Alameda was Troubled Before the Crypto Crash and FTX Fall

Alameda was Troubled Before the Crypto Crash and FTX Fall

Key Insights:

  • Alameda Research LLC engaged  in big gambles and wall street style wizardry. 
  • The research firm deceived the public by creating a false image that it was succeeding. 
  • SBF built FTX exchange on Alameda's reputation. 

The intrigues and insider dealings that transpired between Alameda and the FTX exchange before the collapse are becoming glaring to the public. As events unfold, there are new evidence— springing up to show the entire "Wall Street style wizardry" deployed by Sam Bankman Fried. While outsiders and investors thought Alameda Research LLC was winning big, the whole achievements were a charade. Significantly, Sam Bankman-Fried built the FTX exchange reputation on that of Alameda Research LLC. 

However, there were few details on the trading activities and insider dealings of the research firm. Since the FTX collapse, analysts and investors have continued to unravel mysteries between Alameda and the collapsed exchange. Industry players consider some of the dealings as "big gambles" and "Wall Street-style wizardry." 

Furthermore, the Wall Street Journal tweeted that SBF said Alameda prospered until the crypto crash. As against the SBF claim, investigations revealed that Alameda was struggling for survival— long before the crypto crash. 

In this article, we shall identify some of these insider dealings, the big gambles, and how the research firm battled for survival before the crypto crash. 

Alameda Research Deceived The Public

You would recall that in the aftermath of the FTX collapse— before SBF was arrested, he revealed some events that led to the crash. He revealed that Alameda had prospered until it was tripped up in November. Sam Bankman Fried attributed the "trip up" to the crash in crypto prices. Furthermore, he said, "he was no longer running Alameda, and by the time he figured out what had gone wrong, it was too late."

This statement intends to show that while SBF was running the research firm, everything was going smoothly. Therefore, when he recused himself from running it, everything went bad. 

However, investigations revealed that SBF lied and continued to hide the "stance" of Alameda. Investigations showed that over the years, SBF's research firm was battling for survival. Similarly, reports showed that Alameda was "never particularly good at investing." 

Furthermore, investigations revealed that while SBF resigned as the Chief executive in October 2021, he continued to run Alameda. Former employees and some documents showed that after stepping down, the founder was deeply engaged in dealings.  Federal regulators and investigators found that Sam Bankman-Fried embarked on some big gambles. 

How SBF Used Alameda For Big Gambles

SBF deployed the first Wall Street-style wizardry by giving a false public representation of Alameda Research LLC. With this false public image, investors and partners felt the firm and its founder were successful. It was on this premise that the firm " took big gambles while winning some and losing plenty." 

Thereafter, Sam Bankman-Fried ventured into borrowing cash and crypto. He used the borrowed funds to engage in betting and promising double digits interest rates to lenders and investors.

For instance, Austin Campbell recalled some events that transpired between the bank and the research firm in 2020. He said Citigroup was exploring partnerships with Alameda and other firms to launch a crypto lending business. Austin Campbell, Citigroup's co-head of digital assets rates trading, said: "he grew skeptical of the firm after getting vague answers to his questions." 

As a financial expert, Austin sought to know Alameda's risk management framework. However, the firm could not provide any substantial framework — for a firm of its supposed trading size and capacity.  He said, "The thing that I picked up on immediately that was causing us heartburn was the complete lack of a risk-management framework that they could articulate in any meaningful way."

Similarly, another big gamble was the early bet using Bitcoin in Japan.

Furthermore, investigations showed that Alameda poured billions of dollars into wagers— hoping that the crypto universe would grow. It was after the FTX collapse that federal prosecutors discovered that the billions of dollars belonged to FTX customers.  The research firm bet on esoteric cryptocurrencies and numerous crypto-related startups. Most of these investments were undisclosed to the public and investors. They were known by Sam Bankman-Fried and a few other executives.  

Similarly, SBF  bought real estate and gave donations to politicians. He engaged in reckless spending and acquisition of properties to the detriment of a failing empire. These events were the last straw that broke the camel's back. 

By November 2022, he lost most of the big gambles and the crypto startups failed alongside other ventures. Shortly after, both Alameda and FTX exchange filed for bankruptcy protection. 

SBF Explains The Need To Use FTX Funds For Alameda

As usual, the embattled founder of the two failed firms defends the insider dealings and big gambles. Even though he takes responsibility for all the actions, he however justifies the events and dealings. 

Sam Bankman Fried blames the loss of customer funds on sloppy record-keeping and a bank-account issue. He said these issues  caused Alameda to cover large losses with money invested in FTX. That is, the billions of dollars taken from FTX exchange became necessary to keep Alameda running and that bank issues made it difficult to refund while FTX investors needed it. 

Furthermore, Since the FTX collapse, Federal Investigators have arrested Sam Bankman-Fried, Caroline Ellison, Alameda's CEO at the time of the collapse, and Gary Wang, its co-founder. They have pleaded guilty to fraud charges and are cooperating with prosecutors.

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