Insider Betrayal: FTX Founder's Close Ally Exposes Massive Fraud
07.10.2023 posted by Admin
Evidence against Sam Bankman-Fried, the founder of FTX, in his ongoing criminal trial is primarily coming from those closest to him. Gary Wang, who has known Bankman-Fried since they were 7 years old and later became his college classmate at MIT, co-founded FTX and a crypto hedge fund called Alameda Research with him.
During Wang's recent court appearance, he confessed to engaging in fraud alongside Bankman-Fried. They accomplished this through a computer code that provided Alameda with unrestricted access to withdraw FTX customer funds and offered lenient collateral requirements for margin trading.
Wang revealed that Bankman-Fried did not personally write, review, or implement the FTX code but directed Wang to create features that allowed Alameda these privileges. These features granted Alameda unprecedented access to customer funds deposited into FTX, extensive lines of credit for margin trading on the platform, and the ability to accumulate negative balances.
Assistant US Attorney Danielle Sassoon questioned Wang about the extent of Alameda's withdrawals, to which he responded that Alameda had withdrawn a staggering $8 billion before FTX declared bankruptcy in November 2022. This excessive withdrawal prevented FTX from repaying customers attempting to withdraw their funds.
The testimony from a close associate of Bankman-Fried goes to the core of the allegations against the 31-year-old crypto entrepreneur: that he misappropriated billions of dollars in FTX customer funds while deceiving investors and lenders.
Other members of this inner circle are expected to testify, including Caroline Ellison, the former CEO of Alameda Research and a one-time romantic partner of Bankman-Fried, as well as former FTX chief engineer Nishad Singh. All three individuals have already pleaded guilty to criminal charges.
Wang continued to shed light on the operations of FTX and Alameda. He explained that, at Bankman-Fried's direction, the code he wrote in 2019 exempted Alameda from the rules applied to other FTX customers, enabling them to essentially take whatever they wanted from the exchange. This included using an "allow negative" feature to incur negative balances through withdrawals or trades with FTX, bypassing the usual liquidation process for such accounts.
Furthermore, Alameda was granted a substantial $65 billion line of credit at FTX, an amount significantly larger than what any other client received. These arrangements were never disclosed to FTX customers or investors.
In early 2020, Wang informed Bankman-Fried of a negative balance for Alameda. Bankman-Fried allegedly instructed Wang to include holdings of FTT, FTX's own digital currency, in the calculation, but the deficit persisted. Ultimately, Alameda borrowed as much as $14 billion from FTX, funds that rightfully belonged to customers and were used without their consent for other purposes, causing Wang concern.
Adam Yedidia, another former MIT roommate of Bankman-Fried and a coder at Alameda, also provided evidence against him. Yedidia uncovered an $8 billion shortfall at FTX in June 2022 resulting from loans to Alameda. This raised concerns, as FTX customers might require that $8 billion. When Yedidia confronted Bankman-Fried about it, Bankman-Fried appeared worried, admitting that they were not invulnerable.
Although Yedidia had initially pledged his loyalty to Bankman-Fried, he resigned in November 2022 after learning that Alameda had used FTX customer deposits to repay its creditors. Yedidia considered this action flagrantly unethical.
During Wang's recent court appearance, he confessed to engaging in fraud alongside Bankman-Fried. They accomplished this through a computer code that provided Alameda with unrestricted access to withdraw FTX customer funds and offered lenient collateral requirements for margin trading.
Wang revealed that Bankman-Fried did not personally write, review, or implement the FTX code but directed Wang to create features that allowed Alameda these privileges. These features granted Alameda unprecedented access to customer funds deposited into FTX, extensive lines of credit for margin trading on the platform, and the ability to accumulate negative balances.
Assistant US Attorney Danielle Sassoon questioned Wang about the extent of Alameda's withdrawals, to which he responded that Alameda had withdrawn a staggering $8 billion before FTX declared bankruptcy in November 2022. This excessive withdrawal prevented FTX from repaying customers attempting to withdraw their funds.
The testimony from a close associate of Bankman-Fried goes to the core of the allegations against the 31-year-old crypto entrepreneur: that he misappropriated billions of dollars in FTX customer funds while deceiving investors and lenders.
Other members of this inner circle are expected to testify, including Caroline Ellison, the former CEO of Alameda Research and a one-time romantic partner of Bankman-Fried, as well as former FTX chief engineer Nishad Singh. All three individuals have already pleaded guilty to criminal charges.
Wang continued to shed light on the operations of FTX and Alameda. He explained that, at Bankman-Fried's direction, the code he wrote in 2019 exempted Alameda from the rules applied to other FTX customers, enabling them to essentially take whatever they wanted from the exchange. This included using an "allow negative" feature to incur negative balances through withdrawals or trades with FTX, bypassing the usual liquidation process for such accounts.
Furthermore, Alameda was granted a substantial $65 billion line of credit at FTX, an amount significantly larger than what any other client received. These arrangements were never disclosed to FTX customers or investors.
In early 2020, Wang informed Bankman-Fried of a negative balance for Alameda. Bankman-Fried allegedly instructed Wang to include holdings of FTT, FTX's own digital currency, in the calculation, but the deficit persisted. Ultimately, Alameda borrowed as much as $14 billion from FTX, funds that rightfully belonged to customers and were used without their consent for other purposes, causing Wang concern.
Adam Yedidia, another former MIT roommate of Bankman-Fried and a coder at Alameda, also provided evidence against him. Yedidia uncovered an $8 billion shortfall at FTX in June 2022 resulting from loans to Alameda. This raised concerns, as FTX customers might require that $8 billion. When Yedidia confronted Bankman-Fried about it, Bankman-Fried appeared worried, admitting that they were not invulnerable.
Although Yedidia had initially pledged his loyalty to Bankman-Fried, he resigned in November 2022 after learning that Alameda had used FTX customer deposits to repay its creditors. Yedidia considered this action flagrantly unethical.