FTX, the renowned cryptocurrency exchange, has been accused of granting a secret backdoor to Alameda Research, a prominent crypto hedge fund. This backdoor allegedly allowed Alameda Research to maintain a negative balance of up to a staggering $65 billion. The accusations come as part of a broader controversy surrounding FTX founder Sam Bankman-Fried, who faces multiple allegations, including the co-mingling of funds between FTX and Alameda Research.
Discovery of the Backdoor
The Wall Street Journal recently reported that employees at LedgerX, a Commodity Futures Trading Commission (CFTC) regulated derivative trading platform acquired by FTX.US in August 2021, stumbled upon a hidden backdoor within FTX’s codebase. This backdoor reportedly conferred special privileges upon Alameda Research.
Jim Outen, a LedgerX employee, alerted his team lead, Julie Schoening, in May 2022, noting, “There are currently a few places in the code base where Alameda gets special treatment in one way or another.” Schoening, recognizing the issue, replied, “There are less rigid rules on the offshore exchange, but yea we should clean up this sort of stuff.”
Consequences and Legal Proceedings
Schoening reported the matter to LedgerX’s head, Zach Dexter, who eventually conveyed it to Nishad Singh, a close associate of Sam Bankman-Fried. Singh, who later pleaded guilty to fraud charges in February 2023, left a cryptic comment in the FTX code, saying, “Be extra careful not to liquidate.”
Notably, Schoening was terminated from her position in August 2022, prior to the eventual collapse of FTX. The trial of Sam Bankman-Fried commenced on October 3 and is expected to extend for at least six weeks. If he is convicted of all charges, Bankman-Fried faces the grim prospect of spending the remainder of his life behind bars.
The allegations of a secret backdoor, combined with other accusations, cast a shadow over FTX and its founder, raising significant concerns about transparency and security within the cryptocurrency industry. As this high-profile trial unfolds, the crypto community awaits answers and clarity regarding these troubling allegations.