Sam Bankman-Fried's secret 'backdoor' discovered, FTX lawyer says
- Bankruptcy lawyers said Sam Bankman-Fried's Alameda had access to a $65 billion credit line from FTX.
- The customer loans were made available via a backdoor created by FTX cofounder Gary Wang, they said.
Sam Bankman-Fried instructed his FTX cofounder Gary Wang to create a "secret" backdoor to enable his trading firm Alameda to borrow $65 billion of clients' money from the exchange without their permission, the Delaware bankruptcy court was told Wednesday.
Wang was told to create a "backdoor, a secret way for Alameda to borrow from customers on the exchange without permission," said FTX lawyer Andrew Dietderich.
"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," he added. "And we know the size of that line of credit. It was $65 billion."
The Commodity Futures Trading Commission (CFTC) made similar allegations when it brought charges against Wang in December. But the value of that line of credit hasn't been discussed before now. The CFTC then described it as "virtually unlimited."
And in November, Reuters cited unnamed sources as saying that Bankman-Fried had moved $10 billion between the two companies, with a further $2 billion still unaccounted for.
Dietderich told the court that with the $65 billion back door, Alameda "bought planes, houses, threw parties, made political donations."
Bankman-Fried is the second-highest donor to Democratic causes, but says he donated just as much to Republicans using "dark" money.
$256.3 million of Bahamian real estate was also registered in FTX's name – including 15 condos in the same building. Other court filings say FTX spent $6.9 million on "meals and entertainment" in just nine months.
Dietderich said the rest of the money went towards personal loans, sponsorships, and investments.
"We know that all this has left a shortfall, in value to repay customers and creditors," he added. That amount "will depend on the size of the claims pool and our recovery efforts."
The court heard that FTX had so far recovered $5 billion of cash, crypto, and securities, with "plans to monetize over 300 other non-strategic investments" worth $4.6 billion.
Bankman-Fried's attorney did not immediately respond to Insider's request for comment, sent outside normal working hours.
Correction: January 13, 2023 — A headline in an earlier version of this story mischaracterized a figure cited in bankruptcy court. An FTX attorney said Sam Bankman-Fried had access to a $65 billion credit line from FTX, not that he borrowed that amount.