FTX Employees Discover Alameda’s Hidden Backdoor
During the trial of FTX co-founder and former CEO Sam Bankman-Fried, it has been revealed that some employees of the company based in the United States discovered a hidden backdoor allegedly used by Alameda Research to transfer billions of dollars worth of customer funds from FTX. This discovery was made six months before the collapse of the crypto exchange.
Alerting FTX Executives about Alameda’s Backdoor
In May 2022, several US-based FTX employees found a hidden backdoor favoring Alameda. These employees, who were part of the team working for LedgerX before its acquisition by FTX, noticed that Alameda could have a negative balance without undergoing automatic liquidation. They reported this issue to their division head, Julie Schoening, who then informed LedgerX boss Zach Dexter. Dexter then alerted FTX’s director of engineering, Nishad Singh, about the auto-liquidation problem.
Dexter believed the issue was resolved after Singh removed a section of code, but it was not fixed. In August 2022, Schoening was fired from her position following reports of inappropriate messages circulated to employees. Some sources suggest that her termination may have been a result of her team’s identification of FTX’s risk management issues, which displeased her superiors.
No Evidence Found by LedgerX
Miami International Holdings, which acquired LedgerX and later sold it in 2023, conducted an internal investigation and found no evidence that any of its employees were aware of the code enabling Alameda to access FTX customer assets. They deny any allegations to the contrary.
The fired LedgerX executive threatened to sue FTX over her termination and it is rumored that both parties reached a $5 million settlement deal, which could not be finalized due to FTX’s collapse in November 2022.
SBF’s Defense Counsel Claims Innocence
Sam Bankman-Fried is currently on trial in New York facing criminal charges, including the case related to Alameda’s secret backdoor. The prosecution’s first witness, an FTX customer, testified against Bankman-Fried, claiming to have lost $100,000 on the bankrupt exchange. However, Bankman-Fried’s defense counsel argues that users should be held accountable for their choices to buy and hold crypto and maintains that he did not defraud anyone.
Hot Take: Allegations of Misconduct and Legal Battles Surround FTX
As the trial of Sam Bankman-Fried continues, more details emerge about the alleged misconduct and legal battles surrounding FTX. The revelation of a hidden backdoor used by Alameda Research to transfer customer funds raises serious concerns about the integrity of the crypto exchange. Additionally, the termination of an employee who discovered the backdoor further adds to the controversy.
The defense counsel’s argument that users should take responsibility for their investment choices highlights the ongoing debate about accountability in the crypto industry. As the trial progresses, it remains to be seen how these allegations will impact FTX and its co-founder’s legal standing.
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