Report shows financial problems plagued Bankman-Fried’s Alameda Research Center as early as 2018

However, much of this perception may have been a facade, as a recent report details that Alameda suffered financial problems as early as 2018. People familiar with the matter said Alameda was losing money at the time, and a massive loss due to a failed xrp trade in mid-2018 reduced the company’s assets by more than two-thirds.

Alameda Research’s facade as a quantitative crypto trading company is crumbling with the revelation of early financial difficulties.

Sam Bankman-Fried’s (SBF) Alameda Research reportedly lost significant amounts of money as early as 2018, according to a report published by the Wall Street Journal (WSJ). Alameda Research was a quantitative trading firm that was officially launched in September 2017 with Tara Mac Aulay. Prior to launching Alameda, SBF worked for Jane Street and traded international exchange-traded funds (ETFs) until he took his position as director of development at the Center for Effective Altruism.

Reports detail that when SBF created Alameda, the trading firm was making millions from arbitrage. As an arbitrageur, SBF claimed that opportunities were coming from countries like Japan and South Korea, while bitcoin was trading at a high price in those regions. Because of the so-called “Kimchi premium“In South Korea, SBF reported that BTC was sometimes 30% higher and in Japan it was 10% higher. There are plenty of reports that point out that Alameda made millions from crypto-currency arbitrage, but a recent Wall Street Journal report published on December 31, 2022, details Alameda’s trades that were not always profitable.

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The report states that while SBF stepped down as Alameda’s CEO, he retained control of the company until the end. WSJ reporter Vicky Ge Huang detailed that Alameda “took big risks, winning some and losing many“. In addition, the WSJ report states that SBF continually 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 rates trading at Citigroup, the company was looking to partner with market makers like Alameda, but Campbell said he became skeptical of SBF’s business.

The thing I noticed immediately that caused us heartburn was the complete lack of a risk management framework that they could articulate in a meaningful way“, Campbell detailed.

SBF’s solicitation of lenders raised questions about the company’s financial stability

According to people familiar with the case and Alameda’s trading, arbitrage opportunities quickly ceased and Alameda’s trading algorithm reportedly 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. As a result, SBF reportedly began soliciting loans again with pitches promising 20% returns, say people familiar with the matter. A document reviewed by the WSJ shows that SBF’s lawyer explained how Alameda was a leading market maker in a specific presentation to a lender, but the lawyer did not reveal any financial information.

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Others familiar with the matter said SBF sought lenders in January 2019 at a Binance Blockchain Week event in Singapore. While Alameda sponsored the event to the tune of $150K, the conference was reportedly used by SBF to solicit lenders and a pamphlet was distributed to potential investors. The pamphlet claimed that Alameda had $55 million in assets under management (AUM), but it remains to be seen whether or not this data was factual. In February 2019, SBF decided to move Alameda from California to Hong Kong. Former associates said that during the crypto bull run in 2021, Alameda made about $1 billion in profits, but when the bull run ended, SBF’s bets started to turn sour.

Reports also show that Alameda’s former CEO, Caroline Ellison, had a large negative balance on FTX in May 2022, a few months before FTX fell. The indictment complaints in Manhattan, the U.S. Securities and Exchange Commission (SEC) charges and the Commodity Futures Trading Commission (CFTC) lawsuit, indicate that Alameda’s losses were so large that they caused SBF to allegedly borrow funds from FTX customers to prop up the company after the losses. The WSJ also notes that SBF considered closing Alameda several months before the collapse of both companies, but the idea never materialized.

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