Binance CEO Changpeng Zhao a key player in drama collapse of rival cryptocurrency exchange FTXcalled Sam Bankman-Fried a “liar” who knowingly misappropriated his clients’ money.
“Sam knows he was using user funds to trade for Alameda,” Zhao said, referring to FTX’s sister analytics firm which was directed by Caroline Ellison, Bankman-Fried’s recurring girlfriend.
“He’s probably been doing this for a while and no one else knew until very recently,” Zhao said.
“I’m just shocked,” he added. “I didn’t know he lied to everyone a week ago.”
Zhao said that while he supports tighter regulation on the crypto industry, it is unlikely that greater oversight would have prevented FTX from collapsing.
“When a person is lying, when there’s a bad player who just wants to do bad things, the regulations don’t stop it,” he said. “Banning guns doesn’t mean no one will pick up a gun and shoot someone.”
Zhao’s company was in talks to buy out FTX, but then pulled out and sold its stakes in FTT, the digital asset created by FTX, triggering a $6 billion run on the crypto exchange in which customers frantically sought to withdraw their deposits.
Now Bankman-Fried finds himself in hot water after discovering that FTX was using customer deposits to make risky bets using sister investment firm Alameda Research.
Zhao – known as “CZ” in crypto circles – said that when his firm looked at FTX’s books, it was obvious there was a problem.
“It was pretty clear early on that there was embezzlement of user funds,” Zhao said. told CNBC’s “Squawk Box” on Thursday. “User funds are gone.”
“It was clear that [Bankman-Fried] lied to its users, investors, VC investors, its employees,” Zhao said. “At that point, we couldn’t trust the data anymore and it was difficult for us to do our due diligence, so we didn’t go very far.”
“We are very concerned about anyone using the tokens they create as leverage, as collateral,” Zhao added. “At Binance, we don’t do that.”
Like FTX, Binance also has an internal digital token called BNB. But Zhao insisted to CNBC that BNB has never been used as collateral and that his business operates profitably with large cash reserves, unlike bankrupt competitor FTX.
“Binance has never used BNB as collateral, and we have never incurred any debt,” Zhao said.
Bankman-Fried, meanwhile, tweeted late Wednesday that his company “has become overconfident and careless.”
“Once upon a time – a month ago – FTX was a valuable company,” Bankman-Fried tweeted on Wednesday. “FTX had around $10-15 billion in daily volume and around $1 billion in annual revenue. $40 billion in net worth.
He added: “And we were seen as models of running an efficient business.”
“Actually, I was wrong: the leverage was not about $5 billion, but about $13 billion,” according to Bankman-Fried. “A $13 billion leverage, a total run on the bank, a total collapse in asset values, all at once.
Bankman-Fried wrote, “It sucks. I’m so sorry that things ended the way they did. And like I said, I’m going to do everything I can to make it fairer.
Bankman Fried told the Vox news site Wednesday that his biggest regret was throwing FTX into Chapter 11. He also dismissed suggestions that tighter regulations prevented his business from collapsing.
“F–k regulators,” he said. “They make everything worse. They don’t protect customers at all.