Sam Bankman-Fried ordered the co-founder of his cryptocurrency exchange FTX to create a “secret” backdoor that allowed his hedge fund Alameda Research to borrow $65 billion of clients’ money without their permission, according to testimony over the firm’s implosion.
Gary Wang was told to create a secret line of credit using customer funds from FTX to Alameda, said Andrew Dietderich, an attorney for FTX, in Delaware bankruptcy court on Wednesday.
“Mr. Wang created this back door by inserting a single number into millions of lines of code for the exchange, creating a line of credit from FTX to Alameda, to which customers did not consent,” Dietderich testified.
“And we know the size of that line of credit. It was $65 billion.”
Dietderich said the “backdoor was a secret way for Alameda to borrow from customers on the exchange without permission.”
Bankman-Fried had moved $10 billion between the two companies, with a further $2 billion still unaccounted for, according to sources cited by Reuters in November.
The Post has sought comment from Bankman-Fried.
The lawyer’s testimony corroborates allegations made by the Commodity Futures Trading Commission, the independent federal agency which regulates derivatives such as futures and swaps.
Last month, the CFTC filed charges against Wang and Alameda Research CEO Caroline Ellison, who was also Bankman-Fried’s on-again, off-again girlfriend.
The CFTC accused Wang of creating a “virtually unlimited” secret line of credit. Dietderich’s testimony is believed to be the first time that an FTX official has given the line of credit a firm dollar value.
Wang and Ellison have both pleaded guilty to federal charges including fraud and conspiracy. They are cooperating with investigators.
Bankman-Fried, who was arrested and extradited to the US from his home base in the Bahamas last month, is under house arrest at his parents’ $4 million Palo Alto home as per the conditions of his $250 million bond release.
While awaiting trial, Bankman-Fried published a Substack blog post on Thursday in which he professed his innocence.
“I didn’t steal funds, and I certainly didn’t stash billions away,” Bankman-Fried wrote.
“Nearly all of my assets were and still are utilizable to backstop FTX customers.”
The disgraced former crypto mogul, 30, accused Binance boss Changpeng “CZ” Zhao of waging a lengthy campaign to destroy his empire.
alleged that Zhao’s “fateful tweet” on Nov. 6 capped an “extremely effective months-long PR campaign against FTX.”
“In November 2022, an extreme, quick, targeted crash precipitated by the CEO of Binance made Alameda insolvent,” Bankman-Fried wrote.
The disgraced FTX founder’s business collapsed shortly after Zhao tweeted that Binance was dumping its position on FTX’s in-house digital token FTT.
The tweet started a domino effect that pushed Bankman-Fried’s crypto hedge fund Alameda Research into insolvency and FTX filed for bankruptcy on Nov. 11.
Meanwhile, Bankman-Fried’s parents are also preparing for possible legal exposure.
Joseph Bankman, Bankman-Fried’s father, has hired a Manhattan-based attorney, Sean Hecker of Kaplan Hecker and Fink LLP, to represent him, Reuters is reporting.
Bankman has not been charged with a crime or informed he’s under federal investigation, a source familiar with the situation told The Post.
However, his work at FTX has come under intense scrutiny since the platform declared bankruptcy.
While testifying on Capitol Hill last month, current FTX CEO John Ray confirmed that his team was “investigating” the role that Bankman and his wife, fellow Stanford law professor and Democratic operative Barbara Fried, played in the platform’s collapse.
Ray told lawmakers Bankman had given “legal advice” to his son at FTX and received cash payments from the company.
Additional Reporting by Thomas Barrabi
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