Sam Bankman-Frieds Alameda Research Issues Predate FTX: Report

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New reports on Sam Bankman-Fried and his collapsed exchanges have revealed that Alameda Research, the now bankrupt crypto trading firm, nearly collapsed in 2018, before FTX was even in the picture.

A report published in the Wall Street Journal citing former employees revealed that Alameda suffered heavy losses because of its trading algorithm. The algorithm was designed to perform a large number of automated and fast transactions. However, the company was losing money by guessing the wrong direction of price movements.

In 2018, Alameda lost almost two-thirds of its assets due to the falling price of the XRP token (XRP) and was in the blink of an eye for collapse. However, Bankman-Fried reportedly managed to save the trading company by raising funds from lenders and investors on the promise of returns of up to 20% on their investment.

According to the report, in January 2019, Alameda sponsored Binance Blockchain Week’s inaugural conference, and SBF used the event to reach out to investors to secure funding for its failing trading company.

Later in April 2019, FTX was launched with the promise of providing a safe haven for institutional investors. With the launch of FTX, Bankman Fried used Alameda to fuel its growth, with the trading firm becoming the exchange’s primary market maker. He was always open to other traders to buy and sell. People familiar with Alamedas tactics say the exchange has sometimes taken the losing side of a deal to attract customers.

Related: US Lawmakers Under Pressure After FTX Collapse: Report

While Bankman Fried had earlier asserted that Alameda and FTX had always operated independently, the recent lawsuit filed by the U.S. Securities and Exchange Commission (SEC) suggests otherwise.

The lawsuit revealed that Bankman Fried asked to create a piece of code to gain an unfair advantage. The code would allow Alameda to maintain a negative balance on FTX regardless of the amount of collateral it placed with the exchange. Bankman-Fried also assured that the Alamedas FTX collateral would not be immediately sold if its value fell below a particular threshold.

The recent report established that Alameda has been a sinking ship since its inception. However, Bankman Fried not only rescued it in 2018 with borrowed funds, but later used it to create the now-collapsed FTX crypto exchange and fuel its growth.

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