FTX Received Some Customer Deposits Via Bank Accounts Held by Alameda

(Bloomberg) — As everything was collapsing around him, Sam Bankman-Fried talked casually about the way FTX had accessed regulated banks otherwise out of reach to the crypto exchange: Through his trading firm, Alameda Research.

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The arrangement arose because banks were reluctant to do business with crypto companies including FTX, according to people familiar with the matter. To work around the problem, some FTX customers were instructed to send wire transfers via Alameda, which was allowed to have accounts at Silvergate Capital Corp., a cryptocurrency and fintech bank, the people said.

Some FTX customers continued to send wire transfers as recently as this year, according to one of the people, who requested anonymity discussing private transactions.

The arrangement further spotlights the tangled relationship between FTX and Alameda, which emerged as a quagmire of lax record-keeping and poor centralized controls at the heart of the empire’s unraveling. Advisers overseeing the group’s ruins have more broadly pointed to a potential commingling of digital assets, raising concerns about misuse of customer funds and making ties between the two firms a likely focus for regulators and investigators probing the collapse.

Sam Bankman-Fried declined to give a comment. Representatives for FTX didn’t respond to a request for comment.

A representative for Silvergate said it’s a federally regulated and state-chartered bank “whose solutions are built on a deep-rooted commitment and proprietary approach to regulatory compliance.” The bank doesn’t comment on customers or their activities as a matter of firm policy, the representative said.

Complicated Facts

Whether the arrangement constitutes any wrongdoing would depend on facts including if the banks in question knew about the setup, according to Alma Angotti, a former enforcer with the US Securities and Exchange Commission and US Treasury Department who now works as a partner at the consulting firm Guidehouse.

“It’s very bad practice and risk management in any book to mingle your customer funds with counterparty funds and other funds,” Angotti said. “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.”

In a recent Twitter message exchange with news website Vox, Bankman-Fried acknowledged that people could wire money to Alameda’s bank account to get money to FTX. Over the years, it “looks like people wired $8 billion to Alameda,” he said.

Silvergate, based in La Jolla, California, is one of the few Federal Reserve member banks that help customers move dollars and euros into crypto exchanges, a process known as “on-ramp” in the industry. Its Silvergate Exchange Network has been a key offering for exchanges and other businesses that deal in digital assets.

Silvergate has said that deposits from FTX represented less than 10% of the $11.9 billion in deposits from digital-asset customers on the company’s platform as of Sept. 30.