FTX co-founder Gary Wang revealed more details of Alameda Research’s corrupt relationship with his exchange during Sam Bankman-Fried’s fraud trial on Friday.
During his testimony, Wang claimed that the function required for Alameda to steal client funds had been baked into FTX’s computer systems back in 2019.
Alameda’s Special Privileges
As summarized by Inner City Press over Twitter, Gary Wang said Alameda was granted three special privileges at FTX compared to other customers.
One was the “allow negative” feature, allowing Alameda to trade with more funds than it actually had in its account. As Wang had previously testified, Alameda could withdraw unlimited funds from FTX.
This feature was later exploited to withdraw $8 billion worth of fiat and crypto beyond what the trading firm held in its account – roughly the same shortfall FTX faced when failing to fulfill client withdrawal requests last November.
Wang clarified that the extra money came from FTX customers who had not explicitly opted into lending out their funds. Though it took years for the scheme to unravel, Wang said he knew about Alameda having a negative balance as early as 2019.
At first, the withdrawal amount was limited to roughly $50 million to $100 million – the amount that FTX had been making in annual revenue. However, just a year later, Wang discovered this rule had already been violated.
“In early 2020 I did a database query- Alameda’s balance was negative more than FTX revenue,” he said. While the exchange’s revenue was about $150 million, Alameda was already at least $200 million negative.
Alameda’s Massive Credit Line
Alameda was also privy to an outsized $65 billion line of credit from FTX. According to Wang, no other client could access credit larger than $1 billion.
Wang says reality contradicted Bankman-Fried’s repeated claims that FTX customer funds went untouched. “He said it on Twitter and on phone calls, I heard him as he walked around the office,” added Wang.
The co-founder also asserted that Bankman-Fried had witnessed Alameda’s balance firsthand. This contradicts SBF’s numerous claims in interviews that he was unaware of the state of Alameda’s finances leading up to its collapse.
During cross-examination, Sam Bankman-Fried’s lawyers stressed that Alameda’s balance was allowed to go negative so that it could serve as a market maker for FTT – FTX’s native exchange token. Wang clarified, however, that the trading desk’s exemption from auto liquidation was partly because Alameda’s position was so large that it could “cause damage.”