Key Takeaways
- Sam Bankman-Fried and FTX co-founder Gary Wang bought a 7.6% stake in Robinhood last May
- Purchased for close to half a billion, the funds were raised via a loan from sister trading firm Alameda Research
- In November, FTX was revealed to be insolvent, after it sent customer assets to Alameda to shore up trading losses, ultimately leading to an $8 billion hole on the balance sheet
- Robinhood directors have approved a plan to purchase back the 7.6% stake
The king of the crypto villains may be under house arrest at his parents’ $4 million home in California, but the rest of the world continues to clean up the mess caused by FTX.
Sam Bankman-Fried’s formerly tier-1 exchange, FTX, collapsed in November. One of the interesting tidbits to come out of this, aside from employees’ apparent love of the drug Adderall, was the presence of Robinhood shares on the balance sheet.
FTX had purchased 56 million shares of Robinhood in May 2022, the same month that LUNA collapsed, which we now know caused large losses at FTX’s sister firm Alameda Research and led to Bankman-Fried sending customer assets to cover the losses and meet margin calls. The shares comprised a 7.6% stake in Robinhood.
Bankman-Fried bought Robinhood stake with borrowed funds
In an affidavit to a Caribbean court prior to his arrest, Bankman-Fried revealed he and FTX co-founder Gary Wang borrowed over $546 million from Alameda last April. This money was used to capitalise Fidelity Technologies Ltd, which is a shell corporation through which the Robinhood stake was bought.
The shares had been pledged as collateral against a loan taken out by Alameda. Which if it sounds odd, it should, because as said above, Alameda is the very same firm whose funds were used to purchase the shares in the first place.
Like everything in the FTX/Alameda universe, it was a circular economy backed by nothing. Of course, hindsight is 20/20 and all that.
Robinhood to rebuy shares
A filing Wednesday by Robinhood’s board of directors approved a plan to repurchase the stake, worth $586 million at current market prices.
“The proposed share purchase underscores the confidence the Board of Directors and management team have in our business,” said Robinhood’s chief financial officer Jason Warnick.
Robinhood went public in July 2021, and in a lot of ways became the poster child of the pandemic market hysteria. Its app spiked to the top of downloads, with retail traders taking to the markets with their stimulus cheques.
The firm grew meteorically, ultimately going public in July 2021, in the heat of the bull market. Its share price since has done what almost everything within the tech and crypto space has – plummeted.
Ultimately, this shouldn’t change much for HOOD investors. As for the crypto space, the further it moves away from the disgraced Sam Bankman-Fried the better.