Babel Finance Lost $280 Million Trading Client Funds

Crypto financial services provider Babel Finance suffered a loss of over $280 million due to unsuccessful trading decisions with client funds. The calculations are given in the restructuring proposal, writes The Block.

“During that volatile week in June when Bitcoin plummeted from $30,000 to $20,000 , unhedged positions in [own trading] accounts led to significant losses. As a result, a forced liquidation occurred with losses of 8,000 BTC and ~56,000 ETH,” the document says.

As a result, Babel Finance’s lending and trading departments could not meet counterparty margin call requirements.

“Losses on own trading operations were outside the normal business, which otherwise ran smoothly with proper management and control ,” the proposal notes.

The trading department did not control the activities of this unit. No risk control criteria were introduced for its employees, and they did not report profits and losses. No indicative conditions were introduced for transactions; they were not registered in the system.

The firm’s wallet management team “released an unlimited amount of funds” to trading accounts managed by its trading team, Babel Finance admitted.

In 2020, suspicions arose that the company allows itself to “play with leverage” with clients’ funds. Then the contractors of the crypto-financial services provider did not attach much importance to the rumors. Tether Limited helped Babel Finance avoid bankruptcy by extending the loan repayment period from 48 hours to a month. 

In an interview with the publication, representatives of the firm noted that they “work closely with clients, investors, other stakeholders, and external consultants.”

The company aims to convert $150 million of debt into convertible bonds and raise an additional $250-$300 million in this issue. Babel Finance also expects to open a $200 million revolving credit line.  

In May, the crypto financial services provider closed an $80 million Series B funding round at a $2 billion valuation.

Recall that in June 2022, the company announced the suspension of payments and withdrawals from its products due to a lack of liquidity.