How FTX Missed a Potentially Lucrative Opportunity
The FTX bankruptcy proceeding has been full of surprises.Credit…Amanda Perobelli/Reuters
Too quick to sell?
Working through the bankruptcy of FTX, Sam Bankman-Fried’s collapsed crypto exchange, is proving more complicated all the time. The latest evidence: a potentially lucrative missed opportunity that’s come to light after FTX offloaded warrants to buy an obscure crypto token.
The token is called Sui, and it made its trading debut on May 3. FTX — which is now being run by John Ray III, the restructuring expert who has recouped billions for creditors victimized by the mega-bankruptcies of Enron, Fruit of the Loom and Nortel Networks — sold its Sui warrants shortly before the token began trading.
Had FTX exercised the warrants, it would own, as of this morning, an asset worth more than $1 billion, even after a 75 percent drop since the start of trading last week.
Here’s what happened with Sui:
FTX invested about $101 million in Mysten Labs last year. Mysten was building a blockchain platform called Sui that relied on technology developed for Diem, Facebook’s aborted crypto project. Mysten attracted investors like Andreessen Horowitz, the Silicon Valley venture capital firm, and the cryptocurrency exchange Coinbase, pushing its valuation at one point to about $2 billion.
FTX led the fund-raising last summer.Its ownership interest included warrants for 890 million Sui crypto tokens that would be exercisable once the Sui platform launched. But FTX collapsed months later.
In March, FTX sought the bankruptcy court’s permission to sell its interest in Mysten for about $96 million, or $5 million less than the initial investment.
In April, that deal closed. On May 3, Sui tokens began trading, with prices quickly spiking. This morning, Sui was trading at $1.13.
FTX is in a race to recoup every penny as the creditor list swells. Mr. Bankman-Fried himself has said that if given enough time, he could find the assets of value in his vast empire to begin to pay back customers and investors.
The I.R.S. last month filed nearly $44 billion worth of “priority” tax claims against FTX’s estate and its sister trading firms, CoinDesk reports.
FTX has already found billions for creditors. “The situation has been stabilized and the dumpster fire is out,” the company’s lawyers told a bankruptcy judge last month, revealing that they had recovered more than $7 billion.
Among the crypto community on Twitter, however, there was some snickering that FTX missed a big opportunity in Sui.
HERE’S WHAT’S HAPPENING
A top investor advisory firm U-turns on Jamie Dimon’s pay. Institutional Shareholder Services, which last week recommended that JPMorgan Chase shareholders oppose the bank’s compensation plan for its C.E.O. and other executives, changed its mind, citing mistakes in its analysis. It’s a remarkable reversal for I.S.S., which had also opposed JPMorgan’s pay policies last year.
SoftBank posts a record $32 billion loss at its Vision Fund. TheJapanese conglomerate’s tech-focused investment vehicle missed out on a broader rally in stocks. The downbeat report came as Masa Son, SoftBank’s founder, said the company was stopping new investments and focusing on the I.P.O. of Arm, its chip designer.
Disney cuts down on streaming losses. The media giant chalked up the improvements to cost cuts and increases in subscription fees, and said it would start bundling Hulu content in its Disney+ app. But to save money on payouts of residuals, it will also start removing some content from its streaming platforms.
George Santos pleads not guilty to 13 fraud charges. The first-term Republican lawmaker from New York was charged with wire fraud, money laundering, stealing public funds and lying on federal disclosure forms. But Speaker Kevin McCarthy said Santos could continue to serve in Congress, pending the outcome of a trial.
The pressure builds on Icahn
Shares in Carl Icahn’s publicly traded investment vehicle fell 15 percent Wednesday, after it revealed that federal prosecutors in Manhattan had asked for documents in the wake of allegations by the short seller Hindenburg Research.
But Mr. Icahn, the octogenarian billionaire who is known for a decades-long career of aggressively shaking up companies, made clear that he isn’t going down without a fight.
A recap: Hindenburg, which makes money by betting that a company’s shares will fall, said in a report last week that Icahn Enterprises was running “Ponzi-like economic structures” by paying out an unjustifiably hefty dividend financed by stock sales. The short seller also said the company was fundamentally overvalued.
The accusations have made their mark: Icahn Enterprises’ stock price is down 40 percent since Hindenburg published its report. That also hits Mr. Icahn directly, since the majority of his shares in the firm — he owns 84 percent of it — are pledged as collateral for bank loans.
Mr. Icahn took the gloves off, calling Hindenburg a peddler of “disinformation campaigns to distort companies’ images, damage their reputations and bleed the hard-earned savings of individual investors.” He added that “unlike many of its victims, we will not stand by idly.”
Meanwhile, Icahn Enterprises noted in a securities filing that federal prosecutors hadn’t accused the company or Mr. Icahn of any impropriety, and that it was cooperating with the inquiry. Hindenburg itself hasn’t accused either of fraud.
But Icahn is also shifting strategy. He chalked up his company’s financial underperformance to its bets against the stock market, and said it would concentrate more on shareholder activism, the investment strategy that made Icahn a billionaire.
Speaking of which, Mr. Icahn scored a victory in his fight against the gene sequencing company Illumina Wednesday, after the proxy advisory firm Glass Lewis recommended that investors approve two of his nominees for Illumina’s board.
Google pushes A.I. in a big way
For months, Google has preached a more cautious approach to artificial intelligence, even as rivals and the public embraced ChatGPT and other new technologies as vanguards of the future.
But at its annual developer conference Wednesday, the Silicon Valley giant unveiled a slew of A.I.-infused products, as it seeks to adopt a technology that, in the hands of competitors, could erode its hugely profitable businesses.
Search was the star of the show. Google was eager to talk about the long-awaited revamp of its core service, which it hopes will steal back the buzz that Microsoft generated when it unveiled a ChatGPT-augmented Bing in February. The updated search engine will incorporate results generated by A.I. and allow users to ask follow-up questions. (Note, however, that it’s not a chatbot.)
Two dozen other Google products, including Gmail, are also being A.I.-ified to help automate user tasks. But perhaps more important, the company revealed its work on more powerful A.I. models, including what it called PaLM2, that could power an even broader and more sophisticated array of services.
“We are at an exciting inflection point,” Sundar Pichai, Google’s C.E.O., said Wednesday. But his longtime caution about a hasty embrace of A.I. — particularly a wariness of products spewing false or misleading information — remained. The new search engine clearly labels its A.I. aspects as “experimental,” and getting access to it requires signing up for the Search Labs service.
That said, investors liked what they saw: Shares in Alphabet, Google’s parent company, rose 4 percent Wednesday, lifting its market value by $56 billion.
“I say to the Republicans out there — congressmen, senators — if they don’t give you massive cuts, you’re going to have to do a default.”
— Donald Trump, the leading Republican candidate for president, urging his party to take a tough stance in negotiating spending cuts to the federal budget, even if that ultimately brings the country to default.
E.S.G. hits the House
The political debate over the investment approach known as E.S.G. — short for environmental, social and corporate governance issues — went national Wednesday, as a fight that has largely played out in state capitals moved to Congress.
From the get-go, the hearing of the House Oversight and Accountability Committee was contentious, as Republican and Democratic lawmakers sparred with witnesses, and each other.
Republicans called E.S.G. “an undemocratic tax” on Americans, designed to force an embrace of climate-focused policies that would raise costs for many. The hearing’s witnesses included the attorneys general of Alabama and Utah, who oppose letting their states’ retirement funds go into E.S.G.-guided investments.
To Sean Reyes, Utah’s attorney general, E.S.G. was “an open conspiracy to bypass Congress and instead impose costly changes on American consumers,” driven by unelected financial institutions like BlackRock that have pushed to include climate concerns in many investment decisions.
His Alabama counterpart, Steve Marshall, argued that focusing on E.S.G. led to higher energy prices because it discourages the use of cheaper fossil fuels, risking harm to key industries like farming.
Democrats defended E.S.G. as just another investment strategy. Calling opposition to the concept a “widespread, highly coordinated, politically motivated attack” on investors and average Americans, the Illinois state treasurer, Michael Frerichs, said that E.S.G. was simply a different way of weighing risks and opportunities.
It meant that an investor could weigh whether a carmaker was prepared for a market shift to electric cars, or whether to buy into a drugmaker facing a flurry of lawsuits over its role in the opioid epidemic, he said.
Representative Jamie Raskin, Democrat of Maryland, said that asset and pension managers weighing E.S.G. angles to investments were simply being smart — and to not think about those angles was “a negligent and inattentive investment strategy.”
Expect the fight to continue. The committee’s Republican chairman, Representative James Comer of Kentucky, said lawmakers “would continue to expose and investigate harmful E.S.G. practices and hold unelected bureaucrats accountable for pushing their interests on the American people.”
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