Sam Bankman-Fried’s trading firm, Alameda Research, allegedly traded billions of dollars from FTX customers’ accounts and leveraged the crypto exchange’s native token as collateral.
CNBC reports that a source claims the quant trading firm Sam Bankman-Fried founded, Alameda Research, used customer deposit from his exchange FTX in a way that went unnoticed by investors, employees, and auditors. The source claims that Alameda Research used billions of dollars from FTX users without their knowledge.
According to the source, FTX grossly miscalculated how much of its tokens it needed on hand if users wanted to cash out. When trading platforms are regulated, they are required to hold enough money to match what customers deposit. According to the source, FTX did not have nearly enough money on hand.
FTX’s largest client was allegedly Alameda Research. Because the assets it traded were not recorded on its own balance sheet, the hedge fund was able to conceal its activities. Instead of holding any money, FTX users loaned billions to the fund, which then used it to trade, the source said.
There is no indication that FTX customers were aware of this activity. According to U.S. securities law, mixing customer funds with counterparties and trading them without explicit consent is generally illegal. FTX’s terms of service also prohibit this kind of behavior. Sam Bankman-Fried declined to comment on allegations that he misappropriated customer funds, but he did acknowledge that FTX’s recent bankruptcy was caused by problems with a leveraged trading position.
Bankman-Fried told CNBC that: “A margin position took a huge hit.” Some of the leveraged trades that the quant fund made were secured using FTT, a cryptocurrency issued by the exchange as collateral. When a lending agreement is established, collateral is usually the borrower’s pledge to secure repayment. In this situation, Alameda allegedly borrowed from FTX, which then used its own cryptocurrency, the FTT token, as collateral. On the day the token price crashed 75 percent, the collateral was insufficient to cover the trade.
FTX has fallen from a $32 billion cryptocurrency powerhouse to bankruptcy in just one week. Bankman-Fried stepped down as CEO of FTX and says Alameda Research is shutting down. After a suspected $477 million hack, the company said it would be removing trading and withdrawals, as well as moving digital assets offline.
Breitbart News financial reporter John Carney recently compared the collapse of FTX to that of Lehman Brothers, writing: “The best that Sam Bankman-Fried could hope for at the start of this week was that his crypto exchange FTX would turn out to be the equivalent of Bear Stearns. Instead, it turned out to be Lehman Brothers.”
Read more at CNBC here.
Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship. Follow him on Twitter @LucasNolan