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Alameda Research

Location:

Hong Kong
Type:

Cryptocurrency Investment Firm
Formation:

2017
CEO:

Caroline Ellison

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Alameda Research was an investment firm focused on cryptocurrency founded by Sam Bankman-Fried. It went bankrupt in 2022 after revelations that Alameda and its sister company, crypto exchange FTX, engaged in dubious business practices that led to criminal charges against Bankman-Fried and co-CEO Caroline Ellison.

Leadership

Sam Bankman-Fried was the co-founder of Alameda Research and FTX. After graduating from the Massachusetts Institute of Technology, Bankman-Fried worked at Jane Street, a hedge fund known for its extraordinarily difficult job application process. He left to start Alameda Research in 2017, and later founded FTX in 2019. 1

Bankman-Fried was a major Democratic donor; he gave $40 million during the 2022 election cycle, 2 and planned to give up to $1 billion during the 2024 election cycle. 3 Bankman-Fried’s brother, Gabe Bankman-Fried, is a former Democratic congressional staffer and former head of Guarding Against Pandemics. 4 Their mother, Barbara Fried, was a Stanford Law professor and the cofounder of Mind the Gap, a Democratic-aligned SuperPAC. 5

Caroline Ellison was the chief executive officer of Alameda. While attending Stanford University, Ellison interned at Jane Street, and took a full-time job for a year and a half after graduating. She left Jane Street to work at Alameda. 6

Bankman-Fried, Ellison, and much of the Alameda/FTX leadership lived together in a mansion owned by Bankman-Fried in the Bahamas. Bankman-Fried and Ellison were reportedly in an on-again, off-again romantic relationship. 7

Alameda co-founder Tara Mac Aulay left Alameda less than a year after its founding “due to concerns over risk management and business ethics.” 8 Soon after, Mac Aulay founded Lantern Ventures and Pharos Fund as similar financial platforms. She has distanced herself from Alameda and in November 2022, claimed she had not spoken to Bankman-Fried since 2018. 9

In October 2021, Caroline Ellison was appointed co-CEO with Sam Trabucco as Bankman-Fried resigned to focus on FTX. 10

Operations

Alameda was founded in 2017 by Bankman-Fried and Tara Mac Aulay with $55 million in assets under management. The name, Alameda Research, was chosen to lend legitimacy to the firm at a time when cryptocurrency firms were being subjected to enhanced scrutiny by financial institutions. 11 Though initially based in Berkeley, California, the firm soon moved to Hong Kong due to a more relaxed regulatory environment. Alameda’s initial trading strategy was based on Bitcoin arbitrage, buying and selling the asset in different countries and profiting from price differentials. 12

Alameda’s trades were often leveraged by loans from cryptocurrency lenders. Over time, it became more difficult for Alameda to get loans due to competition and fewer arbitrage opportunities. In 2019, Bankman-Fried founded FTX, a cryptocurrency exchange, to bring in revenue to support Alameda. FTX, which moved its operations to the Bahamas, quickly became one of the largest crypto exchanges, and allegedly reached $1 billion in revenue by 2021. 13

Alameda later diversified its holdings and invested more than $2 billion into smaller cryptocurrency firms. 14

By August 2021, Bankman-Fried owned 90 percent of Alameda. 15 In September 2022, Alameda claimed to have $13 billion in assets, though these figures are suspected to have been inflated. 16

FTX Collapse

Like many other exchanges, FTX issued its own cryptocurrency token, FTT, to raise funds. Alameda soon became the largest buyer, seller, and holder of FTT, which inflated its price, and served as a major part of the company’s asset basis. This inflation of Alameda’s assets allegedly enabled the company to mislead investors and creditors about the firm’s financial position. 17 18

Bankman-Fried also continued making trades at Alameda, and Alameda made major trades on FTX. The extent of the financial connection between Alameda and FTX was not well understood by many FTX investors who invested approximately $2 billion in 2021 and early 2022. 19 According to Bloomberg News, the relationship between FTX and Alameda would not generally be permitted in traditional financial institutions by regulators in the United States. 20

In late 2021, the cryptocurrency market suffered a major decline in value. In early 2022, falling cryptocurrency prices triggered a series of company collapses. Though Alameda and FTX’s exposure to these firms is not known, both were hurt by the decline in value of FTT. Additionally, numerous creditors withdrew funds from Alameda, both due to the declining market and Alameda’s investment in other crypto firms. 21 22

With Alameda on the verge of collapse, Bankman-Fried allegedly transferred as much as $10 billion in funds deposited on FTX to Alameda. Caroline Ellison and two other FTX executives were allegedly aware of the transfer. 23 24

In November 2022, Binance, a major cryptocurrency exchange, announced that it was selling its holdings of FTT over concerns about FTX’s financial stability. In a few days, FTT’s price dropped from about $22 to under $1.50. With an asset shortfall of around $8 billion, FTX neared insolvency. Binance reportedly inquired about acquiring FTX, but declined after examining its books. On November 8, FTX stopped withdrawals. 25 26

On November 10, Bankman-Fried announced that Alameda would wind down its operations. 27 The following day, Alameda filed for bankruptcy. 28

As more details of Alameda and FTX’s operations were revealed, the U.S. government opened criminal fraud investigations. In December, facing up to 110 years in prison, Ellison made a deal to cooperate with the federal government. 29 Bankman-Fried was arrested in the Bahamas, extradited to the United States, and released on bail. He faces up to 115 years in prison. 30 31

Effective Altruism

Most of Alameda’s leadership was involved in Effective Altruism (EA), a movement to improve the efficiency of philanthropy. Bankman-Fried was one of the largest EA donors. 32 Mac Aulay was formerly the head of operations at the Centre for Effective Altruism. 33

References

  1.  [1] Rosenberg, Eric. “Who Is Sam Bankman-Fried?” Investopedia. December 22, 2022. Accessed December 29, 2022. https://www.investopedia.com/who-is-sam-bankman-fried-6830274.
  2. [1] Popli, Nik. “Here’s What We Know About Sam Bankman-Fried’s Political Donations.” Time. December 14, 2022. Accessed December 29, 2022. https://time.com/6241262/sam-bankman-fried-political-donations/.
  3. Seitz-Wald, Alex. “Crypto billionaire says he could spend a record $1 billion in 2024 election.” NBC News. May 24, 2022. Accessed December 29, 2022. https://www.nbcnews.com/politics/2022-election/crypto-billionaire-says-spend-record-breaking-1-billion-2024-election-rcna30351
  4. Jankowski, Roman. “Democrat on House Financial Services Committee Hired FTX Crypto Kingpin’s Brother.” The Daily Signal. November 15, 2022. Accessed December 29, 2022. https://www.dailysignal.com/2022/11/15/democrat-on-house-financial-services-committee-hired-ftx-crypto-kingpins-brother/.
  5. Schleifer, Theodore. “Inside the secretive Silicon Valley group that has funneled over $20 million to Democrats.” Vox. January 6, 2020. Accessed December 29, 2022. https://www.vox.com/recode/2020/1/6/21046631/mind-the-gap-silicon-valley-democratic-donors-stanford.
  6. Kuhn, Daniel. “Who Is Alameda Research’s Caroline Ellison?” CoinDesk. November 22, 2022. Accessed December 29, 2022. https://www.coindesk.com/layer2/2022/11/22/who-is-alameda-researchs-caroline-ellison/.
  7. Kuhn, Daniel. “Who Is Alameda Research’s Caroline Ellison?” CoinDesk. November 22, 2022. Accessed December 29, 2022. https://www.coindesk.com/layer2/2022/11/22/who-is-alameda-researchs-caroline-ellison/.
  8. Nambiampurath, Rahul. “What happened at FTX?” The Defiant. December 7, 2022. Accessed December 29, 2022. https://thedefiant.io/what-happened-at-ftx.
  9. “The founder of Alameda Research is hiring for a new trading firm.” EFinancialCareer. November 30, 2022. Accessed December 29, 2022. https://www.efinancialcareers.com/news/2022/11/alameda-founder-crypto.
  10. [1] Kuhn, Daniel. “Who Is Alameda Research’s Caroline Ellison?” CoinDesk. November 22, 2022. Accessed December 29, 2022. https://www.coindesk.com/layer2/2022/11/22/who-is-alameda-researchs-caroline-ellison/.
  11. “Sam Bankman-Fried and the spectacular fall of his crypto empire, FTX.” NPR. November 16, 2022. Accessed December 29, 2022. https://www.npr.org/transcripts/1137054976.
  12. Goldstein, Matthew; Stevenson, Alexandra; Farrell, Maureen; Yaffe-Bellany, David. “How FTX’s Sister firm Brought the Crypto Exchange Down.” New York Times. November 18, 2022. Accessed December 29, 2022. https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html.
  13. Goldstein, Matthew; Stevenson, Alexandra; Farrell, Maureen; Yaffe-Bellany, David. “How FTX’s Sister firm Brought the Crypto Exchange Down.” New York Times. November 18, 2022. Accessed December 29, 2022. https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html.
  14. Goldstein, Matthew; Stevenson, Alexandra; Farrell, Maureen; Yaffe-Bellany, David. “How FTX’s Sister firm Brought the Crypto Exchange Down.” New York Times. November 18, 2022. Accessed December 29, 2022. https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html.
  15. Parloff, Roger. “Portrait of a 29-year-old billionaire: Can Sam Bankman-Fried make his risky crypto business work?” Yahoo! Finance. August 21, 2021. Accessed December 29, 2022. https://finance.yahoo.com/news/ftx-ceo-sam-bankman-fried-profile-085444366.html.
  16. Goldstein, Matthew; Stevenson, Alexandra; Farrell, Maureen; Yaffe-Bellany, David. “How FTX’s Sister firm Brought the Crypto Exchange Down.” New York Times. November 18, 2022. Accessed December 29, 2022. https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html.
  17. Massa, Annie; Irrera, Anna; Miller, Hannan. “Crypto Quant Shop With Ties to FTX Powers Bankman-Fried’s Empire.” Bloomberg. September 14, 2022. Accessed December 29, 2022. https://www.bloomberg.com/news/articles/2022-09-14/trading-firm-alameda-research-powers-ftx-ceo-sam-bankman-fried-s-crypto-empire?leadSource=uverify%20wall.
  18. Goldstein, Matthew; Stevenson, Alexandra; Farrell, Maureen; Yaffe-Bellany, David. “How FTX’s Sister firm Brought the Crypto Exchange Down.” New York Times. November 18, 2022. Accessed December 29, 2022. https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html.
  19. Goldstein, Matthew; Stevenson, Alexandra; Farrell, Maureen; Yaffe-Bellany, David. “How FTX’s Sister firm Brought the Crypto Exchange Down.” New York Times. November 18, 2022. Accessed December 29, 2022. https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html.
  20. Massa, Annie; Irrera, Anna; Miller, Hannan. “Crypto Quant Shop With Ties to FTX Powers Bankman-Fried’s Empire.” Bloomberg. September 14, 2022. Accessed December 29, 2022. https://www.bloomberg.com/news/articles/2022-09-14/trading-firm-alameda-research-powers-ftx-ceo-sam-bankman-fried-s-crypto-empire?leadSource=uverify%20wall.
  21. Goldstein, Matthew; Stevenson, Alexandra; Farrell, Maureen; Yaffe-Bellany, David. “How FTX’s Sister firm Brought the Crypto Exchange Down.” New York Times. November 18, 2022. Accessed December 29, 2022. https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html.
  22. “FTX Token USD (FTT-USD).” Yahoo! Finance. Accessed December 29, 2022. https://finance.yahoo.com/quote/FTT-USD/chart?p=FTT.
  23. Michaels, Dave; Yu, Elaine; Ostroff, Caitlin. “Alameda, FTX Executives Are Said to Have Known FTX Was Using Customer Funds.” The Wall Street Journal. November 12, 2022. Accessed December 29, 2022. https://www.wsj.com/articles/alameda-ftx-executives-are-said-to-have-known-ftx-was-using-customer-funds-11668264238?mod=hp_lead_pos2.
  24. Goldstein, Matthew; Stevenson, Alexandra; Farrell, Maureen; Yaffe-Bellany, David. “How FTX’s Sister firm Brought the Crypto Exchange Down.” New York Times. November 18, 2022. Accessed December 29, 2022. https://www.nytimes.com/2022/11/18/business/ftx-alameda-ties.html.
  25. Yaffe-Bellany, David. “Binance Pulls Out of Deal to Acquire Rival Crypto Exchange FTX.” New York Times. November 9, 2022. Accessed December 29, 2022. https://www.nytimes.com/2022/11/09/technology/ftx-binance-crypto.html.
  26. “FTX Token USD (FTT-USD).” Yahoo! Finance. Accessed December 29, 2022. https://finance.yahoo.com/quote/FTT-USD/chart?p=FTT.
  27. Singh, Manish. “Sam Bankman-Fried says FTX in talks to raise capital, Alameda Research to wind down trading.” Tech Crunch. November 10, 2022. Accessed December 29, 2022. https://techcrunch.com/2022/11/10/sam-bankman-fried-says-alameda-research-to-wind-down-trading-ftx-attempting-to-raise-capital/.
  28. Hill, Jeremy. “Bankman-Fried Resigns From FTX, Puts Empire in Bankruptcy.” Bloomberg. November 11, 2022. Accessed December 29, 2022. https://www.bloomberg.com/news/articles/2022-11-11/ftx-com-goes-bankrupt-in-stunning-reversal-for-crypto-exchange?leadSource=uverify%20wall.
  29. Land, Olivia. “Sam Bankman-Fried’s ex Caroline Ellison faced 110 years in jail before plea.” New York Post. December 23, 2022. Accessed December 30, 2022. https://nypost.com/2022/12/23/caroline-ellison-faced-110-years-behind-bars-before-plea/.
  30. Weiser, Benjamin; Goldstein, Matthew; Yaffe-Bellany, David. “Sam Bankman-Fried Released on $250 Million Bond With Restrictions.” New York Times. December 22, 2022. Accessed December 30, 2022. https://www.nytimes.com/2022/12/22/business/sam-bankman-fried-ftx-bail.html.
  31. Rupp, Lindsey, and Bloomberg. “SBF Faces up to 115 Years in Prison on Charges He Organized ‘One of the Biggest Financial Frauds in American History’.” Fortune. Fortune, December 14, 2022. https://fortune.com/2022/12/14/sam-bankman-fried-faces-up-to-115-years-in-prison-on-charges-he-organized-one-of-the-biggest-financial-frauds-in-american-history/.
  32. Yaffe-Bellany, David. “A Crypto Emperor’s Vision: No Pants, His Rules.” New York Times. May 14, 2022. Accessed December 29, 2022. https://www.nytimes.com/2022/05/14/business/sam-bankman-fried-ftx-crypto.html.
  33. “Tara MacAuly.” 80,000 Hours. March 2016. Accessed December 29, 2022. https://80000hours.org/stories/tara/.
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