Carney: Kevin O’Leary Tells Senate Panel That Binance ‘Intentionally’ Killed FTX

There are some people who are still entertaining notions that Sam Bankman-Fried might have been the victim of the FTX collapse rather than the knowing perpetrator of one of the largest financial frauds in global history.

The idea has been advanced by Bankman-Fried himself in numerous statements, tweets, and interviews. On Wednesday, we heard a version of it from from Kevin O’Leary, one of the sharks of CNBC’s “Shark Tank” program who also happens to have been an investor in FTX and, it seems, a customer.

Here is the exchange between Sen. Pat Toomey (R-PA) and O’Leary during a Senate Banking Committee panel on Wednesday morning:

TOOMEY: You were an investor in FTX, and I know you’ve spoken frequently with Sam Bankman-Fried over an extended period of time. Why do you believe FTX failed?

O’LEARY: I have an opinion. I don’t have the records. Here it is. After my accounts were stripped of all of their assets and all of the accounting and trade information, I couldn’t get answers from any of the executives at the firm. So I simply called Sam Bankman-Fried and said, ‘Where is the money, Sam?”

He said he had been refused access to the servers. He no longer knew. I said, okay. Let’s step back. This is a simple case in my mind of where did the money go.

And I said, “Sam, walk me back 24 months. Tell me the use of proceeds of the assets of your company. Where did you spend it?”

Then he told me of a transaction over the last 24 months. The repurchase of his shares from Binance, his competitor. I didn’t know this at the time, but at some point CZ [Binance founder Changpeng Zhou] or Binance purchased 20 percent ownership in Sam Bankman-Fried’s firm as seed stock. And then over time—and I asked him, what would compel you to spend—over two billion was the number he was giving me at that time. Later, in a subsequent conversation 24 hours later, he told me it could be 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?”

He said, “Because every time we went to get licensed in jurisdictions”—because you must understand, the prize of crypto is to get regulated. For all the talk we say about Bitcoin and everything else, no institutions own this. I work for the sovereign wealth and pension plans, they don’t touch this stuff because it is unregulated. Between these two frenemies because they obviously were the two largest shareholders in the firm, they had a disagreement, they had a falling apart.

Apparently, according to Sam Bankman-Fried, CZ would not comply with the regulators’ requests in these different geographies, these different jurisdictions, to provide the data that would clear them for a license. He withheld it, according to Sam Bankman-Fried. The only option the management and Sam Bankman-Fried had was to buy him out at an extraordinary valuation of close to $32 billion. Less, apparently, a 15 percent discount. That stripped the balance sheet of assets.

You asked me why it went bankrupt. Go to the last week. All of the sudden, in social media, CZ is asking for another $500 million. He wants to do a blocktrade of FTT—or the proprietary token of FTX. He wants it converted back to fiat. Why would you put that out there? You know that’s going to push down the value of that coin dramatically—and that’s exactly what happened. Every trader knows if you have a large block trade, you go negotiate a clearing price with other buyers and you do the transaction.

In my view—my personal opinion—these two behemoths that owned the unregulated market together—and grew these incredible businesses in terms of growth—were at war with each other. And one put the other out of business intentionally.

Now, maybe there’s nothing wrong with that. Maybe there’s nothing wrong with love and war. But Binance is a massive unregulated global monopoly now. They put FTX out of business.

Even in O’Leary’s mind, this telling does not completely absolve Bankman-Fried. O’Leary describes the purchase of shares from Binance as “related party transaction” and says that as a shareholder left out of the deal he might want to see that money clawed back.

But this is a very different picture from the one painted by the U.S. Attorney’s office for the Southern District of New York and the Securities and Exchange Commission. The U.S. prosecutors and regulators see Bankman-Fried as the principal villain in the FTX story, accusing him of using customer funds to enrich himself.

“FTX operated behind a veneer of legitimacy Mr. Bankman-Fried created by, among other things, touting its best-in-class controls, including a proprietary ‘risk engine,’ and FTX’s adherence to specific investor protection principles and detailed terms of service. But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, in a statement on Tuesday.