A court complaint by the CFTC describes a shady relationship between FTX and Alameda Research, highlighting the former’s unfair trading advantage and the latter’s misuse of customer funds.
The relationship between FTX and Alameda Research, in which the hedge fund was afforded a “unfair” trading advantage as well as unprecedented access to user holdings on the cryptocurrency exchange, continues to be illuminated by court filings, which continue to shed light on the dubious nature of this relationship.
Commodities Futures Trading Commission of the United States filed a complaint on December 1 in the Southern District Court of New York, alleging a variety of improper business dealings between Sam Bankman-cryptocurrency Fried’s exchange FTX and his trading company Alameda Research. The complaint was filed against Sam Bankman-Fried.
The complaint contains a number of claims that outline the many ways in which the two corporations, as well as certain individuals such as Bankman-Fried, violated the Commodity Exchange Act and other restrictions. This development follows the arrest of the former CEO in the Bahamas on December 12; he is currently scheduled for extradition to the United States.
The Commodity Futures Trading Commission (CFTC) highlights the fact that Bankman-Fried owned and operated FTX.com and its associated subsidiaries as well as Alameda and its related entities from May 2019 until their collapse in November 2022. Alameda and its related entities are also mentioned in this context.
On FTX.com, Alameda served as a principal market maker, which meant it was responsible for providing liquidity to the website’s cryptocurrency markets. The CFTC asserts that the companies’ status as a “joint venture” was used in a variety of different ways, despite the fact that they ran their operations as if they were independent.
According to the lawsuit, a small group of insiders were involved in permitting FTX clients’ deposits, which included fiat currency, Bitcoin BTC and Ether, to be “received, retained by, and/or appropriated by Alameda” for the company’s own use. This was done for Alameda’s own benefit.
In addition, the CFTC asserts that executives at FTX built elements in the coding of the exchange that enabled Alameda to keep “an almost infinite line of credit on FTX.”
Other loopholes were made, which allowed Alameda to have “an unfair advantage” when trading on FTX. These exceptions were created. This included a reduction in the amount of time it took to execute trades as well as an exemption from the “distinctive auto-liquidation risk management method” utilised by the exchange.
It is further alleged that Bankman-Fried and another Alameda employee authorised the hedge fund to use user funds and FTX to trade on external cryptocurrency exchanges and to support a “range of high-risk digital asset industry ventures.”
In addition, Bankman-Fried and other FTX officials obtained “loans” from Alameda in the amount of hundreds of millions of dollars, although the paperwork for these “loans” was inadequate. In addition to financing political donations, these funds were utilised to purchase luxury real estate and property.
While claiming in its terms of service that customers owned and maintained control of assets in their accounts and that these were safeguarded and segregated from FTX’s funds, FTX Trading engaged in widespread theft of customer funds. This occurred while FTX Trading claimed that customers’ assets were protected and kept separate from FTX’s funds.