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Fallen FTX Founder Cheated to Make More Money on His Platform

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The founder of crypto exchange FTX Sam Bankman-Fried allegedly bought crypto tokens before they were listed on the platform, according to a Wall Street Journal article.

FTX’s trading firm, Alameda Research, bought nearly 60 ethereum-blockchain based tokens before the company’s own clients could buy and sell them.

The practice is akin to insider trading.

Alameda was founded and owned by Bankman-Fried.

Blockchain data from Argus, an analytics firm, showed that even though FTX said it would list the tokens first on its exchange so that investors, ranging from retail to institutional ones such as hedge funds, could purchase them, it was not true.

Instead, between March 2021 through March 2022, Alameda owned $60 million of the tokens from 18 listings of them, according to data from Argus.

The blockchain, which is a digital ledger that can be viewed by everyone, showed that Alameda purchased the tokens before the listings, the article said.

Knowledge that an asset like a token or a stock is going to be listed means that traders can make money by buying them in advance and selling them soon after.

It can not be determined if Alameda sold the tokens, if at all, based on the data from Argus.

Listing a token adds liquidity and draws more investors to them, similar to when a stock goes public. A listing can boost the price of a token.

“What we see is they’ve basically almost always in the month leading up to it bought into a position that they previously didn’t. It’s quite clear there’s something in the market telling them they should be buying things they previously hadn’t,” said Omar Amjad, co-founder of Argus, according to the article.

In February, Bankman-Fried told the WSJ in an email that Alameda received information that was equal to the other market makers on its platform. The traders on Alameda did not have more access to either market data or trading or client information, the article said.

The insolvency of FTX, which filed for Chapter 11 bankruptcy on Nov. 11, appears to have occurred when its founder Sam Bankman-Fried reportedly transferred $10 billion of customer funds from FTX to his cryptocurrency trading platform Alameda Research, according to Reuters, which cites two sources that “held senior FTX positions until this week.”

FTX faces a shortfall of $1.7 billion, one source told Reuters, while the other source said between $1 billion and $2 billion was missing. Bankman-Fried, who resigned as CEO, was once hailed as the savior of the sector during the liquidity crisis of last summer. His company was valued at $32 billion in February.

Regulators in the United States and the Bahamas, where FTX is based, have opened investigations into the firm’s debacle.

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