Sam Bankman-Fried Secret Allows Gary Wang To Create Backdoor To Borrow $65 Billion

Key Points:

• Sam Bankman-Fried gave the co-founder of his cryptocurrency exchange FTX the go-ahead to build a “secret backdoor” that let his hedge fund Alameda Research take out a $65 billion loan from investors without their consent.
• According to Andrew Dietderich, an attorney for FTX, Gary Wang was instructed to use client monies from FTX to Alameda to establish a covert line of credit.
• Alameda used the backdoor as a covert method to stealthily borrow money from exchange users without their consent.

The Delaware bankruptcy court was informed on Wednesday that Sam Bankman-Fried gave his FTX cofounder Gary Wang the order to build a “secret backdoor” so his trading company Alameda could borrow $65 billion from the exchange without the consent of its clients, according to news site New York Post.

According to Andrew Dietderich, an attorney for FTX, Gary Wang was instructed to use client monies from FTX to Alameda to establish a covert line of credit.

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

Similar accusations were made by the Commodity Futures Trading Commission (CFTC) when it filed charges against Wang in December. However, it hasn’t been mentioned how much that line of credit is worth until now. It was then classified as essentially infinite by the CFTC.

Dietderich’s testimony is said to be the first time an FTX representative has provided a precise financial amount for the line of credit. He said that the remaining funds were used for investments, sponsorships, and personal loans.

“We know that all this has left a shortfall in value to repay customers and creditors,” he added. That amount will depend on the size of the claims pool and our recovery efforts.

The CFTC filed allegations against Wang and Caroline Ellison, the CEO of Alameda Research and Bankman-Fried’s on-again, off-again lover, last month.

According to sources quoted by Reuters in November, Bankman-Fried transferred $10 billion between the two companies, with a further $2 billion remaining unaccounted for.

Bankman-Fried says he gave just as much to Republicans using “dark money” while being the second-highest donor to Democratic charities.

Additionally, Bahamian real estate valued at $256.3 million, including 15 condos in the same building, was registered in FTX’s name. In just nine months, according to other court documents, FTX allegedly “spent $6.9 million on meals and entertainment.”

In accordance with the terms of his $250 million bond release, Bankman-Fried, who was detained and extradited to the US from his home base in the Bahamas last month, is currently under house arrest at his parent’s $4 million Palo Alto residence.

According to the testimony given in court, FTX has already recovered $5 billion in cash, cryptocurrency, and securities and has plans to monetize over 300 other non-strategic investments, totaling $4.6 billion.

Bankman-Fried declared his innocence in a Substack blog post on Thursday while still awaiting trial.

Check out our other SBF article for Exposes FTX Collapse.

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Harold

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