Sam Bankman-Fried’s trading house Alameda Research had a secret speed advantage when executing orders on his now-collapsed FTX crypto exchange, according to the US Commodity Futures Trading Commission.
(Bloomberg) — Sam Bankman-Fried’s trading house Alameda Research had a secret speed advantage when executing orders on his now-collapsed FTX crypto exchange, according to the US Commodity Futures Trading Commission.
Alameda, which also tumbled into bankruptcy last month along with FTX, was able to skirt certain portions of the exchange’s trading architecture and sidestep some automated verification processes, the CFTC said in a complaint filed Tuesday in Manhattan federal court.
“These advantages were not publicly disclosed” and yielded a “significant speed advantage,” the CFTC said.
While most or all other customers accessing the FTX platform through an application programming interface — API — “had their transaction orders routed through the FTX system, Alameda was able to bypass certain portions of the system and gain faster access to the API,” according to the suit.
‘Time Advantage’
“Alameda’s transaction orders were received several milliseconds faster than those of other API users,” the CFTC said. “In the high-frequency trading sector, this is a significant time advantage.”
The features of Alameda’s account at FTX also allowed the trading shop to avoid automated steps like verifying available funds ahead of executing a transaction, according to the lawsuit.
If other customers “placed several orders at once, these checks occurred in sequential order, so that each transaction could be confirmed as viable,” the CFTC alleged. “This did not apply to the Alameda account.”
Bankman-Fried’s spokesman Mark Botnick declined to comment on the specific CFTC claims about a speed advantage.
There were longstanding concerns in the crypto industry that Alameda was getting preferential treatment on FTX. As recently as September, Bankman-Fried said Alameda sent orders and accessed customer information the same way other users did.
The CFTC is suing Bankman-Fried, FTX and Alameda Research for violations of federal commodities laws. The Securities and Exchange Commission on Tuesday accused him of carrying out a multi-year scheme to defraud investors. He’s also facing US criminal charges and was arrested Monday in the Bahamas.
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