Former FTX CEO Sam Bankman-Fried (SBF) is said to have instructed his co-founder Gary Wang to install a “secret lending backdoor” on the crypto exchange for sister firm Alameda Research, through which the hedge fund borrowed a whopping $65 billion target.
This was revealed by FTX lawyer Andrew Dietderich during the trading platform’s current bankruptcy hearing on Jan. 11, according to the New York Post reported. It is particularly piquant that the alleged loans were fed from FTX customer funds. As Dietderich explains, “The backdoor was a secret way for Alameda to borrow customer funds from the crypto exchange without asking for permission.”
“Mr. Wang built this backdoor by inserting a single number into millions of lines of programming code for the crypto exchange that opened a line of credit with Alameda on FTX without customers ever agreeing to it,” the attorney said. And further:
“We now know that this line of credit was in the order of $65 billion.”
Hedge fund Alameda Research was a sister firm to FTX and played a central role in the crypto exchange collapse. As a result, the entire FTX Group with more than 130 subsidiaries had to file for insolvency in November 2022.
Sam Bankman-Fried wrote a lengthy blog post on Jan. 12 in which the former FTX boss gives his take on the situation and denies that he stole client funds. Thus he argues that the Alameda’s liquidity problems inevitably led to liquidity problems at FTX International as well because the Alameda had an open margin position at FTX.” The subsequent bank run by customers would have led to insolvency.
The American trade authority CFTC is now accusing the two companies of having maintained unfair business relationships. The authority also refers to the “unlimited” credit line that the exchange is said to have granted to the hedge fund through changes to the programming code.
