65 billion Alameda backdoor at the heart of FTX trial

Visit leaders from FTX have they deliberately favoured Alameda Research thanks to a backdoor on the platform and sanctioned a employee for pulling the alarm bell ? Visit trial from SBF must make the light.

It’s the kind of show Americans are famous for. The trial of SAm Bankman Fried, ex-CEO and co-founder of FTXThis is no ordinary trial. The press follows the court proceedings hour by hour, awaiting any revelations.

The existence of a backdoor in the platform is probably not really a revelation. However, its existence and the identity of its authors remain to be determined. The current proceedings should provide some answers.

A long-known backdoor

According to an article in WallStreetJournalthe presence of a backdoor in the crypto exchange’s code was known to various company employees several months before the bankruptcy. The backdoor enabled FTX’s sister company, market maker Alameda, to be given preferential treatment.

In fact, the entity was authorized to have a negative balance up to 65 billion. No other user of the service benefited from such treatment. Intentional modification of the code would thus have enabled Alameda to tap into users’ assets to finance its operations.

According to WSJthe backdoor was reported by employees of LedgerX, a derivatives exchange acquired by FTX in 2021. The aim was to remedy compliance issues on the FTX international platform.

I just wanted to point out that there are currently a few places in the code base where Alameda is getting special treatment of one kind or another,” wrote LedgerX’s Jim Outen in a message dated May 20, 2022.

Whistleblowers paid to prevent leaks

The information was passed on to his superior, Julie Schoening, Chief Risk Officer at LedgerX and former Commodity Futures Trading Commission officer, and then to Nishad Singh, FTX’s Director of Engineering.

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A member of Sam Bankman-Fried’s inner circle, Singh is also being sued. Unlike SBF, he has pleaded guilty and is cooperating with the courts. Evidence suggests that Singh was complicit in the backdoor and cover-up.

LedgerX has since been acquired by Miami International Holdings. A spokesperson states that an internal investigation has been carried out and has not established that any employees were aware of code authorizing Alameda to access FTX customer assets.

However, Julie Schoening disagrees, believing that she has been punished by the company as a whistleblower. To avoid prosecution, FTX has reportedly reached a settlement with its former employee, agreeing to pay $5 million.

The bankruptcy of the crypto exchange, however, will prevent this agreement from being finalized. According to the team in charge of managing the bankrupt firm, several employees would have been paid by FTX to prevent any disclosure.

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