Babel Finance Lost $280 Million in Crypto, Using Customer Funds

Paigambar Mohan Raj
Source: Babel Finance

Babel Finance was one of the four major crypto firms that went underwater during the 2022 crash. The other three are Celsius, Voyager, and Three Arrows Capital. Babel Finance halted investor withdrawals on the 17th of June due to “unusual liquidity pressures.” The firm has taken heavy losses in its Bitcoin (BTC) and Ethereum (ETH) investments.

Nonetheless, Babel Finance announced a restructuring plan to get itself out of the hole. The Block has accessed the restructuring deck and reported that Babel lost over $280 million in Bitcoin and Ethereum. The deck is dated July 2022 and states that the firm lost 8000 BTC and 56,000 ETH in June.

According to the deck, the volatility in June led to unhedged positions in proprietary trading accounts taking up significant losses. This directly led to the forced liquidation of several trading accounts. Due to these losses, Babel’s Babel’s lending and trading departments could not meet margin calls.

The deck reads,

“Conclusion: Single point of failure – The Proprietary Trading team’s failed operation falls outside of the company’s normal business which has otherwise been running smoothly with proper management and control,”

Furthermore, the deck states that a proprietary trading team manages a number of Trading Accounts that are not under the administration or supervision of the Trading Department. For these accounts, neither a trading mandate nor risk controls were put in place, and no profit or loss was disclosed.

No term sheets were used to support the orders placed by Babel’s private trading team, hence they were not entered into the system. Additionally, the company’s proprietary trading team used uncapped amounts of money. The capital was distributed by the wallet management team to trading accounts.

Babel’s plans; can it reacquire the lost Bitcoin and Ethereum?

Babel is currently looking to attract hundreds of millions of dollars in debt and equity capital as part of its recovery strategy.

According to the deck, the first step is to convert $150 million of the debt owed by the largest creditors into convertible bonds. It also plans to acquire an additional $250 million to $300 million through convertible bonds. After which it will obtain a $200 million revolving credit from creditors for business rehabilitation.

If the idea is effective, the biggest creditors of Babel would become shareholders.

At press time Bitcoin (BTC) was trading at $23,928.85, while Ethereum (ETH) was trading at $1,718.84.