Banking giant Citigroup (NYSE:C) considered partnering with Alameda Research, a now-bankrupt crypto trading firm, to launch a crypto lending business in 2020, but decided against it due to concerns about the firm's lack of risk management.
Austin Campbell, the former co-head of digital assets rates trading at Citigroup, told the Wall Street Journal: "The thing that I picked up on immediately that was causing us heartburn was the complete lack of a risk-management framework that they could articulate in any meaningful way."
Known for its secretive nature and lack of transparency, Alameda Research had a reputation for applying Wall Street-style strategies to the crypto world, but struggled with investing and was known for taking risky bets on cryptocurrency and startups.
The Journal report, citing former employees, said Alameda Research experienced significant losses due to its trading algorithm.
The algorithm was meant to make a large number of automated and rapid trades, but the firm ended up losing money by incorrectly predicting price movements.
Alameda Struggled With XRP Price Drop, Bankman-Fried Obtained Funding To Save Firm
In 2018, Alameda lost almost two-thirds of its assets due to the Ripple (CRYPTO: XRP) token's price drop and was on the brink of collapse.
CEO Sam Bankman-Fried reportedly managed to save the trading firm by obtaining funding from lenders and investors with the promise of returns of up to 20% on their investment.
In January 2019, Alameda sponsored the inaugural Binance Blockchain Week conference, and Bankman-Fried used the event to connect with investors and secure funding for his struggling trading firm.
In April 2019, FTX was established with the intention of offering a secure environment for institutional investors.
In November 2022, both Alameda and FTX filed for bankruptcy protection, leaving customers owed billions of dollars and damaging confidence in the crypto market.
Bankman-Fried, who has been accused of fraud and other crimes by federal prosecutors, is expected to plead not guilty at a hearing on Jan. 3.
Alameda CEO Caroline Ellison and co-founder Gary Wang have both pleaded guilty to fraud charges and are cooperating with prosecutors.
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