Crypto lender Babel Finance lost over $280M in Bitcoin and Ethereum due to its proprietary trading failure with customer funds, according to a deck, dated July 2022.
In particular, it lost approximately 8,000 BTC and 56,000 ETH in June after being forced to liquidate due to a significant market downturn. Babel Finance temporarily halted withdrawals and redemptions last month after facing unusual liquidity pressures.
The deck reads “In that volatile week of June when BTC fell precipitously from 30k to 20k, unhedged positions in [proprietary trading] accounts chalked up significant losses, directly leading to forced liquidation of multiple Trading Accounts and wiped out ~8,000 BTC and ~56,000 ETH.”
The lending and trading divisions of Babel Finance were unable to satisfy counterparties’ margin requests as a result of these significant losses.
The deck’s conclusion reads that 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.”
The proprietary trading team at Babel reported that its orders were not supported by any term sheets and, consequently, were not recorded in the system.
Additionally, the team in charge of managing wallets released uncapped amounts of funds to trading accounts run by its proprietary trading team.
The company is currently looking to raise funds in debt and equity investments as part of its rescue strategy. According to the deck, the first step is to convert $150M of the debt owed by the largest creditors into convertible bonds.
Babel also plans to raise $250M to $300M through convertible bonds, after which it will obtain a $200M revolving credit from creditors for business restoration. If the plan is viable, the biggest creditors of Babel would become shareholders.
Babel Finance is “working closely with clients, investors and other stakeholders and external advisors during this very difficult time in the industry as we believe that is the best path for a full recovery and value maximization for all the parties,” according to a Babel Finance spokesperson.