Court document reveals startling new details about Alameda and FTX

Recent revelations have shed light on how the problems faced by Sam Bankman-Fried “SBF” crypto trading firm Alameda began long before the difficult year we all experienced in 2021; partly due to sister company FTX’s meltdown.

Looking closer, we see that Alameda was never good at investing, and that SBF’s involvement in the company remained significant even after his departure as CEO in October 2021.

The trading company risked a lot of money and won some back, but it also lost a lot. And SBF repeatedly sought to borrow money and cryptocurrency to fuel these efforts, even offering double-digit interest rates to lenders.

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As Alameda expanded, it invested billions of dollars betting on the future success of the cryptocurrency industry, billions that federal prosecutors have just said were stolen from FTX clients. It placed bets on obscure cryptocurrency exchanges and a number of blockchain technology companies, and it also made political contributions and real estate purchases.

When it finally collapsed in 2022, it was a massive event. Both firms filed for bankruptcy protection in November, leaving their consumers owed billions of dollars and weakening confidence in the cryptocurrency sector as a whole.

SBF alleges that poor record-keeping and a banking problem led to the theft of client funds and enabled Alameda to cover large losses with funds intended for FTX. It was reported last week by The Wall Street Journal that at a hearing on January 3 he would most likely enter a not guilty plea to fraud charges.

The disgraced crypto figure appears to have established Alameda with the intention of donating a portion of its proceeds to Effective Altruism, a movement whose stated goal is to channel charitable contributions to causes that will have the greatest impact.

He borrowed money from wealthy people who were already involved in the trading sector to expand his business. The co-founder of Skype, Jaan Tallinn, lent him a significant amount of Ethereum, over $100 million, and he returned with a holding of cryptocurrency.

Binance Blockchain Week started in January 2019 with around 1500 participants in Singapore. The symposium, which Alameda sponsored for $150,000, was intended to be a forum for planning the development of the emerging crypto sector. Participants stated that SBF’s goal during the meeting was to network with potential new lenders for Alameda.

The firm distributed brochures to potential lenders and claimed it had $55 million in assets under management; nevertheless, the vast majority of these funds were borrowed to finance the company’s operations.

For SBF, Alameda was a means of expanding FTX. The company was the main market maker on the exchange, meaning it was always willing to buy and sell at any time. People familiar with the hedge fund’s tactics say it sometimes took the losing side of a transaction to draw clients to the exchange.

Recent complaints filed by the Securities and Exchange Commission and the Commodity Futures Trading Commission, the nation’s leading market regulators, allege that SBF set up a scheme for Alameda to borrow money from the exchange.

He instructed his co-CEO, Gary Wang, to create programming that would enable the firm to maintain a negative balance on FTX regardless of the amount of collateral it posted with the exchange.

In addition, the SBF prevented the sale of Alameda’s FTX security in the event that its value fell below a certain threshold. It constituted a line of credit granted by FTX to the hedge fund.

The criminal also instructed his former flame Caroline Ellison to inflate the value of a cryptocurrency used by Alameda as collateral by increasing purchases of that asset.
Note that SBF has said in an interview that,

“FTX was a full-time job. I didn’t have enough brain cycles left to understand everything going on at Alameda if I wanted to.”