Alameda Research Used to be the Largest Market Maker and Liquidity Provider on FTX

PRELIMINARY STATEMENT

II. BACKGROUND TO ALL MOTIONS

B. FTX and Alameda

Alameda Research LLC (“Alameda”) was a hedge fund founded by Mr. Bankman-Fried and others in 2017 that traded in cryptocurrencies. As was common for such hedge funds, Alameda borrowed funds from third-party lenders and engaged in forms of margin trading. There was nothing improper with its engaging in these common practices. Mr. Bankman-Fried began transitioning away from Alameda when he founded FTX in 2019, and formally resigned and handed off control of Alameda in 2021.

In 2019, Mr. Bankman-Fried and others founded FTX Trading Ltd. (“FTX.com” or “FTX”), a foreign-based cryptocurrency exchange incorporated in Antigua in 2019 and initially headquartered in Hong Kong. FTX was an exchange, no more, no less; it brought together buyers and sellers. Alameda was one of the hedge funds that traded on the FTX exchange and for a time served as its largest market-maker and liquidity provider, an entirely permissible role. The fact that Alameda traded on FTX was publicly––and frequently––disclosed.

In 2021, Mr. Bankman-Fried moved FTX’s operations to the Bahamas specifically because the Bahamas had enacted a regulatory framework for cryptocurrency. Mr. BankmanFried believed that by developing the exchange abroad, the concept could be fine-tuned and eventually brought within the U.S. legal framework. While the cryptocurrency industry was skeptical of government regulation, Mr. Bankman-Fried and FTX sought to work constructively with global regulators, including the Securities Commission of the Bahamas, which became FTX’s primary regulator. FTX was never regulated in the United States and was available solely to non-U.S. customers.[4] Mr. Bankman-Fried moved to the Bahamas himself to build the business. FTX grew quickly, from roughly $10 million of revenue in 2019 to roughly $1 billion in 2021, as the industry around it grew.

[4] In 2020, U.S.-based customers (excluding New York and Washington state residents) were first accepted through a newly created sister company, West Realm Shires d/b/a FTX US (“FTX US”). This entity operated separately from FTX and is not the subject of the S5 Indictment. See S5 Indictment ¶ 1 (defining “FTX” to mean “FTX.com”— which is the international entity that did not accept U.S. customers).