Just-In: FTX-Alameda Research Contagion Could Spread To These Banks

Prosecutors are relatively clear about the relations between trading firm Alameda Research and crypto exchange FTX following the recent investigations. Alameda is found to be the primary firm supporting FTX operations including accounts, transfers, trading, and others as FTX spun off from Alameda in 2019.

With banks reluctant to work with crypto companies including FTX, Sam Bankman-Fried gained access to regulated banks through Alameda Research. Customers were sending wire transfers to FTX through Alameda-associated banks. These banks may potentially be under scrutiny for allowing transfers.

Banks Under Scrutiny for FTX-Alameda Contagion

The arrangement through Alameda allowed FTX to receive customer funds. Customers were instructed to send wire transfers through Alameda accounts at Silvergate Capital, Signature Bank, Trust Bank, and others. Some FTX customers continued sending wire transfers through Alameda this year, reported Bloomberg on November 29.

The arrangement between Alameda and FTX caused problems in record-keeping and management. It raised concerns about the misuse of customer funds due to transactions between the two firms. SBF believes people wired $8 billion to Alameda.

The banks’ compliance procedures are sure to attract greater scrutiny from prosecutors and regulators. In fact, Sam Bankman-Fried indicated that transfers meant for the crypto exchange may have been directed toward its sister company Alameda. FTX’s new CEO John J. Ray III tasked with overseeing bankruptcy claimed he’s never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

Meanwhile, a Silvergate representative stated the bank doesn’t comment on customers or their activities as per their policy. Alma Angotti, a former enforcer at the SEC and Treasury Dept., said the arrangement puts banks at risk if they knew about the setup.

“It’s very bad practice and risk management in any book to mingle your customer funds with counterparty funds and other funds. This is a complicated set of facts and it’s hard to say at this point what was violated. It’s bad risk management and it’s sloppy at the very least.”

Also Read: FTX-Tether Connection: Involvement Of Banks Raises Questions

John Ray Announces Resuming Salary Payments

FTX and approximately 101 additional affiliated companies are resuming ordinary course payments of salary to employees worldwide and ordinary course payments to certain non-U.S. contractors and service providers. However, it will not make payments to Sam Bankman-Fried, Gary Wang, Nishad Singh, Caroline Ellison, or persons with whom they have any family relationship.

CEO John Ray said:

“With the Court’s approval of our First Day motions and the work being done on global cash management, I am pleased that the FTX group is resuming ordinary course cash payments of salaries and benefits to our remaining employees around the world.”

Also Read: BlockFi Files For Chapter 11 Bankruptcy Protection