On Friday, FTX’s co-founder, Gary Wang, delivered a riveting testimony to federal prosecutors, alleging that CEO Sam Bankman-Fried covertly diverted billions from customer accounts to fuel trades for his hedge fund, Alameda Research. Wang detailed how Bankman-Fried allegedly instructed him to devise a specialized trading tool, enabling Alameda to overdraw its account, tapping into FTX clients’ funds without their knowledge.
Wang’s Second Day of Testimony Reveals SBF’s Alleged Misappropriation of Client Funds
Formerly FTX’s chief technology officer, Zixiao (Gary) Wang recounted how he, alongside developer Nishad Singh, engineered the “allow negative” feature, granting Alameda the ability to trade on unbacked credit. Contrary to the narrative presented by “The Big Short” author Michael Lewis, Wang painted a grim picture of FTX’s internal operations, emphasizing:
FTX was not fine. Assets were not fine.
This gripping testimony was streamed on the X social media platform (formally Twitter) by journalist Matthew Russell Lee of Inner City Press, with additional accounts emerging from the courthouse. Wang disclosed that while Bankman-Fried justified the tool’s creation for Alameda’s role as the primary market maker and for FTT token trades, its application was far more expansive.
This concealed mechanism allowed Alameda to overdraw up to $100 million from customer funds. Wang’s investigation in early 2020 revealed Alameda’s staggering negative balance of over $200 million, even as FTX reported revenues of a mere $150 million. Wang emphasized that the funds Alameda utilized were sourced directly from FTX’s clientele.
Russell Lee’s summary shows Wang accused Bankman-Fried of public deception, assuring clients of the safety of their funds while permitting Alameda’s deficit to skyrocket to a staggering negative $20 billion. This discrepancy was highlighted in court through a revealing spreadsheet presented by prosecutors. In the end, Wang emphasized that Alameda boasted a staggering $65 billion credit line.
After an inadvertent disclosure of Alameda’s colossal debt, Wang shared how Bankman-Fried orchestrated repayments to specific lenders, such as Genesis Trading. Contrary to Bankman-Fried’s public denials on platforms like Twitter and in media interactions, Wang asserted that these repayments were sourced from FTX’s user base.
Wang narrated a tense period where, amidst the unfolding crisis, he joined Bankman-Fried and associates in the Bahamas. Post the bankruptcy declaration, Bankman-Fried allegedly directed Wang to halt U.S. transactions and liaise with the more accommodating Bahamian regulators.
Wang made a swift exit from the Caribbean on November 16, collaborating with U.S. authorities the very next day. Wang expressed his aspiration for “no prison time” following his collaboration with U.S. law enforcement officials.
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