FTX received customer deposits through bank accounts held by Alameda

(Bloomberg) – As everything around him crumbled, Sam Bankman-Fried spoke offhandedly about how FTX gained access to regulated banks otherwise beyond the reach of the crypto exchange: through its trading company, Alameda Research.

The arrangement came about because banks were reluctant to do business with crypto companies, including FTX, according to people familiar with the matter. As a workaround, some FTX customers were instructed to send wire transfers through Alameda, which was licensed to have accounts at Silvergate Capital Corp., a cryptocurrency and fintech bank, the people said. . Some FTX customers have continued to send wire transfers as recently as this year, according to one of the people, who requested anonymity to discuss private transactions.

The arrangement further sheds light on the tangled relationship between FTX and Alameda, which emerged as a quagmire of lax record-keeping and poor centralized controls amid the empire’s collapse. Advisors overseeing the group’s ruins have more widely pointed to a potential mix of digital assets, raising concerns about the misuse of client funds and making links between the two firms a likely target for regulators and investigators probing. the collapse.

Sam Bankman-Fried declined to comment. Representatives for FTX did not respond to a request for comment.

A Silvergate representative said it is a federally regulated, state-chartered bank “whose solutions are built on a deep-rooted commitment and proprietary approach to regulatory compliance.” The bank does not comment on customers or their activities as part of a firm policy, the representative said.

Complicated facts

Whether the arrangement constitutes wrongdoing would depend on the facts, including whether the banks in question knew about the setup, according to Alma Angotti, a former executor for the U.S. Securities and Exchange Commission and the Department of the US Treasury who now works as a partner in the consulting firm. Guidehouse.

“It’s very bad practice and risk management in any book to mix your clients’ funds with matching funds and other funds,” Angotti said. “This is a complicated set of facts and it is difficult to say at this stage what has been breached. It’s bad risk management and it’s sloppy to say the least.

In a recent exchange of messages on Twitter with the Vox news site, Bankman-Fried acknowledged that people could transfer money to Alameda’s bank account to send money to FTX. Over the years, it “seems like people wired $8 billion to Alameda,” he said.

Silvergate, based in La Jolla, Calif., is one of the few Federal Reserve member banks to help customers move dollars and euros into crypto exchanges, a process known as “on-ramp.” in industry. Its Silvergate Exchange Network has been a key offering for exchanges and other companies that deal in digital assets.

Silvergate said FTX deposits accounted for less than 10% of the $11.9 billion in digital asset customer deposits on the company’s platform as of September 30.

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