Former FTX CTO Gary Wang exposes fabrications in the exchange’s insurance fund, adding complexity to the cryptocurrency scam involving Sam Bankman Fried.
In an effort to shed light on several matters pertaining to the cryptocurrency scam that Sam Bankman Fried and his associates carried out during the exchange’s whole existence, a U.S. federal court interrogated Gary Wang, the former CTO of FTX, on October 6.
The most notable revelation from Wang’s evidence was that the right-hand man of SBF had fabricated information about the insurance fund of the cryptocurrency exchange platform, which was purportedly utilised to compensate for user losses in the event of settlements.
In actuality, the figure listed on the exchange’s website was a lot higher than what was in existence at the time.
With the directions he gave his staff to hide the company’s losses through Alamea Research, the situation for the former CEO of FTX becomes even more problematic.
Updates on the cryptocurrency fraud case of FTX: The exchange’s website displayed an inflated insurance fund value
A few days ago, former FTX CTO Gary Wang gave testimony in front of a federal court in the United States to address various issues regarding Sam Bankman Fried’s cryptocurrency scam.
Wang, a former classmate of SBF’s at MIT and co-founder of the now-defunct cryptocurrency exchange, shared some experiences that might land his old friend in more hot water.
In fact, he testified before the federal authorities that he had fabricated the size of FTX’s insurance fund—which would have been used to compensate users for losses in the event of large-scale, abrupt liquidations—on Bankman-Fried’s directions.
The figure was created in Python and just displayed random numbers at the front end. It was displayed to the public on the exchange’s website and was frequently promoted by the exchange bank.
FTX has substantially fewer real money available overall than the amount that was disclosed. All of this adds to the story of the biggest cryptocurrency scam to date being even more convoluted.
Consider the fact that FTX itself boasted in February 2021 that it had reached a total countervalue of $100 million in its fund to ensure its users’ losses.
The prosecution questioned Wang throughout the trial, asking if the fund amount was correct. In response, the former FTX CTO said the following:
“No. “First, there is no FTT in the insurance fund. It is only the USD number. And, two, the number listed here does not match the number in the database.”
A document from the Oct. 6 trial shows the alleged code used to generate the size of the so-called “Backstop Fund” or public insurance fund”
At this point, the prosecution questioned how the fund’s fabricated value was determined, if it was random, and how the exchange’s last years of operation’s published values were determined. In response, Wang said this:
“First, line 16 tells what the name of this function is. Line 17, it gets the daily: it gets the total trading volume of the last 24 hours on FTX. Then in line 19 you take that number, multiply it — then you multiply it by a random number that is around 7500 and then you divide the result by a billion. That is a number that is added to the number displayed on the website.”
Even if he has committed crimes, Sam Bankman Fried, the company’s CEO at the time of the frauds and the one who came up with the idea to falsify insurance fund data, is the one who is most at risk in this situation.
The involvement of SBF and Alameda Research personnel in the matter
As previously stated, Sam Bankman Fried did not write the code reflecting the exchange’s insurance fund value in this chapter of the FTX crypto scam; rather, he gave Gary Wang instructions on how to handle it.
These individuals, along with former Alameda Research CEO Caroline Ellison and FTX’s former director of engineering Nishad Singh, warned SBF of the exchange’s risks in 2021 and 2022 due to its high expenses compared to its platform trading fees.
SBF’s contingency fund forgery was one of its minor wrongdoings due to how FTX’s customers’ money entered and was managed.
Wang’s testimony revealed that Bankman Fried had instructed his close friends to add a “allow_negative” balance function to FTX’s code, allowing Alameda Research, the exchange’s sister hedge fund, to withdraw as much liquidity as it wanted forever.
The trial revealed that a trader had opened an excessive interest in MoblieCoin in 2021 by exploiting FTX’s margin system fault, costing FTX hundreds of millions of dollars.
Alameda’s financial sheets were more private than the exchange’s, so SBF told Wang to make it take the losses.
Thus, Alameda Research funded much of SBF’s financial crimes, prolonging the bitcoin scam’s discovery for years.
Wang, Singh, and Ellison—three of Bankman Fried’s closest friends who had holdings in FTX and Alameda Research—always obeyed the criminal mastermind until 2022, when they were concerned that Alameda owed the exchange $11 billion in customer payments.
Along with their friend and partner from MIT, all three of them might now face criminal charges and lengthy prison sentences.
