Amid the latest bankruptcy case filed by FTX Trading Ltd., U.S. regulators want to crack down on crypto exchanges, and a class action lawsuit has been issued against former FTX CEO Sam Bankman-Fried (SBF) and 12 celebrities. However, this is not FTX’s and Alameda Research’s first rodeo with the U.S. court system and financial investigations. After FTX launched in 2019 and following the release of the exchange token FTT, FTX and Alameda faced a lawsuit filed on November 2, 2019, that accused the companies and executives of engaging in racketeering practices and crypto market manipulation.
2019 lawsuit accuses FTX and Alameda executives of breaking anti-fraud laws and ‘helping manipulate prices’
FTX, Alameda Research, Sam Bankman-Fried (SBF), and the firm’s affiliated officers have been in the news for two weeks after Alameda Research’s balance sheet was leaked and Binance CEO Changpeng Zhao (CZ) noted that Binance will sell all of its FTTs. Dumping the token. , Now FTX Trading Ltd. and over 130 affiliated companies have filed for Chapter 11 bankruptcy protection and the firms are currently under investigation by authorities in various jurisdictions.
While investigators polish off their magnifying glasses and lawyers prep their written defenses, a lot of people are unaware that FTX was accused of racketeering, selling unregistered securities, and crypto market manipulation three years ago. The lawsuit filed on Nov. 2, 2019, was registered by attorneys for Bitcoin Manipulation Abatement LLC (BMA).
The lawsuit accused FTX, Alameda Research, SBF, Gary Wang, Andy Krogan, Constance Wang, Darren Wong, and Caroline Ellison of violating anti-fraud laws and “aiding and abetting” the price manipulation. Interestingly, the lawsuit states that FTX was created thanks to “Almeida’s unlicensed over-the-counter (OTC) money transmitting business.”
The lawsuit alleged that the “racketeering activity exceeded $150,000,000, which were misappropriated from numerous cryptocurrency traders.” The evidence BMA highlights in the lawsuit is an alleged attempt by Alameda to manipulate the bitcoin futures market, and more specifically the Binance SAFU futures market.
According to BMA, 255 bitcoins were dumped in the “span of two minutes” on the BTC futures market on September 15, 2019. BMA further claims that after the September 15, 2019 incident, SBF changed his residence from Berkeley California to Hong Kong on his online profile. The lawsuit also alleges FTX and Alameda Research are a single entity rather than two separate companies.
“As was admitted by defendant Bankman-Fried, defendant Alameda was kept secret by [the] defendants, and each of them, starting from its conception on November 20, 2017, and until 2018, after the defendants, and each of them, made a business decision to expand and [the] business decision to expand and enhance their automated OTC business for bitcoin and other cryptocurrencies,” the lawsuit filing detailed.
Court filing says Binance CEO CZ was aware of September 2019 incident
The court filing also reveals that Binance CEO Changpeng Zhao (CZ) was aware of a September 15, 2019 futures trade that the BMA labeled “illegal price manipulation.” The filing shares several tweets made by CZ at the time of the incident in September 2019, and many crypto supporters believe it was the incident that created the initial bad blood between FTX and Binance executives.
However, on Sept. 15, 2019, CZ tweeted that he chatted with “the client,” and he said it was an accident due to a bad parameter on their side. The Binance executive mentioned it was “not intentional” and it was “all good now.” The lawsuit also shows that Alameda Research was featured on the top traders list on the crypto derivatives exchange Bitmex.
In addition, the BMA’s lawsuit accused Almeida of regularly using and switching multiple trading accounts. In 2019, BitMEX’s trader leaderboard indicated that Almeida had BTC trades worth $154 million, and was the third best trader by notional volume on the leaderboard.
The lawsuit accused SBF, FTX, Alameda, and associated executives of unlicensed money transmission, racketeering, selling unregistered securities, wire fraud, price manipulation, and “at least two acts of interstate transportation of stolen property.” BMA’s lawyers said that each one of the defendants were “liable, jointly and severally” and in the “amount of triple of BMA’s losses, which is $41,189,266.80.”
The filing concludes that BMA is “entitled to punitive damages in the amount of $150,000,000.” Following the filing on November 2, 2019, a subpoena was allegedly issued to FTX, Andy Krogan, Caroline Ellison, Constance Wang, Gary Wang, Darren Wong, Alameda Research and SBF on November 5. At the time, FTX officials denied having a subpoena. Despite all the allegations against FTX, Alameda and the officials associated with it, the case did not last long.
Case Against FTX and Alameda Execs Closes Quickly With Prejudice and by Voluntary Dismissal
By Dec. 16, 2019, a notice of voluntary dismissal was submitted to the court, and the case was closed with prejudice. SBF had tweeted about the case being dismissed on social media, and the former FTX CEO’s tweet led to a blog post titled the “nuisance suit” about the lawsuit dismissal. The blog post claims executives were not served and a “complaint written by a lawyer against Alameda has been circulating on the Internet.”
The blog post argued at the time that the “nuisance lawsuit” was a prank created by a “troll” and that the lawsuit provided zero evidence to strengthen the case. The blog post’s author asserted, “The nuisance lawsuit is riddled with laughable inaccuracies, including misrepresenting Alameda’s entire business model.” The author of the blog post adds:
The troll has no evidence of any wrongdoing, and will not further discover any — because there was no wrongdoing to discover evidence of. Instead he attempts to cite the analysis of sh**posted conspiracy theories on Twitter out of a desperate attempt to construe some sort of suit.
FTX was tiny when the lawsuit was filed and didn’t become a $32 billion-dollar giant until two years later. The BMA lawsuit received little media attention compared to what FTX and its related companies are seeing today. The blog post shared by SBF on November 3, 2019, concludes by emphasizing that “Neither Almeida nor any of the other named defendants ever manipulated the market for bitcoin or other cryptocurrencies.”
Much like a myriad of theories reported on over the last few years, the BMA lawsuit was shrugged off as a “conspiracy theory,” and SBF became one of crypto’s top influencers and was compared to financial moguls like J.P. Morgan a few weeks before his exchange collapsed.
