FTX Accused of Misrepresenting Insurance Fund Value
According to testimony from FTX co-founder Gary Wang, crypto exchange FTX used hidden Python code to misrepresent the value of its insurance fund. Wang stated that FTX’s $100 million insurance fund in 2021 was fabricated and did not actually contain any FTX tokens as claimed. Instead, the publicized figure was calculated by multiplying the daily trading volume of the FTX Token by a random number close to 7,500.
Exposed Fabrication and Inaccurate Figures
In court, Wang confirmed that there were no FTX tokens in the insurance fund and that the listed amount did not match the database records. An exhibit presented during the trial displayed the alleged code used to generate the size of the “Backstop Fund” or public insurance fund.
Inadequate Coverage for Losses
FTX’s insurance fund was intended to protect users from losses during sudden market movements, but according to Wang, it often lacked sufficient funds to cover these losses. For instance, in 2021, a trader exploited a bug in FTX’s margin system and caused a loss of hundreds of millions of dollars for the exchange. When Bankman-Fried realized the fund was depleted, Wang claimed he was instructed to transfer the loss to Alameda Research to hide it.
Allegations of Fraudulent Practices
In addition to exposing the fraudulent nature of FTX’s insurance fund, Wang also revealed that he and Nishad Singh were directed by Bankman-Fried to implement an “allow_negative” balance feature in FTX’s code. This allowed Alameda Research to trade with nearly unlimited liquidity on the platform. Wang has already pleaded guilty to wire fraud, commodities fraud, and securities fraud, along with Bankman-Fried, former Alameda Research CEO Caroline Ellison, and former FTX director of engineering Nishad Singh.
Hot Take: FTX Faces Serious Accusations of Misrepresentation
FTX’s former chief technology officer, Gary Wang, has testified that the exchange used deceptive tactics to misrepresent the value of its insurance fund. This revelation raises concerns about the transparency and integrity of FTX’s operations. The alleged fabrication of the insurance fund and inadequate coverage for losses highlight potential risks for FTX users. Moreover, the involvement of high-ranking executives in fraudulent practices further damages the reputation of the exchange. These accusations may have significant consequences for FTX, including legal repercussions and a loss of trust from the crypto community.
By
By
By
By
By