Inside the Legal Battle that Shook the Crypto World

October 19, 2023

By Anjali Kochhar

Alameda Research was a small crypto trading firm founded in 2017 and FTX a cryptocurrency exchange was founded in 2019. There are a few commonalities between the two companies, one both companies were founded by Sam Bankman-Fried and the second both companies were declared bankrupt in Nov 2022. The collapse of FTX and Alameda’s research is a classic case of money hedging and illegally moving money from one company to another.

Alameda Research 

Alameda Research was a decentralized finance (DeFi) investor, the headquarters of the firm was based in Hong Kong. The primary methodology of the firm is to buy cryptocurrency from one country and sell it on other exchanges in other countries and thereby make a profit due to the price difference in the cost of currencies in different countries.

During an interview, Bankman-Fried said “If you named your company like We Do Cryptocurrency Bitcoin Arbitrage Multinational Stuff, no one’s going to give you a bank account, but everyone wants a Research Institute”. As per the reports, FTX was created in 2019 to fund the trading business in Almeda Research.


FTX a crypto exchange was founded in 2019, Alameda Research played an important role in the growth of FTX crypto exchange. FTX rose to dominate the crypto market, thanks to an aggressive marketing strategy, celebrity clients, Super Bowl advertisements, etc.

Big players like Sequoia Capital a venture capital firm, Singapore-based investment company Temasek, Investment firm Paradigm, Ontario Teachers’ Pension Plan, and many other giants invested hundreds of millions of dollars in FTX.

Celebrities like Tom Brady NFL quarterback, Gisele Bündchen a supermodel, Kevin O Leary Shark Tank investor, Robert Kraft owner of the American football team, Robert Belfer billionaire oil barren, the list of people who have invested their hard-earned money in FTX is endless. The net value of these investments stands at almost ZERO as of today.

FTT Token

Like all the crypto trading platforms FTX also created its own crypto token FTT. Users dealing in FTT get added benefits like trading discounts on the platform. Due to this discount, the traders started using FTT as the mainstream coin for all transactions due to which the price of FTT started rising. Both FTX and Alameda benefited from the token’s rising value.

The exchange started using FTT to make investments of billions of dollars in other crypto tokens in various other crypto companies. Alameda took as much money as it needed from other investors and was using FTT as collateral to fund its activities.

Alameda Research used this money for various activities including charity and donations to the campaign during the presidential election in the USA in 2020 and other election campaign till 2022.

Things were going well till the time the crypto market was booming as both companies were able to generate sufficient profit to fund the activities. However, during Nov 2022, due to the collapse in the crypto markets FTT folded, and FTT holders started mass selling to get out of the market, but FTX did not have sufficient funds to repay the customers as the company had siphoned customer’s assets as a hedge fund utilized by Alameda research.

Due to this the sister company FTX also collapsed to the tune of 8 billion dollars and filed for bankruptcy. The value of Alameda research was affected and it was estimated that the cost of FTT has dropped by 90 percent.

Legal Battle

As per the press release by Securities and Exchange Commission (SEC) in 2019, “FTX, based in The Bahamas, raised more than $1.8 billion from equity investors, including approximately $1.1 billion from approximately 90 U.S.-based investors. In his representations to investors, Bankman-Fried promoted FTX as a safe, responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets. The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors  the undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund; the undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited “line of credit” funded by the platform’s customers and exempting Alameda from certain key FTX risk mitigation measures; and undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens. The complaint further alleges that Bankman-Fried used commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.”

Throughout the course of the legal battle during the bankruptcy case, it was revealed that all the founders were aware of the loan approval to Alameda Research from FTX funds. Caroline Ellison informed prosecutors about an existing backdoor connection between the two entities.

During her testimony, she highlighted that, under Sam’s direction, she manipulated balance sheets to present Alameda as less risky to potential investors. There was a pivotal decision on Sam’s part regarding whether to borrow an additional $3 billion from crypto lenders, using FTX customer funds as security.

In the wake of the tumultuous legal battle over Alameda’s loan approvals from FTX, the narrative paints a grim yet compelling picture of a financial saga filled with intrigue and consequences.

The collapse of these once-prominent crypto entities, Alameda Research and FTX, stands as a stark example of the intricate web of financial maneuvering in the crypto world. What began as two ventures helmed by the same visionary, Sam Bankman-Fried, eventually led to an intricate tale of money shifting, which had devastating ramifications.

The legal battle, as documented by the Securities and Exchange Commission (SEC), brought to light a series of unsettling revelations. It unveiled an undisclosed diversion of customer funds to Alameda Research, as well as special treatment accorded to Alameda on the FTX platform, raising questions about the purported safeguards and risk measures.

As the legal proceedings unfolded, it became evident that these financial intricacies had far-reaching implications, impacting not only the crypto landscape but also leading to large-scale political donations, real estate investments, and more. This legal battle now raises the pressing question of accountability and sheds light on the precarious nature of the crypto world, where transparency and regulation are paramount.

About the author

Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.

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