A former engineer at Alameda Research, the sister hedge fund of cryptocurrency exchange FTX, revealed that the hedge fund lost at least $190 million in trading capital due to avoidable security breaches and scams. The engineer, named Baradwaj, shared this information in an October 12 post, highlighting several key incidents that led to the significant losses.
One example Baradwaj cited was a major security breach that occurred every month, wherein a trader at Alameda lost over $100 million in company funds after clicking on a malicious link that appeared at the top of Google search results. This incident occurred as the trader was attempting to execute a decentralized finance transaction.
Another instance involved Alameda engaging in liquidity mining on a blockchain with questionable legality, which ultimately resulted in losses exceeding $40 million. Baradwaj expressed that FTX founder Sam Bankman-Fried prioritized the ability to move quickly as the most important aspect for both Alameda and FTX. This approach often led Alameda to neglect industry-standard engineering and accounting practices, resulting in poor code testing, incomplete balance accounting, and a lack of transaction security checks.
Baradwaj noted that sensitive data, such as blockchain private keys and exchange API keys, were stored in plain text files that were accessible to multiple employees, leading to a security incident where millions of dollars were lost when an older version of a plaintext file containing Alameda's wallet keys was leaked. The attackers subsequently moved funds from various exchanges, causing losses of over $50 million.
Baradwaj revealed that the mentioned security incidents were not isolated cases, and that Alameda experienced numerous similar events, although many of them occurred before his tenure at the company. These revelations emerged amidst ongoing legal proceedings against FTX founder Sam Bankman-Fried, who faces charges related to FTX's downfall, and former colleagues, including Adam Yedidia and Gary Wang, who have presented a wealth of new evidence during the trial. Bankman-Fried has pleaded not guilty to the charges against him and continues to assert his innocence.
The former engineer's comments shed light on various security and operational issues within Alameda Research that ultimately contributed to significant financial losses for the hedge fund.
