Shark Tank’s Kevin O’Leary points finger at Binance for FTX collapse

Venture capitalist tells US Senate Banking Committee that the two cryptocurrency exchanges were at ‘war with each other’

Canadian investor Kevin O'Leary appears before the US Senate Banking Committee. EPA
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Millionaire Canadian businessman and Shark Tank star Kevin O’Leary has told the US Senate Banking Committee, which is investigating the collapse of Sam Bankman-Fried’s FTX cryptocurrency exchange, that rival platform Binance “intentionally” put the company out of business.

This is despite FTX’s new chief executive John Ray telling the committee on Tuesday that Binance had nothing to do with exchange’s collapse.

“In my view, these two behemoths that own the unregulated market together and grow these incredible businesses in terms of growth were at war with each other and one put the other out of business intentionally,” Mr O’Leary, who was paid about $15 million to be an ambassador and spokesman for FTX, said as he gave evidence before the congressional hearing on Wednesday.

“Maybe there is nothing wrong with love and war, but Binance is a massive unregulated global monopoly now; they put FTX out of business.”

However, Mr Ray, a lawyer and insolvency specialist who oversaw Enron’s bankruptcy, said that FTX was not solvent and Binance did not cause its collapse.

“[Mr Bankman-Fried] spends a considerable amount of time talking about Binance and how Binance effectively created a run on the bank, suggesting that had that not occurred, FTX was solvent and would have been just fine. Prior to that episode, is your belief that FTX was solvent?", Congressman Anthony Gonzalez asked Mr Ray.

“No,” Mr Ray replied.

“I thought so,” Mr Gonzalez said.

When contacted for comment on Thursday, Binance said: “As per the SEC complaint, especially sections 76 & 77, and John Ray's testimony, Kevin O'Leary's statement is categorically false.”

Mr Bankman-Fried, 30, was arrested in the Bahamas on Monday after federal prosecutors in the US charged him with eight criminal counts, including conspiracy and wire fraud, for allegedly misusing billions of dollars in customers’ funds before the $9 billion collapse of FTX and Alameda Research, his cryptocurrency trading company.

Appearing in court in Nassau on Tuesday, Mr Bankman-Fried was denied bail and remanded in custody as the judge said he was too big of a flight risk to be released.

“I am not satisfied that there is any condition that I could place in Samuel Bankman-Fried to sufficiently satisfy, because of his access to substantial finances, that he would not and could not abscond,” said Judge Joyce Ferguson-Pratt.

Mr Bankman-Fried is being held in the Bahamas Department of Correctional Services prison until his extradition hearing on February 8.

FTX filed for bankruptcy protection in the US on November 11 in the highest-profile cryptocurrency exchange failure to date, after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal, Reuters reported.

In response to the collapse of FTX, cryptocurrencies such as Bitcoin and Ethereum plummeted but have since pared back most of their losses.

Watch: What is Bitcoin and how did it start?

What is Bitcoin and how did it start?

What is Bitcoin and how did it start?

Mr Bankman-Fried, who cofounded FTX with Gary Wang and Nishad Singh in 2019, and Alameda Research in 2017, resigned as chief executive of FTX on the same day as the bankruptcy filing.

On November 6, billionaire rival Changpeng “CZ” Zhao, chief executive of Binance, the world’s biggest cryptocurrency exchange, fuelled speculation about the financial health of the company in a tweet that snowballed into $6 billion of withdrawals from the exchange, Reuters reported at the time.

A month later, on December 9, Mr Zhao posted a series of 11 tweets in response to similar claims Mr O’Leary made about Binance during an interview with US business news channel CNBC.

“It seems $15m not only changed @kevinolearytv’s mind about crypto, it also made him align with a fraudster. Is he seriously defending SBF?” Mr Zhao said in the tweet.

The tweet included a link to the interview and the comment: “Baseless attacks start around 4:20.”

Mr O’Leary told the hearing that he contacted Mr Bankman-Fried after his accounts were stripped of their assets to ask him where the money had gone.

“I said, ‘Sam, walk me back 24 months [and] tell me the use of proceeds, the assets of your company — where did you spend it?’” Mr O’Leary, who estimates he lost $9.1 million when FTX collapsed, said.

“And then he told me about a transaction that occurred over the last 24 months, the repurchase of his shares from Binance, his competitor,” he said.

“I didn’t know this at the time but at some point, CZ or Binance … purchased 20 per cent ownership in Sam Bankman-Fried’s firm for seed stock.”

Mr O’Leary testified that Mr Bankman-Fried told him he paid $2 billion for the share buyback from Binance.

But 24 hours later, during another conversation between the two, he was told that it “could have been as much as $3 billion to buy back the shares from CZ”.

“I asked him, ‘What would compel you to do that? Why wouldn’t you keep your assets on your balance sheet, why would you offer this to just one shareholder?’” Mr O’Leary said.

“He said, ‘Because every time we went to get licensing in different jurisdictions … CZ would not comply with the regulators to question these different geographies, these different jurisdictions to provide the data that would clear them for a licence. He withheld it, according to Sam Bankman-Fried’.”

“The only option management and Sam Bankman-Fried had was to buy him out at an extraordinary valuation of close to $32 billion with apparently a 15 per cent discount,” he said.

However, Mr Ray told the committee hearing that he had never seen “such an utter failure of corporate controls at every level of an organisation, from the lack of financial statements to a complete failure of any internal controls or governance whatsoever”.

Mr Ray also sought to assure regulators in the US and other jurisdictions as his team worked to repair relationships with them.

“I completely understand the depth of outrage and frustration with what happened,” Mr Ray said.

“I have instructed my team to co-operate as comprehensively and completely as possible, and much of our time so far has been spent on the truly Herculean task of gathering and organising information responsive to the many requests we have received.”

Updated: December 15, 2022, 10:25 AM