Crime And Entanglement: How FTX's Bankruptcy, Alameda CEO's Guilty Plea Went Down

FTX FTT/USD co-founder Gary Wang and former Alameda Research CEO Caroline Ellison both pleaded guilty to federal charges including conspiracy to commit wire fraud, commodities fraud and securities fraud. 

The plea deals were released the same night of former FTX CEO Sam Bankman-Fried’s arrival in New York. Bankman-Fried, also a co-founder of FTX, faces eight federal criminal charges against him.

Let's dig into the FTX-Alameda Research saga and uncover a shocking tale of crime, and entanglement.

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An Article That Devastated FTX

About 40% of Alameda's $14.6 billion assets on their balance sheet were held in FTX's main token, FTT, according to a CoinDesk story published on Nov. 2.

Ellison clarified on Twitter that they had more than $10 billion in assets that weren't factored into the CoinDesk piece. She declined to comment on any liabilities. The tweet was later deleted. 

In response to the information made public, Binance CEO Changpeng Zhao decided to liquidate their remaining FTT holdings, worth about $584 million. When news of the liquidation went out, Alameda CEO then offered to buy all of Binance’s FTT holdings for $22 per token, leading to speculation that Alameda may have had loans that could have been liquidated if the price of FTT dropped below $22. 

This sequence of events began one of crypto's craziest moments – the collapse of FTX and Alameda, sending markets into panic mode. A tracking of the 7-day stablecoin flows by blockchain analytics form Nansen showed a net inflow of $411.5 million

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FTX paused all withdrawals without warning.

Bankman-Fried subsequently announced that Binance had entered into a strategic transaction with FTX. Zhao released a non-binding letter of intent to fully acquire FTX and help cover its liquidity crunch. 

However, things took a U-turn when Binance took a closer look at FTX’s balance sheet. Zhao then reconsidered the FTX rescue takeover, forcing FTX and Alameda Research to file for Chapter 11 bankruptcy.

Both Bankman-Fried and Ellison resigned. 

FTX-Alameda Research Connection

At Alameda, something was definitely amiss. After Ellison's co-CEO Sam Trabucco stepped down at the end of August, it raised eyebrows.

Soon after, FTX's former president Brett Harrison left, which added to the mystery. What was so wrong that two successful executives would leave their posts?

Speculation regarding Alameda's financial condition was further intensified by such developments. Little did the market know just how close Alameda was to bankruptcy.

CoinMetrics' head of research and development Lucas Nuzzi took to Twitter to reveal that Alameda almost went bankrupt in the second quarter of 2022. Nuzzi stated that the company was only saved when cryptocurrency exchange FTX reportedly provided the necessary funds.

A staggering $4 billion worth of FTX tokens was abruptly put in circulation on-chain on Sep. 28. On the same day, an incredible $8 billion worth of FTT was moved on-chain. This proved to be the biggest daily transaction since FTX was founded in 2019.

According to blockchain analytics platform Nansen, Alameda had received 5 million FTT tokens from the FTX deployer contract two days prior to the FTX listing of FTT (on July 29 2019). One week later, exactly 5 million FTT tokens were coincidentally transferred back to the same FTX deployer contract. These findings suggested that Alameda and FTX may have had a deeper relationship.

Then Came Excuses

According to an unverified insider source that was leaked on Twitter as of Nov. 16, Ellison painted a bleak outlook of both Alameda and FTX—liquidation seemed like an inevitable event rather than a distant scenario. 

The Alameda CEO stated that over the recent months, Alameda had used loan money to make VC investments and other excessive expenditures. By Spring, lenders moved to recall the loans, but the money that had already been spent was no longer easily retrievable. To counter this, Alameda resorted to using FTX customer funds to make the necessary payments.

On Thursday, two federal regulatory agencies, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, filed civil fraud charges against Ellison and Wang. 

Price Action: At the time of writing, FTT was trading at $0.88 down 5.27%, in the last 24 hours, according to Benzinga Pro.

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