FTX co-founder Gary Wang revealed more details about Alameda Research’s corrupt relationship with his exchange during the Sam Bankman-Fried fraud trial on Friday.
During his testimony, Wang claimed that the functionality Alameda required to steal customer funds was integrated into FTX’s computer systems in 2019.
Alameda Special Privileges
like Sum it up By Inner City Press via Twitter Gary Wang said Alameda was given three special privileges at FTX compared to other clients.
One of them was the “allow negative” feature, which allowed Alameda to trade with more money than it already had in its account. As Wang previously testified, Alameda could withdraw unlimited funds from FTX.
The feature was later exploited to withdraw $8 billion worth of fiat currencies and cryptocurrencies beyond what the trading company held in its account — roughly the same shortfall FTX faced when it failed to meet customers’ withdrawal requests last November.
Wang explained that the additional funds came from FTX customers who had not explicitly chosen to lend their money. Although it took years for the scheme to collapse, Wang said he learned of Alameda’s negative balance as early as 2019.
Initially, the withdrawal amount was limited to approximately $50 million to $100 million – the amount FTX was generating in annual revenue. However, only one year later, Wang discovered that this rule had already been violated.
“In early 2020, I ran a database query — Alameda’s balance was more negative than FTX’s revenue,” he said. While the exchange’s revenue was about $150 million, Alameda was already negative by at least $200 million.
Alameda Jumbo Credit Line
Alameda was also privy to a massive $65 billion credit line from FTX. According to Wang, no other client can obtain credit greater than $1 billion.
Wang says the reality contradicts Bankman-Fried’s repeated claims that FTX clients’ funds were untouched. “He said it on Twitter and in phone calls, and I heard him walking around the office,” Wang added.
The co-founder also confirmed that Bankman Fried witnessed the Alameda balance firsthand. This contradicts SBF’s numerous claims in interviews that it was unaware of Alameda’s financial condition leading up to its collapse.
During cross-examination, Sam Bankman-Fried’s lawyers maintained that Alameda’s balance was allowed to go negative so that it could act as a market maker for FTT – the original exchange token for FTX. However, Wang explained that the trading desk’s exemption from liquidation was partly because the Alameda hub was so large that it could “cause harm.”
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