What is Alameda, the hedge fund that brought down FTX? (2024)

Alameda Research, a hedge-fund-like crypto trading house that Bankman-Fried launched in 2017, played a pivotal role in FTX's downfall.

Almost as soon as FTX was created in 2019, former CEO Sam Bankman-Fried ordered co-founder Gary Wang to and Chief Technology Officer Nishad Singh to tweak the platform’s code to allow Alameda, as a customer on the exchange, certain“special privileges” that other customers lacked, according to Wang’s testimony.

Both Wang and Singh pleaded guilty to financial crimes as part of a plea deal with the government.

Those privileges included a virtually unlimited line of credit for Alameda that its executives could tap at any time, Wang testified. Alameda’s main trading account was also given an “allow negative” flag, meaning it could incur a negative balance without repercussion – a privilege that no other FTX customer was granted, Wang testified.

The guilty verdict for former FTX CEO Sam Bankman-Fried comes a year after the crypto exchange entered a death spiral that fueled a panic in the trillion-dollar crypto industry and left an estimated 1 million customers facing potential losses. Prior to its collapse, the exchange attracted millions of users and a coterie of A-list backers, such as Tom Brady and Gisele Bundchen.

FTX, founded by Bankman-Fried in 2019, billed itself as a safe and easy way to start trading cryptocurrencies – digital assets whose values are based largely on a collective hope for their future application, which remains murky.

In the early 2020s, with interest rates at zero and millions of amateur investors stuck at home, FTX’s popularity as a crypto portal skyrocketed. By 2022, FTX was airing Super Bowl ads and plastering its name on the Miami Heat’s arena.

But FTX collapsed into bankruptcy on November 11, 2022 after what was effectively a run on the bank – a customerpanic sparked by a leaked document that suggested irregular financial dealings between FTX and another firm owned by Bankman-Fried.

But, unlike bank customers, FTX depositors had no federal insurance fund to compensate them when the cash dried up. And despite FTX’s public assurances that it didn’t invest or move customer deposits in any way, Bankman-Fried’s other firm had been secretly siphoning deposits to repay its own lenders, underwrite executives’ luxury lifestyles, gamble in crypto markets and funnel millions of dollars in US political campaigns.

Sam Bankman-Fried was found guilty on all seven counts for his role in the collapse of crypto exchange FTX.

Jurors deliberated from 3:15 pm ET to 7:45 pm ET.

The former crypto billionaire was found guilty of:

Count one: Wire fraud on customers of FTX

Count two: Conspiracy to commit wire fraud on customers of FTX

Count three:Wire fraud on Alameda Research lenders

Count four:Conspiracy to commit wire fraud on lenders to Alameda Research

Count five: Conspiracy to commit securities fraud on investors in FTX

Count six: Conspiracy to commit commodities fraud on customers of FTX

Count seven: Conspiracy to commit money laundering

Over the past four weeks in a Manhattan federal court, 12 jurors and five alternates sat through more than 60 hours of testimony about the rise and fall of a multibillion-dollar crypto business empire and the person at the center of it all.

Judge Lewis Kaplan read instructions to the jury on Thursday morning, explaining each of the seven counts against Bankman-Fried before sending jurors off to deliberate.

Throughout the trial, prosecutors told the jury that 31-year-old Bankman-Fried orchestrated a yearslong fraud — building a “pyramid of deceit” — that ultimately crumbled when the market soured and his luck ran out.

Bankman-Fried has pleaded not guilty to seven federal counts of fraud and conspiracy, and he has broadcast to just about anyone who’ll listen his version of the events that landed both companies in bankruptcy. According to him, the mistakes that brought down FTX and Alameda were innocent — the kind of sloppy errors that startups are prone to.

Chief among those errors, according to his own testimony, was was not hiring a dedicated risk management team.

“I made a number of small mistakes and a number of larger mistakes,” Bankman-Fried said on the stand last week. “By far the biggest mistake was we did not have a dedicated risk management team, we didn’t have a chief risk officer.”

But on Thursday, US Assistant Attorney Danielle Sassoon described that as a strategy rather than a mistake.

“When you’re embezzling customer money, of course you’re not going to hire a risk officer,” she said.

Lead defense attorney Mark Cohen told the jury that the government’s portrayal of his client as a “movie villain” was wrong. Although Bankman-Fried made mistakes, he never defrauded anyone, Cohen told jurors.

“In the real world — unlike the movie world — things canget messy,” Cohen said.“Poor risk management is not a crime.”

The verdict is set to come almost a year after FTX entered a death spiral that fueled a panic in the trillion-dollar crypto industry and left an estimated 1 million customers facing potential losses.

Prior to its collapse, the exchange attracted millions of users and a coterie of A-list backers, such as Tom Brady and Gisele Bundchen.

FTX, founded by Bankman-Fried in 2019, billed itself as a safe and easy way to start trading cryptocurrencies — digital assets whose values are based largely on a collective hope for their future application, which remains murky.

In the early 2020s, with interest rates at zero and millions of amateur investors stuck at home, FTX’s popularity as a crypto portal skyrocketed. By 2022, FTX was airing Super Bowl ads and plastering its name on the Miami Heat’s arena.

But FTX collapsed into bankruptcy on November 11, 2022.

The collapse of FTX fell to the Southern District of New York, widely known as an elite organization packed with some of the nation’s top lawyers. Its nickname is the “Sovereign District of New York.”

“People who work in the Southern District went to the best law schools, were elected to law reviews and clerked for federal judges,” Nicholas Lemannwrote in the New Yorkerin 2013. “They prosecute the biggest, baddest, scariest criminals: evil billionaires, the Mafia, drug gangs, terrorists.”

“When [the Southern District of New York] gets involved, if there is criminality, odds are that they will make the case aggressively, prosecute it and secure a conviction,” Samson Enzer, a partner at Cahill Gordon & Reindel, told CNN last year. “They rarely fail.”

US Assistant Attorney Danielle Sassoon lead the government's cross-examination in Bankman-Fried's trial.

Sassoon was a law clerk to Justice Antonin Scalia,whom she said taught her "how to fire a pistol and a rifle, and made me feel like I had grit,"she wrote in 2016.

Sassoon received her law degree from Yale and has a bachelor's degree in History and Literature from Harvard.

In the weeks after his crypto empire collapsed, Sam Bankman-Fried ignored the most fundamental legal advice that any lawyer — or even a casual viewer of TV crime procedurals — would give: Shut your mouth.

Instead, SBF went on an apology tour, variously tweeting, DM-ing, and giving recorded interviews with reporters, repeatedly admitting that he “f**ked up.”

“What SBF is doing is a form of litigation suicide,” Howard Fischer, a former Securities and Exchange Commission lawyer told CNN last year. “Everything he says that turns out to be contradicted by admissible evidence will be taken as evidence of deceit … I don’t know if this is a sign of unrepentant arrogance, youthful overconfidence, or simply sheer stupidity.”

Bankman-Fried was arrested in the Bahamas on December 12, 2022, after US prosecutors filed criminal charges against him.

The Southern District of New York, which is investigatingBankman-Friedand the collapse of FTX and its sister trading firm Alameda, confirmed his arrest on Twitter.

“Earlier this evening, Bahamian authorities arrested Samuel Bankman-Fried at the request of the US government, based on a sealed indictment filed by the SDNY,” wrote US attorney Damian Williams. “We expect to move to unseal the indictment in the morning and will have more to say at that time.”

The United States’extradition treaty with the Bahamasallows US prosecutors to return defendants to American soil if the charges would be considered punishable by imprisonment of at least a year in both jurisdictions.

In November last year, FTX suffered a run on the bank — a customerpanic sparked by a leaked document that suggested irregular financial dealings between FTX and Alameda Research, a hedge fund owned by Bankman-Fried.

But, unlike bank customers, FTX depositors had no federal insurance fund to compensate them when the cash dried up.

And, despite FTX’s public assurances that it didn’t invest or move customer deposits in any way, Bankman-Fried’s other firm had been secretly siphoning deposits to repay its own lenders, underwrite executives’ luxury lifestyles, gamble in crypto markets and funnel millions of dollars to US political campaigns.