The CFTC, the U.S. Securities and Exchange Commission (SEC) and the U.S. Attorney's Office for the Southern District of New York (SDNY) all brought numerous charges of fraud against Bankman-Fried on Tuesday over the collapse of FTX and Alameda. Bankman-Fried is currently being held in jail in the Bahamas awaiting an extradition hearing, after not receiving bail.
The regulators allege that Bankman-Fried operated a fraud from day one, improperly diverting FTX customer assets to his majority controlled trading firm Alameda Research and hiding that information from FTX equity investors and customers.
'The weird Korean account'
In the spring of 2022, following a significant downturn in the crypto markets, Alameda experienced a large number of margin and loan recalls and the trading firm "greatly increased" its usage of customer funds to meet its external debt obligations, the CFTC complaint alleges. By mid-2022, Alameda's total fiat liability with FTX was around $8 billion, the complaint said.
Bankman-Fried directed company executives to reallocate funds to a Korean account he referred to as “our Korean friend’s account” and “the weird Korean account."
The Korean account belonged to Alameda but was not tagged with an Alameda identifier, which enabled Alameda's negative balance to be hidden on FTX ledgers, the CFTC said. The account was instead described as "FTX fiat old," the complaint said.
The SEC complaint noted that Alameda's multi-billion dollar liability with the exchange was stored in an internal account in the FTX database as fiat@ftx.com. In 2022, the company started trying to separate out Alameda's portion of the liability in the "fiat@ftx.com" account, the SEC allege.
Alameda's special privileges
The regulators allege that Alameda received numerous privileges from an "unlimited" line of credit on the exchange to an exemption from FTX's heavily touted risk management system.
The Korean account had privileges to execute a transaction even if it did not have the funds to do so, through a piece of code labeled as "allow negative flag," the CFTC alleges. This was also applicable to the main Alameda account and the Alameda sub accounts, according to the complaint.
Former FTX executive Nishad Singh, who was responsible for overseeing engineering at FTX, annotated code linked to the Korean account, according to a report from Bloomberg, which cited contributions from Singh's Github account.
Bankman-Fried contemplated closing Alameda Research in September citing the fact that Alameda was not making enough money to justify its existence, according to the CFTC charges.
“I only started thinking about this today, and so haven’t vetted it much yet," wrote Bankman-Fried at the time. "But: I think it might be time for Alameda Research to shut down. Honestly, it was probably time to do that a year ago.”
