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Alameda Research lost nearly $200M to scams, ex-engineer says

TL;DR

  • Alameda Research’s former engineer, Aditya Baradwaj, asserts that FTX’s ex-CEO SBF lost at least $190 million in trading capital to allegedly avoidable schemes.
  • According to Michael Lewis’s recently published biography of SBF, he lost at least $500,000 every day during Alameda’s early days.
  • Alameda Research’s ex-CEO Caroline Ellison is relieved that FTX and Alameda’s collapse came to light: “I felt a sense of relief that I didn’t have to lie anymore.”
  • SBF allegedly planned for regulators to go after Binance so he could grow his turf.

Alameda Research and FTX revelations are coming in evil and in tandem. The crypto ecosystem is plagued by phishing attacks and hacks, so you would expect large-scale traders to implement high levels of security and safeguards against such threats.

However,  Alameda Research does not understand what that is.  Ex-employee Aditya Baradwaj asserts that Sam Bankman-Fried’s beleaguered trading firm lost at least $200 million to a number of common attack vectors that are rampant in the industry.

Alameda Research – Not so smart after all

According to a former engineer at the firm, Alameda Research, the sister hedge fund of FTX, lost at least $190 million in trading capital to allegedly avoidable schemes.

Aditya Baradwaj, a former Alameda Research engineer turned whistleblower, claimed in a post titled “The Hacks” on October 12 that the company’s “breathtaking” agility led to “major security incidents” every few months.

SBF believed that the single most important thing for a startup like Alameda or FTX was being able to move very, very fast […] This meant virtually no code testing and incomplete balance accounting […] Blockchain private keys and exchange API keys were stored in plaintext in a file that several employees could access.

Aditya Baradwaj

Baradwaj states that a trader at Alameda once lost more than $100 million of the firm’s capital after following a fraudulent link put to the top of Google Search results.

According to Baradwaj, the trader was attempting to sign off on a decentralized finance transaction.

Alameda lost $40 million through yield farming on a “new blockchain of questionable legitimacy,” with the network’s founder holding the company’s assets hostage. Months of talks took place; however, it is unknown whether these funds were ever recovered.

Yield farming is an increasingly popular method to earn incentives by feeding tokens to a blockchain-based financial application. However, dubious actors’ programs may prevent withdrawals after drawing a significant amount of capital, resulting in losses.

Another security mishap happened when private keys or a password to a secure crypto storage facility were exposed, “likely by a former employee.” The attack cost Alameda more than $50 million in tokens.

He claimed that Alameda had “many more” occurrences of the same magnitude as the ones he had mentioned but that many of these occurred before his time at the business. The former engineer has been speaking openly about the company’s numerous flaws following the collapse of Alameda Research and FTX in November of last year.

Such losses did not stop in Alameda Research. FTX, Bankman-Fried’s second company, lost nearly $400 million shortly after filing bankruptcy in November 2022. Poor private key management was proven to be the root cause of the attack, which could have cost the company up to $1 billion.

According to Michael Lewis’s recently published biography of Bankman-Fried, the creator lost at least $500,000 every day during Alameda’s early days and once misplaced almost $4 million in XRP tokens.

All is fair in love and war – Caroline Ellison

Baradwaj’s remarks come as former Alameda Research CEO Caroline Ellison takes the stand to testify against Bankman-Fried on the sixth day of his fraud trial. In recent days, a number of former colleagues, notably Adam Yedidia and Gary Wang, have presented a slew of new evidence against the former billionaire.

Caroline Ellison’s testimony explains in detail who SBF is as a man. Caroline sobbed on the witness stand near the end of her second day of testimony against her former boss and ex-boyfriend, SBF.

The small and soft-spoken former CEO of Alameda Research revealed the collapse of her hedge fund and its sister company, the FTX exchange, last November and the “relief” she felt as discoveries about their deception became public. She testified that:

 I felt a sense of relief that I didn’t have to lie anymore […] I felt indescribably bad about all the … people that lost their jobs … and the people that trusted us that we had betrayed.

Caroline Ellison

Throughout the spring of 2022, Ellison said she became increasingly concerned that Alameda Research’s reliance on FTX client funding would lead to disaster for both companies.

Ellison said Wednesday that she and a few of FTX and Alameda executives “paid a large bribe to Chinese officials” to obtain assets that had been frozen on Chinese exchanges. 

Prior to the lunch break, prosecutors teased the jury with another document written by Ellison – a personal to-do list. It mentioned “getting regulators to crack down on Binance.”

Binance is the world’s largest cryptocurrency exchange, and it has been accused of misconduct by US regulators in the aftermath of FTX’s November 2022 collapse.

Sam said that he thought that was one of the best potential ways for FTX to increase market share […] Regulators had been promising him this would happen for a while.

Caroline Ellison

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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