Sam Bankman-Fried ordered $65B ‘secret backdoor line of credit,’ lawyer says

Sam Bankman-Fried ordered the co-founder of his cryptocurrency alternate FTX to create a “secret” backdoor that allowed his hedge fund Alameda Analysis to borrow $65 billion of purchasers’ cash with out their permission, in response to testimony over the agency’s implosion.

Gary Wang was advised to create a secret line of credit score utilizing buyer funds from FTX to Alameda, mentioned Andrew Dietderich, an lawyer for FTX, in Delaware chapter court docket on Wednesday.

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

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

Dietderich mentioned the “backdoor was a secret way for Alameda to borrow from customers on the exchange without permission.”

Bankman-Fried had moved $10 billion between the 2 corporations, with an additional $2 billion nonetheless unaccounted for, in response to sources cited by Reuters in November.

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Sam Bankman-Fried allegedly ordered FTX co-founder Gary Wang to create the key line of credit score with out permission from FTX clients.

The Put up has sought remark from Bankman-Fried.

The lawyer’s testimony corroborates allegations made by the Commodity Futures Buying and selling Fee, the impartial federal company which regulates derivatives corresponding to futures and swaps.

Final month, the CFTC filed costs towards Wang and Alameda Analysis CEO Caroline Ellison, who was additionally Bankman-Fried’s on-again, off-again girlfriend.

The CFTC accused Wang of making a “virtually unlimited” secret line of credit score. Dietderich’s testimony is believed to be the primary time an FTX official has given the road of credit score a agency greenback worth.

Wang and Ellison have each pleaded responsible to federal costs together with fraud and conspiracy. They’re cooperating with investigators.

Bankman-Fried, who was arrested and extradited to the US from his residence base within the Bahamas final month, is underneath home arrest at his dad and mom’ $4 million Palo Alto residence as per the circumstances of his $250 million bond launch.

Whereas awaiting trial, Bankman-Fried printed a Substack weblog publish on Thursday during which he professed his innocence.

Bankman-Fried, who is awaiting trial on federal fraud charges, has professed his innocence.
Bankman-Fried, who’s awaiting trial on federal fraud costs, has professed his innocence.
Matthew McDermott

“I didn’t steal funds, and I certainly didn’t stash billions away,” Bankman-Fried wrote.

“Nearly all of my assets were and still are utilizable to backstop FTX customers.”

The disgraced former crypto mogul, 30, accused Binance boss Changpeng “CZ” Zhao of waging a prolonged marketing campaign to destroy his empire.

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

“In November 2022, an extreme, quick, targeted crash precipitated by the CEO of Binance made Alameda insolvent,” Bankman-Fried wrote.

The disgraced FTX founder’s enterprise collapsed shortly after Zhao tweeted that Binance was dumping its place on FTX’s in-house digital token FTT.

The tweet began a domino impact that pushed Bankman-Fried’s crypto hedge fund Alameda Analysis into insolvency and FTX filed for chapter on Nov. 11.

Bankman-Fried's cryptocurrency exchange, FTX, collapsed in November. It was once said to be worth as much as $26 billion.
Bankman-Fried’s FTX collapsed in November. It was as soon as mentioned to be price as a lot as $26 billion.
AFP through Getty Pictures

In the meantime, Bankman-Fried’s dad and mom are additionally making ready for doable authorized publicity.

Joseph Bankman, Bankman-Fried’s father, has employed a Manhattan-based lawyer, Sean Hecker of Kaplan Hecker and Fink LLP, to characterize him, Reuters is reporting.

Bankman has not been charged with a criminal offense or knowledgeable he’s underneath federal investigation, a supply conversant in the scenario advised The Put up.

Nonetheless, his work at FTX has come underneath intense scrutiny because the platform declared chapter.

Whereas testifying on Capitol Hill final month, present FTX CEO John Ray confirmed that his workforce was “investigating” the function that Bankman and his spouse, fellow Stanford legislation professor and Democratic operative Barbara Fried, performed within the platform’s collapse.

Ray advised lawmakers Bankman had given “legal advice” to his son at FTX and acquired money funds from the corporate.

Further reporting by Thomas Barrabi

Artmotion U.S.A

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