By Lukas I. Alpert
The method by which Sam Bankman-Fried siphoned FTX customer funds into the coffers of his trading firm, Alameda Research, had been baked into the structure of the crypto exchange from the day it opened in 2019, U.S. authorities said.
When Sam Bankman-Fried launched his crypto currency exchange FTX in 2019, it was an immediate hit.
Building off the success of his proprietary trading firm, Alameda Research, he was soon attracting top venture capital investors and, more importantly, customers to his crypto derivatives exchange.
But the problems that would lead to FTX’s spectacular collapse a little more than three years later were baked into the company right at the beginning, regulators say.
When customers began sending money to FTX to open accounts on the exchange, those funds were being directed into bank accounts that were controlled by Alameda. What at first seemed like an accounting oversight, rapidly ballooned into major fraud, according to a lawsuit filed by the Commodity Futures Trading Commission.
FTX would eventually create its own accounts for customers to make deposits, but those early deposits into Alameda’s bank accounts plus money those customers would later put in, would eventually contribute to an $8 billion hole in FTX’s books, the CFTC suit said.
Making matters worse, Alameda was allowed to borrow as much capital as it wanted from FTX, drawing mostly from customer deposits.
In the end, that money was…
