It has been revealed that several employees at FTX discovered a vulnerability, now called a 'backdoor', that was allegedly used by Alameda Research to siphon billions of dollars from the cryptocurrency exchange months before the company's collapse.
FTX Employees Revealed Alameda's Alleged Backdoor Months Before Crash
After making the discovery, employees immediately reported the situation to their department head, who discussed the matter with a close associate of FTX founder Sam Bankman-Fried.
However, the issue was never addressed. The team leader who voiced concerns about Alameda's special privileges in the summer of 2022 was terminated.
This vulnerability plays a central role in the ongoing case against Bankman-Fried, who is currently on trial in New York federal court on fraud charges. He declares himself innocent of all charges.
According to prosecutors, Bankman-Fried embezzled funds from FTX customers by orchestrating the programming of “special features” that gave his cryptocurrency trading company, Alameda, a large-scale slush fund.
Court documents unearthed a secret line of code within FTX's system that allowed Alameda to maintain negative balances of up to $65 billion on the exchange.
Ordinary users did not have the privilege of switching to negative figures on FTX. They were subject to an automatic liquidation process in which FTX would sell their assets when their balances dropped below zero. This protection did not include Alameda.
*This is not investment advice.