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Prosecutors of one of the world’s biggest crypto exchanges FTX are making known their stand with trading by Alameda Research using funds from its sister firm, FTX. Based on the investigation, Alameda Research is the primary company supporting the operations of FTX, which includes trading, transfers, and accounts.

The report further notes that the crypto exchange spun off from Alameda in 2019. Keep in mind that banks are unwilling to work with crypto firms, including FTX.

However, Sam Bankman-Fried, the founder of FTX, still connected the exchange to regulated banks through his influence from Alameda Research. Thus, FTX users and customers could send wire transfers to FTX exchange through Alameda-associated banks.

However, the banks involved will likely receive sanctions for allowing such transfers.

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Banks Getting Scrutinized Because Of FTX-Alameda Contagion 

The investigations revealed that FTX could receive funds from customers because of its arrangements with Alameda Research. These customers were told to send money through Alameda Research accounts associated with Trust Bank, Silvergate Capital, Signature Bank, and many more.

According to a recent report from Bloomberg, some FTX customers or users were still sending wire transfers through Alameda Research this year. There were some management and record-keeping issues because of the arrangement between Alameda Research and FTX.

This brought about concerns about the misuse of users’ funds because of transactions between the two financial companies. Sam Bankman-Fried admitted that customers transferred $8 billion to Alameda.

This means that the bank’s compliance procedures will have more scrutiny from regulators and prosecutors. Sam Bankman-Fried said that funds intended for his crypto exchange might have been sent to Alameda Research since it is its sister company.  

However, the new chief executive officer of FTX, John Ray, lamented the situation. He said he has never witnessed “such a complete failure of corporate controls and total absence of trustworthy financial details as occurred here.”

But a representative from Silvergate disclosed that the bank doesn’t comment on users or their activities because it’s not in their policy. Alma Angotti, an ex-enforcer at the SEC and Treasury Dept., also commented on the investigation.

Angotti said the banks mentioned above would be at risk if they knew the arrangement between Alameda Research and FTX. He further revealed that it’s terrible risk management and practice for banks to connect their customer’s funds with a counterparty or any other funds.

He added that the issue is complicated because it’s hard to pinpoint what was violated in the arrangement. Meanwhile, FTX’s new CEO has revealed that the exchange will start paying salaries, compensations, and benefits again.

John Ray added that the resumption is in line with the court’s approval.


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George Ward

By George Ward

George Ward is a crypto journalist and market analyst at Herald Sheets, known for his engaging articles on the latest digital currency trends. With a background in finance and journalism, he presents complex topics accessibly. George holds a degree in Business and Finance from the University of Cambridge.