FTX’s Sam Bankman-Fried ordered a credit ‘secret backdoor’

Sam Bankman-Fried ordered the co-founder of his cryptocurrency exchange FTX to create a ‘secret’ backdoor that allowed his hedge fund Alameda Research to borrow $65 billion in money from clients without their knowledge. permission, according to accounts of the company’s implosion.

Gary Wang was asked to create a secret line of credit using funds from FTX customers at Alameda, FTX attorney Andrew Dietderich said in Delaware bankruptcy court on Wednesday.

“Mr. Wang created this backdoor by inserting a unique number into millions of lines of code for the exchange, creating a line of credit from FTX to Alameda, which the customers did not consent to,” Dietderich said. .

“And we know the size of that line of credit. It was $65 billion.

Dietderich said “the backdoor was a covert way for Alameda to borrow from exchange customers without permission.”

Bankman-Fried had transferred $10 billion between the two companies, with another $2 billion still missing, according to sources cited by Reuters in November.

Sam Bankman-Fried allegedly ordered FTX co-founder Gary Wang to create the secret line of credit without permission from FTX customers.
Sam Bankman-Fried allegedly ordered FTX co-founder Gary Wang to create the secret line of credit without permission from FTX customers.

The Post has sought comment from Bankman-Fried.

The attorney’s testimony supports the claims of the Commodity Futures Trading Commission, the independent federal agency that regulates derivatives such as futures and swaps.

Last month, the CFTC filed charges against Wang and Alameda Research CEO Caroline Ellison, who was also Bankman-Fried’s recurring girlfriend.

The CFTC accused Wang of creating a “virtually unlimited” secret line of credit. Dietderich’s testimony is believed to be the first time an FTX official has given the line of credit a firm dollar value.

Wang and Ellison both pleaded guilty to federal charges, including fraud and conspiracy. They cooperate with investigators.

Bankman-Fried, who was arrested and extradited to the United States from his home base in the Bahamas last month, is under house arrest at his parents’ $4 million Palo Alto home, under the terms of his $250 million bond release.

While awaiting trial, Bankman-Fried published a Substack blog post on Thursday in which he claimed his innocence.

Bankman-Fried, who is awaiting trial on federal fraud charges, has maintained his innocence.
Bankman-Fried, who is awaiting trial on federal fraud charges, has maintained his innocence.
Matthew McDermott

“I didn’t steal funds, and I certainly didn’t hide billions,” Bankman-Fried wrote.

“Almost all of my assets were and still are usable to support FTX clients.”

The 30-year-old disgraced former crypto mogul has accused Binance boss Changpeng “CZ” Zhao of waging a long campaign to destroy his empire.

He alleged that Zhao’s “fateful tweet” on Nov. 6 capped an “extremely effective months-long PR campaign against FTX.”

“In November 2022, an extreme, rapid, and targeted crash precipitated by Binance’s CEO rendered Alameda insolvent,” Bankman-Fried wrote.

The disgraced FTX founder’s business collapsed shortly after Zhao tweeted that Binance was dumping its position on FTX’s in-house digital token FTT.

The tweet set off a domino effect that pushed Bankman-Fried crypto hedge fund Alameda Research into insolvency and FTX filed for bankruptcy on November 11.

Bankman-Fried's cryptocurrency exchange, FTX, crashed in November.  It was once said to be worth up to $26 billion.
Bankman-Fried’s FTX collapsed in November. It was once said to be worth up to $26 billion.
AFP via Getty Images

Meanwhile, Bankman-Fried’s parents are also preparing for possible legal exposure.

Joseph Bankman, Bankman-Fried’s father, has hired Manhattan-based attorney Sean Hecker of Kaplan Hecker and Fink LLP to represent him, Reuters reports.

Bankman has not been charged with a crime or told he is under federal investigation, a source familiar with the matter told The Post.

However, his work at FTX has come under intense scrutiny since the platform filed for bankruptcy.

During testimony on Capitol Hill last month, current FTX CEO John Ray confirmed his team is “investigating” the role that Bankman and his wife, Stanford law professor and Democratic operative Barbara Fried, have played in the collapse of the platform.

Ray told lawmakers Bankman gave his son “legal advice” at FTX and received cash payments from the company.

Additional reporting by Thomas Barrabi

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