The firm is now seeking huge sums in funding as a part of the restructuring process. It used customer funds for unchecked proprietary trading.
Babel Finance, a troubled Hong Kong-based crypto lender that suspended withdrawals last month, lost $280 million in proprietary trading activities with customer funds, according to a report by The Block that cited a restructuring proposal deck.
The firm lost around 8,000 BTC and 56,000 ETH in June with a combined market value of around $280 million. It was due to the liquidation triggered by the cryptocurrency market downturn as the company did not hedge its positions.
“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 deck stated.
It further elaborated that a proprietary trading team of Babel operated several trading accounts that were not controlled or monitored by the company’s trading department. Moreover, these accounts did not have any trading mandate or risk controls, and neither reported profit nor losses.
Trades under these accounts were not recorded by Babel’s systems due to the lack of support for term sheets. On top of that, these accounts uncapped access to the company’s cryptocurrency wallets.
Chaos in the Crypto Space
Babel is one of the troubled cryptocurrency companies that collapsed with the latest market downturn. While Celsius, Voyager Digital and Three Arrows Capital entered into liquidation, Babel is yet to go that far.
It is seeking to raise huge sums in debt and equity investments to save the business. The deck, mentioned in the original report, also revealed that Babel is looking to raise between $250 million and $300 million in convertible bonds with an additional revolving credit of $200 million.
Furthermore, it is seeking to convert a $150 million debt to convertible bonds.
A Babel spokesperson told the crypto publication that the company 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.”
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