Alameda Research: Inside FTX's Exclusive Dealings

Police & Regulations
Martin Walker
Oct 7, 2023 at 10:29 am

FTX co-founder Gary Wang shed light on the intricate details of Alameda Research's questionable affiliation with his exchange during the recent trial concerning Sam Bankman-Fried's alleged fraudulent activities.

During his deposition, Wang unequivocally stated that Alameda had integrated a specific functionality into FTX's computer systems back in 2019, a move that laid the foundation for potential misuse of client funds.

Special Treatment for Alameda

Gary Wang elaborated on three notable privileges extended to Alameda at FTX, making a distinction from the regular clientele, as reported by Inner City Press via Twitter.

One of these perks included the implementation of the "allow negative" feature, a unique function that allowed Alameda to conduct trades with financial leverage surpassing the balance in its account. As Wang had previously affirmed, Alameda possessed the remarkable ability to withdraw funds without any constraints from FTX.

This particular capability was later exploited, resulting in an unauthorized withdrawal of a substantial amount totaling $8 billion in both fiat and cryptocurrency. This amount coincided with the shortfall experienced by FTX during a previous incident where it struggled to fulfill legitimate client withdrawal requests in November.

Wang further clarified that the additional funds were sourced from FTX customers who had not explicitly given consent for lending out their funds. Although the discovery of this scheme took years, Wang revealed that he was aware of Alameda's negative balance as early as 2019.

Initially, the withdrawal limit was set between $50 million to $100 million, aligning with FTX's annual revenue figures. However, within just a year, Wang uncovered that this imposed restriction had already been violated.

"In early 2020, I conducted a database query — revealing that Alameda’s balance was more negative than FTX's entire revenue," he emphasized. Remarkably, while FTX's revenue stood at approximately $150 million, Alameda was already in a negative balance of at least $200 million.

Alameda's Extensive Line of Credit

Additionally, Alameda was granted an unusually substantial line of credit amounting to an impressive $65 billion from FTX. This was a stark contrast to the capped credit limit of $1 billion set for other clients, according to Wang. This revelation contradicted Bankman-Fried's repeated assertions that FTX refrained from utilizing customer funds.

"He made these affirmations on Twitter and during phone conversations; I distinctly remember overhearing him within the office," Wang recalled.

Furthermore, Wang emphasized that Bankman-Fried had firsthand knowledge of Alameda's balance, challenging SBF's multiple claims during interviews suggesting his lack of awareness regarding Alameda's financial state leading up to its collapse.

During the subsequent cross-examination, Sam Bankman-Fried's legal team sought to highlight that Alameda's negative balance was permitted to facilitate its role as a market maker for FTT, FTX's native exchange token. Wang clarified, however, that Alameda's exemption from automatic liquidation was, in part, due to the substantial size of its position, which had the potential to "cause damage."

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