FTX’s Sam Bankman-Fried ordered a “secret backdoor” of credit

Sam Bankman-Fried, the co-founder of cryptocurrency exchange FTX, ordered hedge fund Alameda Research to create a “secret” backdoor that allowed it to borrow $65 billion without clients’ permission, according to testimony surrounding the firm’s implosion.

FTX attorney Andrew Dietderich said Wednesday in Delaware bankruptcy court that Gary Wang was instructed to set up a secret line of credit from FTX to Alameda using customer funds.

“Mr. Wang created this backdoor by inserting a single number into millions of lines of code for the exchange, creating an Alameda line of credit from FTX that customers did not consent to,” Dietderich testified.

“And we know the size of that line of credit. It was 65 billion dollars.

“The backdoor was a secret way for Alameda to take unauthorized loans from customers on the exchange,” Dietderich said.

According to sources cited by Reuters in November, Bankman-Fried transferred $10 billion between the two companies, with another $2 billion still undisclosed.

Sam Bankman-Fried allegedly ordered FTX co-founder Gary Wang to set up a secret line of credit without the permission of FTX customers.

The Post reached out to Bankman-Fried for comment.

The attorney’s testimony backs up the claims of the Commodity Futures Trading Commission, an independent federal agency that regulates derivatives such as futures and swaps.

Last month, the CFTC filed charges against Wang and Alameda Research CEO Caroline Ellison, who was Bankman-Fried’s on-again, off-again girlfriend.

The CFTC accused Wang of creating a “virtually unlimited” secret line of credit. Dietderich’s testimony is believed to be the first time an FTX official has given a firm dollar value to a line of credit.

Wang and Ellison both pleaded guilty to federal charges including wire fraud and conspiracy. They are cooperating with the investigators.

Bankman-Fried, who was arrested last month and extradited to the United States from her home base in the Bahamas, is under house arrest in her parents’ $4 million Palo Alto home under the terms of her $250 million bond release.

While awaiting trial, Bankman-Fried pleaded not guilty in a Substack blog post Thursday.

Bankman-Fried, who is awaiting trial on federal fraud charges, has pleaded not guilty.
Bankman-Fried, who is awaiting trial on federal fraud charges, has pleaded not guilty.
Matthew McDermott

“I did not steal funds, and I certainly did not keep billions,” Bankman-Fried wrote.

“Almost all of my assets could and still are being used to stop FTX clients.”

The disgraced former crypto tycoon has accused Binance boss Changpeng “CZ” Zhao, 30, of waging a long campaign to destroy his empire.

He claimed that Zhao’s “fateful tweet” on November 6 capped “an extremely effective months-long PR campaign against FTX.”

“In November 2022, an extreme, rapid, targeted crash by Binance’s CEO bankrupted Alameda,” Bankman-Fried wrote.

The disgraced FTX founder’s business collapsed after Zhao tweeted that Binance had lost its position in FTX’s in-house digital token FTT.

The tweet created a domino effect that pushed Bankman-Fried’s crypto hedge fund Alameda Research into bankruptcy, and FTX filed for bankruptcy on November 11.

Bankman-Fried's cryptocurrency exchange FTX collapsed in November.  It was once said to be worth $26 billion.
Bankman-Fried’s FTX collapsed in November. It was once said to be worth $26 billion.
AFP via Getty Images

Meanwhile, Bankman-Fried’s parents are also bracing for possible legal exposure.

Bankman-Fried’s father, Joseph Bankman, has hired Manhattan-based attorney Sean Hecker of Kaplan Hecker & Fink LLP to represent her, Reuters reported.

A source familiar with the situation told The Post that the banker has not been charged with a crime or reported to be under federal investigation.

However, after the platform was declared bankrupt, his work on FTX is under serious scrutiny.

In testimony on Capitol Hill last month, current FTX CEO John Ray confirmed that his team was “investigating” the role Bankman and his wife, Barbara Fried, a Stanford law professor and Democratic operative, played in the collapse of the platform.

Ray told lawmakers that Bankman gave his son “legal advice” at FTX and received cash payments from the company.

Additional reporting by Thomas Barrabi

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