Sam Bankman-Fried used FTX client accounts to fund an investment firm

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Sam Bankman-Fried used FTX client accounts to fund an investment firm
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Sam Bankman-Fried’s trading firm, Alameda Research, reportedly traded billions of dollars in FTX client accounts and used the crypto exchange’s native token as collateral.

CNBC reports that a source claims that Sam Bankman-Fried-founded quantitative trading firm Alameda Research used its FTX exchange’s client deposit in a way that went unnoticed by investors, employees and auditors. The source claims that Alameda Research used billions of dollars from FTX users without their knowledge.

According to the source, FTX grossly miscalculated the amount of tokens it needed if users wanted to cash out. When trading platforms are regulated, they are required to hold enough money to match what customers deposit. According to the source, FTX did not have enough money on hand.

FTX’s largest client was reportedly Alameda Research. Because the assets it traded were not recorded on its own balance sheet, the hedge fund was able to conceal its activities. Instead of holding cash, FTX users lent billions to the fund, which then used it to trade, the source said.

There is no indication that FTX customers were aware of this activity. Under US securities law, mixing client funds with counterparties and trading them without express consent is generally illegal. The FTX Terms of Service also prohibit this type of behavior. Sam Bankman-Fried declined to comment on allegations that he misappropriated client funds, but he acknowledged that FTX’s recent bankruptcy was caused by leveraged trading position issues.

Bankman-Fried told CNBC that, “A margin position took a huge hit.” Some of the leveraged trades made by the quantitative fund were secured using FTT, a cryptocurrency issued by the exchange as collateral. When a loan agreement is established, the collateral is usually the borrower’s pledge to secure repayment. In this situation, Alameda allegedly borrowed from FTX, which then used its own cryptocurrency, the FTT token, as collateral. On the day the token’s price dropped 75%, there was insufficient collateral to cover the transaction.

FTX went from a $32 billion cryptocurrency powerhouse to bankruptcy in just one week. Bankman-Fried has resigned as CEO of FTX and says Alameda Research is closing. After an alleged $477 million hack, the company said it would remove trades and withdrawals, as well as moving digital assets offline.

Breitbart News financial reporter John Carney recently compared the collapse of FTX to that of Lehman Brothers, writing, “The best Sam Bankman-Fried could hope for at the start of this week was that his crypto exchange FTX would turn out be the equivalent of Bear Stearns. Instead, it turned out to be Lehman Brothers.

Learn more about CNBC here.

Lucas Nolan is a reporter for Breitbart News covering free speech and online censorship issues. Follow him on Twitter @LucasNolan

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