FTX attorney Andrew Dietderich disclosed that FTX CEO Sam Bankman-Fried reportedly instructed Gary Wang, the exchange’s co-founder, to establish a “secret backdoor” for Alameda Research to credit about $62 billion without its users knowing, according to the New York Post report on 13 January.
The FTX-saga has sparked significant controversy within the cryptocurrency industry. New information is being revealed on a daily basis, uncovering the true extent of the deceitful actions of Sam Bankman-Fried (SBF).
Andrew Dietderich revealed this information during a Delaware bankruptcy court hearing on January 11th. It is alleged that the line of credit was financed using funds from exchange customers.
The Backdoor Between FTX And Alameda
“The backdoor was a secret way for Alameda to borrow from customers on the exchange without permission,” Dietderich testified “And we know the size of that line of credit. It was $65 billion.”
In his testimony, Andrew Dietderich stated that the backdoor was created by adding a single line to millions of lines of code, which established a line of credit from FTX to Alameda. The customers were unaware of this arrangement, further exacerbating the deception against them.
SBF’s Response To FTX Accusations
On January 12, SBF released a statement called a “pre-mortem overview” in which he denied all accusations of stealing from FTX. He explained that while FTX US was doing well, Alameda was facing illiquidity due to a margin position it held on FTX. The panic caused by this illiquidity resulted in insolvency.
In December 2022, the CFTC filed a complaint alleging multiple irregular business practices between the two companies. The commission alleged that FTX executives had implemented certain code features that enabled “Alameda to maintain an essentially unlimited line of credit on FTX.”
Caroline Ellison, the former CEO of Alameda Research, and Gary Wang have both admitted their guilt to the charges against them. Their close involvement in the case makes them key witnesses against Sam Bankman-Fried.
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At the same time, SBF, currently out on a $250 million bond and living with his parents in California, has pleaded not guilty to all eight counts of conspiracy and wire fraud. This move was expected, and the trial is scheduled to begin in October 2023.
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