Babel Finance Lost Over $280 Million of Customer Funds to Risky Trading, Eyes Fundraising

Struggling crypto lender Babel Finance lost over $280 million of customers’ funds in trading.

The crypto lender, which stopped withdrawals last month, lost 8,000 Bitcoins and $56,000 ETH last month due to liquidation resulting from the market downturn at the time.

Part of the deck reportedly 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 losses made it impossible for Babel to meet its margin calls from counterparties. The deck blamed the firm’s current struggles on its Proprietary Trading’s failure.

Trading Failure Blamed for Woes

Additionally, it revealed that even though proprietary trading was established to be risky, the team failed to hedge the risk.

The Proprietary Trading team operates several Trading Accounts not controlled or monitored by Trading Department; no trading mandate or risk controls were implemented for these accounts; no PnL [profit and loss] was reported.

Not only were they careless with customers’ funds, but the proprietary trading team also operated without transparency. No term sheet supported their buy and sell orders, and there was no record in the system.

Moreso, the firm failed to set a trading cap for the team, and the wallet management team released unlimited funds to the accounts controlled by the trading team.

This, however, is not the first time that Babel has been accused of mismanagement of users’ funds.

A leaked 2020 recording revealed that the firm leveraged users’ funds to maintain a long position on BTC and was at risk of default during the year.

Babel Eyes Fundraising

Meanwhile, the lender might still be able to dig itself out of this hole with the restructuring plan of raising about $650 million through equity and debt investments.

Most of the plan hinges on creditors, who will become the largest shareholders in the firm if the plan works. Already, Tether has extended the margin calls deadline for the firm by a month.

A Babel spokesperson said the firm 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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