FTX Hid SBF's Alameda Liabilities Using Korean Accounts, CFTC Alleges

A lawsuit filed by the Commodities Futures Trading Commission (CFTC) alleges that former FTX CEO Sam Bankman-Fried instructed FTX executives to transfer Alameda Research's sizable obligations to the exchange to a Korean account in order to conceal its liability with the company.

The CFTC, the Securities and Exchange Commission (SEC), and the U.S. Attorney's Office for the Southern District of New York (SDNY) all filed fraud allegations against Bankman-Fried on Tuesday in connection with the failure of FTX and Alameda Research.

Bankman-Fried was refused bail and is being held in a jail in the Bahamas for an extradition hearing.

The regulators assert that Bankman-Fried engaged in fraudulent activity right away by inappropriately moving FTX customer assets to his majority-owned trading company Alameda Research and concealing this information from FTX equity investors and clients.

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What's 'The Weird Korean Account'? Following a substantial decline in the cryptocurrency market in the spring of 2022, the CFTC complaint said Alameda Research received a high number of margin and loan recalls and that the trading company "greatly increased" the use of customer cash to satisfy its external debt commitments.

The complaint, according to Bloomberg, states that by the middle of 2022, Alameda's total fiat liabilities with FTX were close to $8 billion.

Bankman-Fried instructed business leaders to transfer money to what he called "our Korean friend's account" and "the weird Korean account.”

According to the CFTC, the Korean account belonged to Alameda but was not tagged with an Alameda identifier, making it possible for Alameda's negative balance to be concealed on FTX ledgers.

The complaint alleges the account was instead referred to as "FTX fiat old."

Alameda's multibillion-dollar debt to the exchange was listed as "fiat@ftx.com" in an internal account in the FTX database, according to the SEC lawsuit.

According to the SEC, the business began attempting to segregate Alameda's share of the liabilities in the "fiat@ftx.com" account in 2022.

Alameda’s Many Privileges: Alameda obtained a number of benefits, including an "unlimited" line of credit on the exchange and an exemption from FTX's risk management system, according to the regulators.

The CFTC asserted that a piece of code known as "allow negative flag" gave the Korean account the ability to carry out a transaction even though it lacked the necessary cash.

According to the complaint, this also applied to the primary Alameda account and the Alameda sub-accounts.

Former FTX executive Nishad Singh, who oversaw the engineering department at FTX, annotated code linked to the Korean account, according to the Bloomberg report, which used contributions from Singh's Github account.

The CFTC said Bankman-Fried considered shutting down Alameda Research in September, contending that Alameda was not generating enough revenues to support its operations.

“I only started thinking about this today, and so haven’t vetted it much yet. But I think it might be time for Alameda Research to shut down. Honestly, it was probably time to do that a year ago,” Bankman-Fried said. 

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