Although long presented as separate entities, Sam Bankman-Fried’s FTX crypto exchange and Alameda Research trading firm were deeply intertwined, as the world has increasingly discovered since the firms filed for bankruptcy protection last week. Now FTX’s new CEO has alleged that Alameda had secret benefits on the FTX exchange that other traders didn’t.
John J. Ray III, the newly appointed FTX CEO who previously oversaw Enron’s bankruptcy proceedings, filed a court statement today in support of the firm’s Chapter 11 filing—and it’s a scathing rebuke of the firm’s approach to doing business under Bankman-Fried.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray wrote, detailing a litany of shortcomings from the firm last valued at $32 billion before last week’s collapse.
Among the interesting revelations in the filing is one detail regarding the interplay of Alameda and FTX, with Ray writing of a “secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol.”
The filing doesn’t go deeper on what that alleged “secret exemption” entailed, but it suggests that Alameda was able to operate outside of FTX’s standard liquidation requirements. In other words, it could play the game without rules—what one pseudonymous crypto lawyer on Twitter has dubbed “god mode” for Alameda, in gaming lingo.
Alameda was secretly exempted from FTX’s auto-liquidation protocols.
LITERALLY GOD MODE. pic.twitter.com/dxnZRMjxXj
— wassielawyer (@wassielawyer) November 17, 2022
That kind of untethered access may have enabled Alameda to weather market dips and avoid liquidations on leveraged trades, but it ultimately didn’t pan out well. FTX allegedly sent at least $4 billion in its funds—including customer assets—to Alameda this summer to cover the trading firm’s losses, which ultimately led to FTX’s own liquidity crisis this month.
Ray also cited “the absence of independent governance as between Alameda” and what he calls the “Dotcom Silo,” which includes FTX’s businesses and received nearly $2 billion worth of VC funding from companies like Paradigm, Sequoia Capital, and Temasek.
FTX, FTX, Alameda Research, and all associated companies collectively filed for Chapter 11 bankruptcy protection on Friday, with Bankman-Fried stepping down from his CEO role as well.
Bankman-Fried has continued tweeting about FTX and Alameda since then, and rebuked his own image as an “effective altruist” and regulation-friendly builder in a series of controversial DMs sent to a Vox reporter. On Wednesday, FTX tweeted a statement from Ray distancing the firm from its founder and former CEO.