However, much of this perception may have been window dressing as a recent report details that Alameda suffered financial problems as early as 2018. People familiar with the matter said that Alameda was losing money at the time and that a massive loss from a failed xrp transaction in mid-2018, the company’s assets were reduced by more than two-thirds.
Alameda Research’s facade as a quantitative crypto trading company crumbles with the revelation of the first financial difficulties.
Sam Bankman-Fried’s Alameda Research (SBF) lost large sums already in 2018, according to a report from the Wall Street Journal (WSJ). Alameda Research was a quantitative trading company that officially launched in September 2017 with Tara Mac Aulay. Before starting Alameda, SBF worked for Jane Street trading international exchange-traded funds (ETFs) until taking his position as director of development at the Center for Effective Altruism.
Reports describe that when SBF created Alameda, the trading firm made millions through arbitrage. As an arbitrageur, SBF argued that opportunities came from countries such as Japan and South Korea as bitcoin traded at a high price in those regions. Due to the so-called “premium KimchiIn South Korea, SBF said BTC was sometimes 30% higher, and in Japan it was 10% higher. There are a plethora of reports pointing to Alameda making millions through cryptocurrency arbitrage, but a recent Wall Street Journal report published on December 31, 2022 details Alameda’s transactions that were not always profitable.
The report says that while SBF left his position as CEO of Alameda, he retained control of the company until the end. WSJ reporter Vicky Ge Huang explained in detail that Alameda “took big risks, won some and lost a lot“. Furthermore, the WSJ report stated that SBF continuously borrowed money to support such bets and promised investors double-digit returns if they helped it. According to Austin Campbell, former co-head of digital asset trading at Citigroup, the company sought to partner with market makers like Alameda, but Campbell said he became skeptical of the company from SBF.
“What I immediately noticed that gave us heartburn was the complete lack of a risk management framework that they could meaningfully articulate“, detailed Campbell.
SBF’s call to lenders has raised questions about the company’s financial stability
According to people familiar with the matter and Alameda’s trading, arbitrage opportunities soon ceased and Alameda’s trading algorithm made many bad bets. In the spring of 2018, Alameda took a huge hit by betting on xrp, losing over two-thirds of Alameda’s assets. SBF would therefore have started applying for loans again with places that promise a return of 20%, explain people with knowledge of the matter. A document reviewed by the WSJ shows that SBF’s lawyer explained how Alameda was a top market maker in a lender-specific presentation, but the lawyer did not disclose financial information.
Others familiar with the matter said SBF approached lenders in January 2019 at a Binance Blockchain Week event in Singapore. While Alameda sponsored the event to the tune of $150,000, the conference would have been used by SBF to solicit lenders and a pamphlet would have been distributed to potential investors. The flyer claimed Alameda had $55 million in assets under management (AUM), but whether or not that data was factual remains unclear. In February 2019, SBF decided to move Alameda from California to Hong Kong. Former employees said that during the 2021 crypto bull run, Alameda made about $1 billion in profits, but when the bull run ended, SBF’s bets began to sour.
Reports also show that former Alameda CEO Caroline Ellison had a large negative balance on FTX in May 2022, a few months before FTX went down. The complaints to the Manhattan indictment, the US Securities and Exchange Commission (SEC) charges and the Commodity Futures Trading Commission (CFTC) lawsuit indicate that Alameda’s losses were so significant that they pushed SBF to allegedly borrow funds from FTX clients to support the company. after the losses. The WSJ also notes that SBF considered closing Alameda several months before the two companies collapsed, but the idea never came to fruition.