Employees at FTX’s U.S. division found a backdoor in the crypto exchange’s systems.
The backdoor allowed Alameda Research to hold negative balances up to $65 billion using customer funds.
FTX co-founder Sam Bankman-Fried’s deputy, Nishad Singh, was informed but the issue was unresolved.
A group of employees at FTX’s U.S. division discovered a backdoor in the crypto exchange’s systems that gave its trading arm, Alameda Research, special privileges, the Wall Street Journal reported.
Citing people familiar with the matter, the WSJ said the employees came across code while examining FTX’s international platform that allowed Alameda to hold negative balances up to $65 billion using customer funds. This was not possible for other FTX users.
The team from crypto derivatives exchange LedgerX, acquired by FTX.US in 2021, reportedly alerted their boss about the backdoor in spring 2022. The issue was then raised with FTX co-founder Sam Bankman-Fried’s top deputy, Nishad Singh. But it was never resolved.
Instead, the LedgerX employees’ team leader who flagged the concern was fired, per the report. The backdoor has become a central issue in the criminal case against Bankman-Fried, who pleaded not guilty to fraud charges that could see him jailed for decades.
Past filings revealed FTX routinely diverted customer funds
Past filings revealed FTX routinely diverted customer funds to Alameda before its spectacular collapse in November 2022. Whistleblowers who threatened to expose alleged misconduct were sometimes paid to stay silent.
Singh has pleaded guilty to fraud charges and is expected to be a key witness against Bankman-Fried. Prosecutors allege he helped engineer the backdoor, allowing Alameda special access to customer deposits.
The WSJ’s reporting provides further insight into potential fraud at FTX in the months before its implosion. It also shows that some employees tried to raise concerns about the privileged treatment of Alameda, only to be sidelined or pushed out.