Babel Finance lost over $280 million in proprietary trading with customers’ funds – Report

• According to a disclosed restructuring proposal deck, the company suffered a heavy loss as a result of proprietary trading with customers’ funds.
• Babel Finance has stated that it has created a rescue plan to raise millions of dollars in debt and equity.

---

Last month, it was reported that Babel Finance had halted client withdrawals after the current situation subjected the Asia-based crypto financial firm to serious liquidity pressure. In a recent development, the company suffered a heavy loss as a result of proprietary trading with customers’ funds according to a disclosed restructuring proposal deck.

The deck discloses that the proprietary trading failure made the company lose $280 million in Bitcoin and Ether. After Babel Finance was subjected to liquidation pressure forcing withdrawals to be suspended, they lost 8,000 BTC and 56,000 ETH. This, according to the deck, was a result of the huge fall of Bitcoin from $30K to $20K. 

In that volatile week of June when BTC fell precipitously from 30k to 20k, unhedged positions in [proprietary trading]account chalked up significant losses, directly leading to forced liquidation of multiple Trading Accounts and wiped out ~8,000 BTC and ~56,000 ETH.

It is interesting to note that despite the company describing its proprietary trading as risky, it failed to hedge its position. The deck hinted that the proprietary trading team operated several trading accounts without any form of control or monitoring by the trading department. This means no profit and loss were reported and the accounts were not subjected to any implementation of trading mandates and risk control. 

Babel Finance working on a rescue plan

According to the desk, this failure is not within the company’s normal operation. 

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.

Babel Finance has stated that it has created a rescue plan to raise millions of dollars in debt and equity. As part of its plan, it seeks to convert $150 million of its biggest creditors’ debt into convertible bonds. It also seeks to raise $250 million to $300 million in convertible bonds. In addition, it wants to secure a revolving credit of $200 million from creditors. 

Babel Finance reportedly has a history of subjecting its customers’ funds to a huge risk. Some leaked recordings in October 2020 disclosed that the firm used customers’ funds to boost Bitcoin trade. The market crash recorded that year put the firm at a potential default risk. According to the recordings, the company was saved by Tether who appeared to have extended the margin call deadline to a month for them. This was to give them enough time to bolster their collateral. 

Currently, they claim to be working with all stakeholders including clients and investors to make a full recovery and “value maximization for all the parties.”