October 9, 2023 at 09:50 GMTModified date: October 9, 2023 at 09:51 GMT
October 9, 2023 at 09:50 GMT

FTX ‘manipulated its $100m insurance fund with Python code’

A Python code was used to misrepresent the value of FTX’s insurance fund, proclaimed the now-defunct exchange’s co-founder and former CTO, Gary Wang.

FTX ‘manipulated its $100m insurance fund with Python code’

A Python code was used to misrepresent the value of FTX’s insurance fund, proclaimed the now-defunct crypto exchange’s co-founder and former chief technology officer Gary Wang. This was revealed in his 6 October court testimony given in the ongoing Sam Bankman-Fried (SBF) fraud trial.

Designed to protect user losses in case of huge and sudden market movements, the value of FTX’s so-called “Backstop Fund” was often bragged about on its website and social media platforms.

In a tweet from 2021, FTX claimed that “the 5.25 million $FTT (FTX tokens) we put in our insurance fund in 2019 now makes the fund worth over 100 million USD”. However, according to Wang, this figure was fabricated and never contained any of the exchanges’ FTX tokens.

Instead, the public saw a figure that was calculated by multiplying the daily trading volume of the token by a random number close to 7,500. When questioned whether the number listed on the 2021 tweet was accurate, Wang replied by saying “No”, adding: “For one, there is no $FTT in the insurance fund. It’s just the USD number. And, two, the number listed here does not match what was in the database.”

An exhibit of last week’s trial also disclosed the alleged code that was used to generate the size of the public insurance fund.

Explaining the fraudulent act, the CTO said: “First, line 16 is saying what the name of this function is. Line 17, it’s getting the daily — it’s getting the total volume of trades from the past 24 hours on FTX. Then in line 19 it’s taking that number, multiplying it — then multiplies that by a random number that’s around 7500 and then dividing the result by a billion. That’s a number that gets added to the number that shows up on the website.”

The latest findings made by the prosecution has also exposed the fact that the amount contained within the fund was often insufficient to cover these losses. The real number was lower than the fake number that was advertised.

On top of this, Wang also claimed that Bankman-Fried prompted him and Nishad Singh to implement an “allow_negative” balance feature in the code at FTX. “It allowed Alameda Research to trade with near-unlimited liquidity on the crypto exchange”, added the top executive

Back in 2021, when a bug exploit in FTX’s margin system resulted in a loss of hundreds of millions of dollars for the exchange, exhausting the insurance fund, Wang was told to make Alameda “take on” the loss. This was done with an intent to hide the loss, as Alameda’s balance sheets were more private than that of FTX’s.

The 30-year-old co-founder has already pleaded guilty to committing financial fraud along with Bankman-Fried, former Alameda Research CEO Caroline Ellison and former FTX director of engineering Nishad Singh. Taking a stand in the court for the second time last Friday, Wang faced questions about spreadsheets, tweets and private chats by prosecutors.

According to him, SBF’s repeatedly-made public claims about the exchange doing “fine” were not true too. “FTX was not fine. Assets were not fine, because FTX did not have enough assets for customer withdrawals”, said Wang.

The highly-followed trial of the once cryptocurrency mogul Bankman-Fried started last week, 3 October, and is expected to last five to six weeks. The now-defunct exchange which was once worth over $30billion collapsed into bankruptcy in November last year.

SBF continues to plead not guilty to all of the alleged financial crimes. He faces seven counts, largely centring around wire fraud, securities fraud, and money laundering.