Sam Bankman-Fried’s Alameda Research Lost At Least $200 Million To Security Breaches, Former Engineer Says

On Oct 12, 2023

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FTX affiliate Alameda Research lost around $200 million to phishing attacks and scams, according to claims by a former engineer at the firm, Aditya Baradwaj.

In a thread on Crypto X, Baradwaj said Alameda, a hedge fund run by former Sam Bankman-Fried girlfriend Caroline Ellison, conducted safety checks only upon need.

There was also no code testing, and deficiencies existed in balance accounting. Blockchain private keys and exchange API keys existed in plaintext within a file accessible to employees.

This meant virtually no code testing and incomplete balance accounting
Safety checks for trading would only be added on an as-needed basis
Blockchain private keys and exchange API keys were stored in plaintext in a file that several employees could access
— Adi (e/acc) (@aditya_baradwaj) October 11, 2023

“SBF believed that the single most important thing for a startup like Alameda or FTX was being able to move very, very fast,” Baradwaj said. “So much so that he decided to ignore engineering and accounting practices that are considered standard at tech companies and financial services firms.”

Alameda Suffered Multiple Security Breaches

The Alameda ex-engineer revealed three incidents in which the trading firm lost money because of poor security practices.

In one case, one of the hedge fund’s traders fell victim to a phishing attack after clicking a fake link mimicking a decentralized finance (DeFi) protocol. The trader lost more than $100 million in the attack. Alameda implemented more checks on its internal wallet software after this attack.

The trading firm also lost $40 million after “yield farming on a new blockchain of questionable legitimacy.” Alameda had months of negotiations with the network creator, but whether the funds were recovered remains unclear.

In the third instance, an old version of Alameda’s plaintext keys file was leaked. A former employee likely caused the incident, costing Alameda over $50 million. After the incident, the trading firm moved its secret keys to a more secure storage system.

Baradwaj said the incidents were just a few examples of the many security lapses at Alameda. He further added that similar security issues happened at FTX. FTX lost over $400 million in a hack shortly after declaring bankruptcy.

Former Alameda Employee Testifies Against Bankman-Fried

Alameda’s former CEO, Carline Ellison, testified against Sam Bankman-Fried in the ongoing trial. She admitted to the commingling of FTX customer funds at Alameda. Ellison also said Bankman-Fried paid a $100 million bribe to Chinese officials.

Ellison: Sam said Ma had found a way to get our accounts unfrozen, if we just sent to these crypto addresses, $100 million. It was November of 2021.
AUSA: Did you know who the recipient was?
Ellison: No
AUSA: Did you have a belief?
SBF’s lawyer: Objection!
Sidebar
— Inner City Press (@innercitypress) October 11, 2023

Former FTX employees Adam Yedidia and Gary Wang have also testified in Bankman-Fried’s trial. Wang admitted to using a specific code allowing Alameda to trade with a large line of credit from FTX.

Bankman-Fried pleaded not guilty to all the charges against him.

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