Alameda

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Summary

Alameda Research was a cryptocurrency trading firm co-founded by Sam Bankman-Fried in 2017 that became central to one of the largest financial frauds in US history. The firm secretly used billions in [[ftx|FTX]] customer funds for trading and investments, leading to both companies filing for bankruptcy in November 2022.

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Corporate Structure and Leadership

Alameda Research was co-founded in September 2017 by Sam Bankman-Fried and Tara MacAulay as a quantitative cryptocurrency trading firm. The company was initially based in Berkeley, California before moving to Hong Kong in early 2019. Sam Bankman-Fried owned approximately 90 percent of Alameda Research as of August 2021. Caroline Ellison became co-CEO alongside Sam Trabucco in October 2021, and sole CEO in August 2022 after Trabucco resigned. The firm operated as a proprietary trading company specializing in cryptocurrency arbitrage, market making, yield farming, and volatility trading.

Sources

[1]MEDWikipedia - Alameda Researchother

Relationship with FTX Exchange

Alameda Research maintained an unusually close relationship with FTX, the cryptocurrency exchange also founded by Sam Bankman-Fried. Alameda Research played a significant role in the growth of FTX, acting as FTX's main market maker. According to testimony from FTX co-founder Gary Wang, Alameda was given special privileges on the FTX platform, including a virtually unlimited line of credit and an 'allow negative' flag that permitted negative balances without repercussion - privileges no other FTX customer received. According to new FTX CEO John J. Ray III, Alameda had a 'secret exemption' from FTX's auto-liquidation protocol.

Sources

[1]MEDWikipedia - Alameda Researchother
[2]MEDWikipedia - FTXother

Balance Sheet Exposure and FTT Token Dependence

As of June 30, 2022, Alameda held $14.6 billion in assets according to leaked financial documents, with its single biggest asset being $3.66 billion of 'unlocked FTT' tokens and an additional $2.16 billion pile of 'FTT collateral'. Critics noted that 'the majority of the net equity in the Alameda business is actually FTX's own centrally controlled and printed-out-of-thin-air token'. CoinDesk reported that Alameda's balance sheet held $3.66 billion of 'unlocked FTT' and $2.16 billion of 'FTT collateral' out of $5.1 billion worth of FTT tokens in circulation. This concentration in FTT tokens created significant risk as the tokens' value was maintained by FTX's own buyback program.

Sources

[1]MEDCoinDesk - Alameda Balance Sheet Reportnews article
[2]MEDWikipedia - FTXother

Customer Fund Misappropriation

According to sources familiar with company operations, Alameda Research borrowed billions in customer funds from FTX. Anonymous sources told The Wall Street Journal that FTX had lent more than half of its customers' funds to Alameda, which was explicitly forbidden by FTX's terms-of-service. The Wall Street Journal reported that Alameda suffered losses in May and June 2022, which resulted in FTX lending the trading firm more than half of its customer funds, with Caroline Ellison, Sam Bankman-Fried, Gary Wang, and Nishad Singh all allegedly aware of this decision. According to The Wall Street Journal, FTX had lent $10 billion of its customers' assets to Alameda Research in 2022, with the funds used in part to pay back loans Alameda had taken to make investments.

Sources

[1]HIGHCNBC - FTX Customer Funds Reportnews article
[2]MEDWikipedia - Alameda Researchother
[3]MEDWikipedia - Bankruptcy of FTXother
[4]MEDWikipedia - FTXother

Collapse and Bankruptcy

On November 2, 2022, CoinDesk published an article revealing that Alameda Research held a significant amount of FTX's exchange token, FTT, which triggered a spike in withdrawals from FTX. Following the liquidity crisis, Binance signed a letter of intent to acquire FTX on November 8, 2022, but the value of Alameda dropped over 90 percent following public disclosure of the problems. Binance walked away from the acquisition on November 9, citing FTX's mishandling of customer funds, and Alameda's website was taken down the same day, with Bankman-Fried announcing that Alameda would wind down trading and close. Alameda Research, along with FTX and more than 130 affiliated entities, filed for Chapter 11 bankruptcy protection in November 2022.

Sources

[1]MEDWikipedia - Alameda Researchother
[2]MEDWikipedia - Bankruptcy of FTXother

Criminal Convictions and Legal Consequences

On November 2, 2023, Sam Bankman-Fried was found guilty on all seven charges for fraud and conspiracy, nearly a year after his $32 billion empire of FTX Trading and Alameda Research collapsed. Caroline Ellison pleaded guilty in December 2022 to two counts of wire fraud and five conspiracy counts involving wire, securities and commodities fraud and money laundering, in relation to her activities at Alameda Research and FTX. On September 24, 2024, Ellison was sentenced to two years in prison and ordered to forfeit $11 billion for her role in the scandal. Sam Bankman-Fried was sentenced to 25 years in federal prison on March 28, 2024, for his role in several fraud schemes involving both Alameda Research and FTX.

Sources

[1]HIGHAl Jazeera - SBF Trial Verdictnews article
[2]MEDWikipedia - Caroline Ellisonother
[3]MEDACFE - SBF Sentencing Analysisresearch

Regulatory Actions and Financial Penalties

The Commodity Futures Trading Commission obtained a $12.7 billion judgment against FTX and Alameda Research, ordering FTX to pay $8.7 billion in restitution and $4 billion in disgorgement to compensate victims. The court found that FTX and Alameda made material misrepresentations and omissions to customers, with FTX touting itself as 'the safest and easiest way to buy and sell crypto' while customer funds were actually commingled and misappropriated. The CFTC complaint charged Bankman-Fried with orchestrating a scheme to defraud, and consent orders of judgment on liability were entered against Caroline Ellison and Gary Wang in December 2022.

Sources