Amid the ongoing trial of FTX co-founder and former CEO Sam Bankman Fried, a report has emerged suggesting that some of the company’s US-based employees found a hidden backdoor that Alameda Research allegedly used to siphon billions of dollars’ worth of client funds from FTX, six months before… The eventful fall of the cryptocurrency exchange.
The company’s senior management fired the FTX team leader, who discovered Alameda’s secret backdoor.
FTX employees alerted the CEO about Alameda’s backdoor
Some US-based FTX employees discovered a hidden backdoor to Alameda in May 2022, According to For the Wall Street Journal. The team working for LedgerX — which was acquired by FTX in October 2021 and later bought by Miami International Holdings in 2023 — discovered that Alameda could have a negative balance without undergoing the usual automatic liquidation process.
Employees reported the issue to their department head, Julie Schoening, who was chief risk officer at LedgerX and was concerned about Alameda’s supposed preferential treatment. Schwing took the matter to Zach Dexter, president of LedgerX, while Dexter alerted FTX’s engineering director, Nishad Singh, about the automatic liquidation issue.
Meanwhile, Dexter thought the issue would be resolved after Singh removed a section of the code, but the issue was never resolved, as Schoening was instead fired from her job in August 2022 after reports that she had distributed inappropriate messages to employees. .
According to the Wall Street Journal, some sources indicated that Schoening’s termination may have occurred as a result of her team identifying risk management issues at FTX, which “irritated her bosses.”
In a written statement to the Wall Street Journal, a spokesperson for Miami International Holdings said:
“After a thorough internal investigation, LedgerX has found no evidence that any of its employees were aware of any reported code that enabled Alameda to seize FTX client assets, and strongly denies any allegations of wrongdoing.”
The fired LedgerX executive threatened to sue FTX over the termination, with anonymous sources reporting that both sides reached a $5 million settlement deal, which, however, could not be completed due to the cryptocurrency exchange’s collapse in November 2022.
Defense attorney says SBF is not guilty of fraud
Alameda’s secret back door is one of the cases prosecutors have brought against Sam Bankman-Fried, who faces criminal charges. The former FTX president is currently on trial in New York, and the prosecution’s first witness, an FTX client, recently testified against SBF in court.
Marc-Antoine Julliard, a cocoa bean trader, said he lost $100,000 at bankrupt FTX. But Bankman-Fried’s lawyers are looking to make users liable, arguing that it was their choice to buy and hold cryptocurrencies. The defense attorney also maintains that SBF did not defraud anyone.
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