Alameda Research and FTX were involved in insider trading. How did this happen?

November 16, 2022 by cryptobreak

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At the end of last week, crypto-exchange FTX filed for official bankruptcy. It had been one of the biggest players in the trading industry, so the collapse of the platform from Sam Bankman-Fried came as a surprise to many. FTX, meanwhile, was also closely linked to Alameda Research, another company already a former billionaire. After a while, a real tangle of fraudulent and simply unethical schemes for investors unravels. It turns out that Alameda knew in advance about new coin listings on FTX and made money on their first buyers. We tell you the details of the situation in more detail.

Note that experts have previously commented on the prospects of jail time for Sam Bankman-Frieda given his actions. In particular, the day before, Fortune magazine’s Jeff Roberts spoke to a lawyer who commented on the FTX founder’s case on condition of anonymity. The lawyer believes that the Department of Justice has enough information to launch a case under the so-called Section 1343, which involves fraud by electronic means. The maximum sentence under this section is twenty years.

FTX CEO Sam Bankman-Fried

What FTX and Alameda are accused of

An abundance of suspicious transactions involving FTX and Alameda have been spotted by staff at crypto analytics firm Argus. Between January 2021 and March 2022, there were at least 18 different tokens totalling $60 million in Alameda wallets. The assets in Alameda accounts appeared earlier than those in FTX.

Consequently, the company could immediately sell the coins at a higher price to FTX traders amid the listing hype. In part because of this, tokens often fell in value days after being added to the exchange.

Alameda Research CEO Caroline Allison

According to Decrypt’s sources, Alameda Research is a trading firm founded by Sam Bankman-Friede in 2017. He founded the now-bankrupt FTX exchange in 2019 and stepped away from his day-to-day duties at Alameda in 2021. Bankman-Fried claimed that the two companies were separate entities, but it has now emerged that a significant proportion of Alameda’s reserves were in the FTT native token. It was also used by the company to issue a loan for the sake of a possible bankruptcy to come later.

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Argus co-founder Omar Amjad commented on the findings.

We can see that Alameda almost always opened positions in the month before listing that had not previously been there. Clearly, they knew something about the market that gave them an advantage when buying tokens.

And this is another crime to the companies in question. As a reminder, it was previously revealed that Sam Bankman-Fried had lent money belonging to FTX users to Alameda. In doing so, Sam left a backdoor in the system that allowed him to discreetly send coins without affecting the company's balance. Naturally, doing such a thing is forbidden.

Notably, the popular news outlet The New York Times previously published an extensive piece detailing the collapse of FTX and related firms. As many crypto-enthusiasts have noted, the NYT journalists are focusing on Bachmann-Fried’s persona and even still trying to portray him in a positive light – a “victim of circumstances” rather than the real culprit of the crisis.

NYT article on Sam

The scheme that Alameda Research has resorted to is a fairly common practice in the crypto industry. Previously, former OpenSea manager Nate Chastain became the first crypto trader in history to be accused of an insider trading scheme. Last year, he allegedly took advantage of insider information about which NFT collections would be floated on the platform. Following his arrest and arraignment in June, Chastain moved to dismiss the case on the grounds that NFTs “are neither securities nor commodities”, but the judge rejected his motion.

In another entertaining incident, Coinbase, the largest US cryptocurrency exchange, is involved. In April this year, a well-known crypto-enthusiast under the nickname Cobie drew attention to an Etherium wallet that purchased $400,000 worth of tokens just before their listing was announced on Coinbase. Two weeks later, Coinbase CEO Brian Armstrong announced on his blog that the company would no longer specify the assets being considered for listing. That is, this information was used by an insider for his own financial benefit.

If the allegations against Alameda Research turn out to be true, it would mean that the company was involved in insider trading on a larger scale than the former OpenSea or Coinbase employees who have already been charged. So FTX founder Sam Bankman-Frieda stands a good chance of going to jail.

We believe that the punishment of FTX founder Sam Bankman-Friede and Alameda Research tops is a matter of principle, not only for justice but also for the reputation of officials and others in power. After all, as you know, Sam was the second largest private donor to the US Democratic Party. Which means in case of light punishment or no punishment at all FTX clients will have an excuse to accuse the system of bias and corruption. So further developments with the exchange are no less interesting to watch.

What do you think about it? Share your opinion in our Millionaire Crypto Chat. There we talk about other important topics from the world of blockchain and decentralisation.