FTX’s codebase reportedly gave a secret backdoor to Alameda Research, such that the hedge fund could have a negative balance of up to $65 billion.
Among other allegations that FTX founder Sam Bankman-Fried faces, he is accused of co-mingling the funds between the FTX crypto exchange and Alameda Research.
How FTX Gave Special Treatment to Alameda Research
According to the Wall Street Journal report, some LedgerX employees discovered a backdoor in FTX’s codebase that gave special privileges to the crypto hedge fund, Alameda Research.
LedgerX is a Commodity Futures Trading Commission (CFTC) regulated derivative trading platform acquired by FTX.US in August 2021. In May 2023, FTX.US got the court’s approval to sell LedgerX at an 83% loss.
Read more: 11 Best Crypto Futures Trading Platforms in 2023
A LedgerX employee – Jim Outen, sent a text message to their team lead in May 2022:
“Just wanted to point out that there are currently a few places in the…code base where Alameda gets special treatment in one way or another.”
The team lead – Julie Schoening replied:
“There are less rigid rules on the offshore exchange, but yea we should clean up this sort of stuff.”
WSJ mentions that Schoening reported the issue to the LedgerX head, Zach Dexter. And Dexter eventually conveyed the message to Nishad Singh, who worked closely with Sam Bankman-Fried.
Singh later pleaded guilty to fraud charges in February 2023, along with other inner circle members. Reportedly, Singh wrote in the FTX code’s comments:
“Be extra careful not to liquidate”
Not to mention, Schoening, the team lead who reported the issue, was fired in August 2022, before the collapse of FTX.
Read more: FTX Collapse Explained: How Sam Bankman-Fried’s Empire Fell
On the second day of Sam Bankman-Fried’s trial, the court selected 12 jurors: nine women and three men aged between early 30s and late 60s. The trial started on October 3 and is expected to last at least six weeks.
If convicted of all the charges, Sam Bankman-Fried will probably have to spend the rest of his life in prison.
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