FTX Hijacked Customer Funds As Early As 2019

FTX Hijacked Customer Funds As Early As 2019 –During Sam Bankman-Fried’s fraud trial, FTX co-founder Gary Wang disclosed additional information about the unethical connection between Alameda Research and his exchange. In his testimony, Wang asserted that the capability for Alameda to misappropriate client funds had been integrated into FTX’s computer systems as far back as 2019.

According to a summary by Inner City Press on Twitter, Gary Wang stated that Alameda enjoyed three distinct privileges at FTX, setting them apart from other customers. One of these privileges was the “allow negative” feature, which permitted Alameda to engage in trading with more funds than were actually present in its account. As Wang had previously attested, Alameda had the ability to withdraw funds without any limitations from FTX.

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Subsequently, this feature was exploited, leading to the withdrawal of $8 billion in fiat and cryptocurrency beyond what the trading firm had in its account. This amount closely mirrored the deficit that FTX experienced when it failed to meet client withdrawal requests last November. Wang made it clear that the additional funds originated from FTX customers who hadn’t expressly agreed to lend out their assets. 

Although it took several years for the scheme to become apparent, Wang stated that he was aware of Alameda having a negative balance as early as 2019. Initially, the withdrawal limit was around $50 million to $100 million, which coincided with FTX’s annual revenue. However, within just one year, Wang found that this rule had already been breached. “In early 2020 I did a database query- Alameda’s balance was negative more than FTX revenue,” he said. 

While the exchange’s revenue was about $150 million, Alameda was already at least $200 million negative. Alameda was granted an unusually large $65 billion line of credit from FTX, far surpassing the $1 billion limit imposed on other clients. Wang asserts that this fact contradicts Sam Bankman-Fried’s repeated assertions that FTX customer funds remained untouched. 

“He said it on Twitter and on phone calls, I heard him as he walked around the office,” added Wang. The co-founder additionally claimed that Sam Bankman-Fried had firsthand knowledge of Alameda’s financial state. This contradicts SBF’s repeated assertions in interviews that he had no awareness of Alameda’s financial condition prior to its collapse.

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During cross-examination, Sam Bankman-Fried’s legal team emphasized that Alameda’s negative balance was permitted to facilitate its role as a market maker for FTT, FTX’s native exchange token. However, Wang clarified that the trading desk’s exemption from automatic liquidation was partly due to the sheer size of Alameda’s position, which had the potential to “cause damage.”

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