Alameda Research loses $190 million to fraud and ‘questionable’ blockchain: whistleblower

FTX's sister hedge fund, Alameda Research, has lost at least $190 million of its trading capital due to possible fraud, according to a former engineer at the firm.

In an Oct. 12 post for X entitled “The Hacks,” Aditya Baradwaj, a former Alameda research engineer and data scientist, said the company's “exciting” efficiency led to “major security issues” every few months.

Event #1:

An Alameda merchant was trying to complete a Diffie transaction when he mistakenly clicked on a fake link that reached the top of Google search results and became a phisher.

Value: $100M+

Postmortem: Implemented additional checks on our internal wallet software

— Aditya (@aditya_baradwaj) October 11, 2023

One example of one of the biggest exploits, Baradwaj said, was that an Alameda businessman once lost more than $100 million in company money after clicking on a malicious link that rose to the top of Google search results.

The businessman was trying to sign a decentralized financial transaction, Baradwaj said.

In another example, Alameda said it farmed out a new blockchain of “questionable legality” — a move that ultimately saw the business rack up more than $40 million in losses.

Baradwaj told FTX founder Sam Bankman-Fried that the “one most important thing” for Alameda and FTX is their ability to move quickly. This approach has led Alameda to routinely ignore industry-standard engineering and accounting practices for such firms, he said.

This means no code testing and incomplete accounting. Transaction security checks are added only on an as-needed basis,” Baradwaj wrote.

“Blockchain private keys and exchange API keys are stored in plaintext in a file that can be accessed by multiple employees.”

This led to another security breach that cost the company millions after the release of old copies of files containing Alameda's wallet keys.

The attacker transferred money from “some exchanges,” and the losses totaled more than $50 million, Baradwaj said.

These are just a few incidents – there are many more, including one that preceded my time at the company.

FTX has had its issues, including the mobile coin fiasco that Gary recently witnessed during the trial.

— Aditya (@aditya_baradwaj) October 11, 2023

Alameda says he's had “many” incidents similar to what he described, but many of them predate his time at the company.

Related: Former FTX CEO Sam Bankman-Fried trial [Day 6] – Latest updates

The former engineer has been speaking publicly about the many mistakes that led to the collapse of Alameda and FTX in November of last year, telling Cointelegraph how founder Sam Bankman-Fried approved many of his “ridiculous” actions. An idealistic philosophy known as Effective Altruism.

Baradwaj's comments came as former Alameda CEO Caroline Ellison took the stand to testify against Bankman-Fried on the sixth day of the fraud trial. In the previous days, several former colleagues, including Adam Yedidia and Gary Wang, have brought a lot of new evidence against the former billionaire.

Wang admitted that Alameda had written a special code that allowed him to trade FTX's unlimited line of credit, while Caroline Ellison explained the intricate details of how FTX allegedly pooled funds with Alameda.

Bankman-Fried has pleaded not guilty to the charges against him in the ongoing trial.

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