanwhile, Bankman-Fried is trying to play the role of industry consolidator, snapping up distressed assets both as a wager on their eventual recovery and to strengthen his foothold in the U.S. In July, FTX purchased crypto lending company BlockFi, and two months earlier Bankman-Fried disclosed a 7.6% stake in beaten-down trading app Robinhood. Bloomberg even reported that FTX was trying to buy Robinhood, though Bankman-Fried has denied any active discussions are underway.

Outside of the U.S., FTX bought Japanese crypto exchange Liquid and has been in discussions to acquire the owner of South Korean crypto exchange Bithumb.

With his activity on hyperdrive, it’s become abundantly clear that Bankman-Fried is not immune to the contagion that’s infected the cryptocurrency industry.

Last week, lawyers for Alameda Research and Voyager tussled in court over what was revealed to be a deep and complex relationship between the two companies. Documents reviewed by CNBC show ties that extend as far back as September 2021. In Voyager’s bankruptcy documents, the firm divulged that Alameda owed the company over $370 million but didn’t say how long Alameda had been a Voyager borrower.

Voyager filed for bankruptcy in early July after suffering huge losses from its exposure to crypto hedge fund Three Arrows Capital, also known as 3AC, which went under after defaulting on loans from a number of firms in the industry — including over $650 million from Voyager.

Voyager’s court documents and financial statements show that Alameda moved from a borrower to a lender in the span of a few weeks after the 3AC debacle left Voyager in a desperate spot. Bankman-Fried’s firm provided a $500 million bailout to Voyager in late June.

Joshua Sussberg, a partner at Kirkland & Ellis representing Voyager, said in court that Bankman-Fried “wore many hats” during Voyager’s rapid journey from prosperity to bankruptcy. In fact, a few weeks after Voyager’s bankruptcy filing, FTX and Alameda jointly moved in as a potential bidder for Voyager’s customer accounts, with Bankman-Fried saying his priority was to offer them liquidity.

Bankman-Fried took to Twitter to make his case, turning a typically boring process into somewhat of a circus. Voyager’s legal team wasn’t pleased and suggested that the billionaire was trying to create leverage for himself in a potential transaction.

“Parties in our process have expressly made concerns aware to us that FTX has a leg up and is working behind the scenes to force its way,” he said. “I want to assure all parties, the court and our customers, that we will not stand for that.”

Andrew Dietderich, Alameda’s lawyer and a partner at Sullivan & Cromwell, said the rescue deal provided a faster timeline than Voyager’s, yet it had been “rejected violently.”

Michael Wiles, U.S. bankruptcy judge for the Southern District of New York, didn’t like where the arguments were headed.

In addressing the lawyers, Wiles said he had no intention of turning the hearings into “a sort of cable news show with people slinging accusations at each other and making extremely characterized descriptions of what their prior proposals or discussions were.”

Attorneys from Alameda acknowledged that the business ties between Voyager and their client ran deeper than a simple lending relationship, and that the firm borrowed about $377 million from Voyager.

Voyager’s financial documents, which are public because the company’s stock traded in Canada, appear to show that Alameda had initially borrowed significantly more than that. The firm’s December 2021 books refer to a $1.6 billion crypto asset loan, with rates from 1% to 11%, to an entity based in the British Virgin Islands.

Alameda is registered in the British Virgin Islands, with head offices in Tortola, and is the only counterparty located there. It was one of at least seven entities that borrowed heavily from Voyager. The same Voyager document that disclosed 3AC’s default also lists a “Counterparty A,” a British Virgin Islands-registered firm, as owing Voyager $376.784 million. In the company’s bankruptcy presentation, the firm lists Alameda as owing Voyager $377 million. In another filing, that loan amount is tied to a firm with borrowing rates of 1% to 11.5%.

A Voyager representative declined to comment. Alameda didn’t respond to a request for comment.

Loan balances to the British Virgin Islands-based fund fell to $728 million in March 2022, representing 36% of Voyager’s loaned crypto assets, before dropping to roughly $377 million three months later. Disclosure data was provided by FactSet and sourced from Canadian securities administrators.

Voyager’s relationship with Alameda would quickly turn from lender to borrower, as 3AC’s default on the $654 million it owed Voyager brought the firm to the ground.

Alameda stepped in with a bailout on June 22, but with restrictions. The $500 million rescue — $200 million in cash and USDC and roughly $300 million in bitcoin, based on prevailing market prices — had a capped rate of withdrawal, limiting the funding amount to $75 million over a 30-day period.

Alameda attorneys said in court on Thursday that the loan was given “on an unsecured basis” at the specific request of Voyager management.

By that time, Bankman-Fried was already a major stakeholder in Voyager through two equity investments from Alameda.

In late 2021, Alameda closed a $75 million stock purchase, obtaining 7.72 million shares at $9.71 a piece, according to Voyager’s filing for the period ended Dec. 31. In May of this year, Alameda spent another $35 million on about 15 million shares, with the stock price having plunged to $2.34.

The combined purchases gave Alameda an 11.56% stake in Voyager and made it the largest shareholder. By the following month, when Alameda completed the bailout, its $110 million equity investment was worth only about $17 million.

As a holder of at least 10% of Voyager’s equity, Alameda was required to file disclosures with Canadian securities regulators. But on June 22, the day of the rescue, Alameda surrendered a block of 4.5 million shares, bringing its ownership down to 9.49% and nullifying reporting requirements, per Canadian regulation and Voyager’s own filing. That same filing shows the surrendered shares “were subsequently cancelled by Voyager.”

Disclosure of the sale indicated that, in pulling its ownership below the 10% threshold, Alameda was giving away a 2.29% stake worth some $2.6 million.

Neither Bankman-Fried’s equity infusion nor bailout funding could stem the tide as customer redemptions swallowed Voyager’s cash. Nine days after announcing the $500 million package, Voyager froze customer withdrawals and trading. On July 6, Voyager declared Chapter 11 bankruptcy.

To reassure the platform’s millions of users, Voyager CEO Stephen Ehrlich tweeted that after the company goes through bankruptcy proceedings, members with crypto in their account would potentially be eligible for a grab bag of stuff, including a combination of some amount of their holdings, common shares in the reorganized Voyager, Voyager tokens, and whatever proceeds they could get from the now-defunct loan to 3AC.

None of that is guaranteed. Voyager customers netted a small win in bankruptcy court on Thursday, after the court granted them access to $270 million in cash Voyager held with Metropolitan Commercial Bank. Users, however, are still out of luck when it comes to everything else.

Bankman-Fried says he’s here to help customers get back up and running and recapture what they can. Voyager attorneys, on the other hand, portray the FTX-Alameda bid as a fire sale.

Whatever happens, this might be Bankman-Fried’s last best shot of getting some value out of his hefty financial commitment. In a July press release, he tried spinning his offer as a benefit to Voyager customers who were suddenly wrapped up in an “insolvent crypto business.”

Bankman-Fried said in the statement that the deal would let Voyager clients “obtain early liquidity and reclaim a portion of their assets without forcing them to speculate on bankruptcy outcomes and take one-sided risks.”

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