- Alameda Research faced losses exceeding $190 million due to avoidable scams.
- Former Alameda engineer, Aditya Baradwaj, exposed major security lapses, including a $100 million loss from a malicious link.
- Caroline Ellison revealed Alameda’s use of $14 billion from FTX funds and third-party loans of up to $15 billion by 2021.
Recent disclosures have brought to light significant financial setbacks experienced by FTX’s sister hedge fund, Alameda Research. The firm reportedly faced losses surpassing $190 million due to a series of alleged “avoidable scams,” as detailed by a whistleblower’s expose.
Aditya Baradwaj, a former engineer at Alameda Research, unveiled a series of alarming financial and security lapses within the firm, via an X post:
These decisions allowed us to move at breathtaking speed. Developer velocity that would make any Silicon Valley software engineer shed tears of joy
— Adi (e/acc) (@aditya_baradwaj) October 11, 2023
However the flip side of this tradeoff was that we'd have a major security incident once every few months:
One such incident that Baradwaj detailed saw a trader at Alameda losing a staggering $100 million of the company’s funds. This substantial loss was attributed to the trader inadvertently clicking on a malicious link prominently displayed in Google Search results while he was attempting to approve a decentralized finance transaction.
Another revelation came in the form of Alameda’s involvement in yield farming on a blockchain whose legitimacy was deemed questionable. This venture saw the firm incurring losses that exceeded $40 million.
Baradwaj’s exposé also touched upon grave security oversights within Alameda. He highlighted the firm’s practice of storing blockchain private keys and exchanging API keys in plaintext, a format easily accessible to several employees. This lack of security led to a severe breach when an older version of this plaintext file was inadvertently leaked. Subsequently, attackers managed to transfer funds out of various exchanges, culminating in losses that surpassed the $50 million mark.
Furthermore, the whistleblower pointed out that such incidents were not isolated occurrences. Baradwaj indicated that Alameda encountered multiple similar incidents, some of which transpired before his association with the company.
Meanwhile, in a related development, Caroline Ellison, the former CEO of Alameda Research, shared insights from her tenure at the firm during her testimony. Ellison disclosed Alameda’s practices concerning FTX customer funds, revealing that the firm appropriated approximately $14 billion from these funds to mitigate its own debts. She also detailed Bankman-Fried’s push toward maximizing Alameda’s borrowing capabilities. As a result, by 2021, Alameda secured third-party loans amounting to between $10 billion and $15 billion, all of which were of an open-term nature.
Ellison further disclosed that FTX had made multimillion-dollar loans to its executives for diverse purposes, such as investing in startups and political donations. She touched upon concerns raised during an audit of FTX and Bankman-Fried’s subsequent reassurances. Ellison added that FTX’s strategies to regain access to frozen accounts included the use of intermediaries with connections in China.
