Former Alameda Research engineer Aditya Baradwaj says one trader lost more than $100 million after clicking on a fake link.
FTX’s sister hedge fund, Alameda Research, lost at least $190 million of its trading funds due to arguably avoidable scams, according to a former engineer at the firm.
Alameda Research lost $190M to scams and ‘questionable’ blockchains.
In an Oct. 12 post to X titled “The Hacks,” former Alameda Research engineer turned whistleblower Aditya Baradwaj claims that the firm’s “breathtaking” agility led to “major security incidents” as often as every few months.
These decisions allowed us to move at breathtaking speed. Developer velocity that would make any Silicon Valley software engineer shed tears of joy
However the flip side of this tradeoff was that we’d have a major security incident once every few months:
— Adi (e/acc) (@aditya_baradwaj) October 11, 2023
In an example of one of the biggest exploits, Baradwaj claims a trader at Alameda once lost more than $100 million of the firm’s funds after clicking a malicious link promoted to the top of Google Search results.
The trader was attempting to sign off on a decentralized finance transaction, said Baradwaj.
In another example, he said Alameda was yield farming on a new blockchain of “questionable legitimacy” — a move that saw the trading firm eventually rack up losses of more than $40 million.
Baradwaj wrote that FTX founder Sam Bankman-Fried believed that the “single most important thing” for Alameda and FTX was their ability to move quickly. This ethos led to Alameda routinely ignoring industry-standard engineering and accounting practices for such firms, he said.
“This meant virtually no code testing and incomplete balance accounting. Safety checks for trading would only be added on an as-needed basis,” wrote Baradwaj.
“Blockchain private keys and exchange API keys were stored in plaintext in a file that several employees could access.”
This led to another security incident that cost the firm millions after an old version of the plaintext files containing keys to Alameda’s wallets were leaked.
The attacker transferred funds out of “some exchanges,” and the incurred losses tallied up to more than $50 million, explained Baradwaj.
PART 3: THE HACKS
or
How poor security practices at Alameda Research caused the company to lose hundreds of millions of dollars
(1/n) 🧵#SBF #FTX pic.twitter.com/RFocE7w3Gx
— Adi (e/acc) (@aditya_baradwaj) October 11, 2023
He said that Alameda suffered through “many more” incidents of similar scope to the ones he’d described, but many of these were before his time at the company.
The former engineer has been speaking publicly about the many faults of Alameda and FTX in the wake of their collapse in November last year, telling Cointelegraph how its founder, Sam Bankman-Fried, justified many of his “ridiculous” actions under the guise of an idealistic philosophy known as Effective Altruism.
Baradwaj’s comments come amid former Alameda CEO Caroline Ellison taking the stand to testify against Bankman-Fried on the sixth day of his fraud trial. In the preceding days, a number of former colleagues, including Adam Yedidia and Gary Wang, have brought a wealth of new evidence against the former billionaire.
Wang has admitted to writing in specific code that allowed for Alameda to trade with a near-unlimited line of credit from FTX, while Caroline Ellison has explained the intricate details of FTX’s alleged commingling of funds with Alameda.
Bankman-Fried has pled not guilty to the charges brought against him and maintains his innocence in the ongoing trial.
Oct. 11: Caroline Ellison details final months of FTX and how SBF floated selling equity to Crown Prince of Saudi Arabia
In her second day of testimony at the Sam Bankman-Fried trial on Oct. 11, Caroline Ellison provided more information regarding the months leading up to the anticipated FTX debacle in November 2022. Lenders required Alameda Research to repay millions in loans in mid-June following the market downturn in May, according to Ellison. “I was very stressed out,” she said.
Genesis Capital was one of these lenders, recalling $500 million in loans, according to screenshots taken from conversations between Ellison, Bankman-Fried, and Genesis employees via Telegram.
At the time, Alameda had over $13 billion of debt on its credit line with FTX, while its open-term loans exceeded $1.3 billion. As per Ellison’s testimony, Bankman-Fried instructed her to come up with “alternative ways” to disclose Alameda’s financial information to lenders, specifically Genesis.
According to Ellison, Genesis could recall all loans to Alameda if it were aware of Alameda’s true financial status, as well as damage its reputation. “I didn’t want Genesis to know that,” she stated in reference to Alameda’s billionaire liability towards FTX.
As per prosecutors’ evidence, Ellison worked on at least seven alternative spreadsheets for Genesis. A spreadsheet sent by Alameda to Genesis in June listed $10.3 billion in total liabilities, whereas the actual amount was approximately $15 billion at the time.
Bankman-Fried’s plans to survive the storm included raising capital from Mohammed bin Salman, the crown prince of Saudi Arabia. According to evidence presented in court, Ellison made a list of “things Sam is freaking out about” months prior to the exchange collapse.
The list featured raising capital from “the MBS”, borrowing more capital from BlockFi, which had already lent Alameda over $660 million, as well as “getting regulators to crack down on Binance,” an effort by Bankman-Fried to expand FTX market share, Ellison said.
She also mentioned a $150 million bribe that FTX allegedly paid to a Chinese official in 2021 to release funds frozen there as part of an investigation into money laundering. The alleged bribe is not included in the United States trial.