A new report to Sam Bankman-Fried and the collapsing exchange shows that Alameda Research, the now bankrupt crypto trading company, is on the verge of collapse in 2018, even before FTX was in the picture.
A report published in The Wall Street Journal stated that former employees claimed that Alameda suffered huge losses from trading algorithms. The algorithm is designed to make many trades automatic and fast. However, the company lost money by estimating the price movement the wrong way.
In 2018, Alameda lost almost two-thirds of its assets due to the fall in the price of the XRP token and was in a collapse. However, Bankman-Fried was reportedly able to save the trading company by raising funds from lenders and investors with the promise of a return of up to 20% on the investment.
According to the report, In January 2019, Alameda sponsored the inaugural Binance Blockchain Week conference, and SBF used the event to interact with investors to obtain funding for the failed trading company.
Later in April 2019, FTX was launched with the promise of providing a safe haven for institutional investors. With the launch of FTX, Bankman Fried is using Alameda to drive growth as the trading firm becomes a major market maker for the exchange. It is always open to other traders to buy and sell to. People familiar with Alameda’s tactics claim that the exchange sometimes uses the losing side of deals to lure clients.
related: US lawmakers under pressure after FTX collapse: Report
While Bankman Fried has previously claimed that Alameda and FTX have always operated independently, a new lawsuit by the United States Securities and Exchange Commission (SEC) suggests otherwise.
The lawsuit alleges that Bankman instructed Fried to create pieces of code to gain an unfair advantage. The code will allow Alameda to maintain a negative balance on FTX regardless of the amount of collateral placed on the exchange. Bankman-Fried also assured that Alameda’s FTX bonds will not be sold immediately if the price falls below a certain threshold.
The final report stated that the Alameda was a sinking ship from the start. However, Bankman Fried not only bailed out in 2018 with borrowed funds, but then used it to create the currently collapsing crypto exchange FTX and increase its growth.