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- SBF ordered Gary Wang to code a secret line of credit for Alameda Research.
- This created a backdoor, allowing Alameda to borrow customers’ funds without permission.
- Without their consent, Alameda took $65 billion worth of customers’ funds from FTX.
FTX-saga has been a very controversial event in the crypto industry; many revelations are coming every day showing the depth of this deceit. According to FTX attorney Andrew Dietderich, SBF reportedly ordered Gary Wang to open a $65 billion “secret backdoor line of credit” for Alameda Research.
On January 11, 2023, hearing at the Delaware Bankruptcy Court, the attorney disclosed the shocking information. This line of credit was financed with the customers’ funds inFTX.
Backdoor between FTX and Alameda
“The backdoor was a secret way for Alameda to borrow from customers on the exchange without permission.” – Andrew Dietderich in his testimony.
Further continuing his testimony, he said that the backdoor was created by inserting just a line in millions of lines of code, and this created a line of credit from FTX to Alameda. The customers weren’t aware of such an arrangement, further intensifying the misdeed towards them.
“And we know the size of that line of credit. It was $65 billion.” – bankruptcy attorney.
Alameda Research is a sister company of FTX and is believed to be the centerpiece in the puzzle that caused the once third-largest crypto exchange to fail and file for bankruptcy. Activities between them, mishandling customers’ funds, this newly found line of credit etc., were responsible for creating a massive liquidity crunch for the exchange, which eventually resulted in its implosion.
SBF’s “pre-mortem overview”
On January 12, 2023, Sam Bankman-Fried published a “pre-mortem overview,” denying all the allegations of stealing from FTX. Citing that FTX US did well then, Alameda became illiquid, as it had a margin position open on FTX. The run on the bank made this illiquidity to insolvency.
The United States Commodities Futures Trading Commission (CFTC ) filed a complaint in December 2022, alleging that numerous irregular business practices were prevalent between the two companies. The commission then claimed that FTX executives had some features in their code that allowed “Alameda to maintain an essentially unlimited line of credit on FTX.”
Alameda Research ex-CEO Caroline Ellison and Former CTO and co-founder Gary Wang have both pleaded guilty to the charges against them. Their close connection with the case makes them prime witnesses against Sam Bankman-Fried.
At the same time, SBF, currently out on a $250 million bond and living with his parents in California, had pleaded not guilty to all eight counts of crime for conspiracy and wire fraud. Although this was expected of him, the hearing is supposed to begin in October 2023.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
