Regulatory red flags tied to Sam Bankman-Fried's crypto trading firm Alameda Research may date all the way back to 2018.
The quantitative crypto trading firm — which served as the liquidity launch pad for the now bankrupt FTX Group — began soliciting investors in 2018 through Telegram group chats and a slide deck that described the opportunity as risk-less, according to several messages and a deck obtained by The Block.
That promise could draw additional attention from regulators and legal authorities already reportedly investigating the company.
'High returns with no risks'
The 2018 Alameda deck shows the investment opportunity included a 15% annualized fixed rate loan, with higher rates available to investors willing to park more with the firm.
"These loans have no downside — we guarantee full payment the principal and interest, enforceable under U.S. law and established by all parties' legal counsel," the deck reads.
"We are extremely confident we will pay this amount. In the unlikely case where we lose more than 2% over a month we will give all investors the opportunity to recall their funds."
The deck also boasted of Alameda's returns during the course of that year, which they claim clocked in more than 110% annualized returns between March to October 2018.
In a Telegram group chat at the time, Bankman-Fried walked back on certain sections of the deck, noting that the deck was thrown together quickly.
"That doesn't excuse us, we still shouldn't have done it. And in particular I should have proofread the final version way more carefully before it was released."
"Saying no risk was a fuckup, we should not have put that in our deck," he added.
'Flashing Red Flag'
Tyler Gellasch, president and CEO at markets integrity nonprofit Healthy Markets, told The Block the language in the deck could raise major legal red flags, in part because entrepreneurs soliciting funds need to disclose risk.
“This is a flashing red-flag for investigators," Gellasch, a former Senate and SEC staffer, said. "These types of documents are likely to be an exhibit in court cases.”
"Promising high returns with 'no risk' is a massive red flag for sophisticated investors and is bound to give rise to criminal and civil investigations," he said. The offering appears to be akin to an unregulated offering of a debt security instrument, he said. Historically, regulators and investors "look extremely skeptically on low-risk/high return investment opportunities—especially low interest rate environment."
After a precipitous decline in the price of FTX's native token and a wide-spread run on its platform, FTX Group filed for bankruptcy protection on Friday.
© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.