FTX’s Wang Blows Lid on Alameda’s Privileges in SBF Trial

Former FTX executive Gary Wang reveals why and how the exchange gave Alameda special privileges.

Sam Bankman-Fried sitting lonely and sad in the rain.
Created by Kornelija Poderskytė from DailyCoin
  • On day four of the trial, FTX co-founder Gary Wang claims that Sam Bankman-Fried ordered the exemption of Alameda from liquidation on the exchange.
  • The former FTX executive’s testimony offers insight into how Alameda’s advantages on FTX worked.
  • Wang also details Bankman-Fried’s efforts to convince investors and customers otherwise about FTX’s ties to Alameda.

Things are quickly heating up in the criminal case against FTX founder Sam Bankman-Fried (SBF). Testimonies from former insiders and investors continue to shed light on the sordid details of the exchange’s operations and its relationship with sister trading firm Alameda Research. 

On Friday, October 6, the fourth day of the trial, former FTX CTO Gary Wang again took the stand to give the jury a look behind the veil of how and why FTX offered Alameda special privileges, which eventually led to the exchange’s collapse, continuing from where he left off on day three.

Wang: SBF Ordered For Alameda Privileges in 2019

Speaking to the court on Friday, Wang built on his testimony that Alameda had an exemption from FTX’s liquidation engine, enjoyed a significantly larger line of credit than any other market maker, and enjoyed faster trade execution, none disclosed to customers and investors.

Asked why FTX exempted Alameda from liquidation, the FTX co-founder disclosed that Bankman-Fried made the call not long after the exchange launched in 2019, requesting that he and then-lead engineer Nishad Singh implement the code. 

At the time, Wang claims to have expressed reservations about the directive which gave Alameda the ability to leverage FTX customer deposits. 

"Customers did not give us permission to use their accounts like this," the FTX co-founder asserted in court.

But Wang noted that the then-FTX CEO had asserted that the exemption from liquidation would help Alameda spend on FTT, FTX’s native crypto token. However, Wang notes that Alameda’s use of this edge quickly widened. 

How Did Alameda’s FTX Privileges Work?

During his testimony, the FTX insider detailed that the exchange had an “allow negative” control feature in its backend. Typically left unticked, accounts on FTX could only trade what they had in their account. However, the same rules did not apply to Alameda accounts.

Alameda accounts on FTX had the “allow negative” feature ticked at the backend. The result: the trading firm was exempted from liquidations and allowed unfettered withdrawals on FTX, sourced from customer deposits when the trading firm was in the red.

Wang disclosed that at some point in 2020, Alameda’s negative balances exceeded FTX’s revenue by about $50 million. But even at this point, Bankman-Fried continued lying to customers and investors about Alameda’s access to FTX customer funds.

False Assurances and Illusionary Backstops

On Friday, the prosecution highlighted a tweet that Bankman-Fried had made refuting claims from a crypto community member that Alameda could enjoy preferential treatment on FTX in July 2019. According to Wang, the FTX founder acted contrary to these assurances on that same day.

Wang further disclosed that Bankman-Fried offered this same assurance to investors, corroborating testimony from Paradigm’s Matt Huang. Meanwhile, according to Wang, FTX’s deception of customers and investors extended beyond this.

Wang told the court that the displayed balance of FTX’s so-called “Backstop Liquidity Fund,” created to ensure the availability of liquid assets for trading, was also false. In September 2022, FTX claimed that the fund held $200 million.

On the Flipside

  • Like Caroline Ellison and Nishad Singh, Gary Wang entered a plea deal with the Department of Justice (DOJ) in December 2022.

Why This Matters

The defense attempts to portray Bankman-Fried as a well-intentioned entrepreneur who made mistakes. Testimonies from Wang and other insiders paint a different story, one of lies, deception and fraud.

Read this to learn more about SBF allegedly lied to investors:
SBF Trial Exposes Extent of FTX Founder’s Investor Deception

Find out what happened to employees who discovered FTX’s $65 billion backdoor:
FTX Employees Uncovered a $65B Backdoor Months Before Collapse 

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Okoya David

David Okoya is a crypto news reporter at DailyCoin based in Nigeria. He covers various topics related to the cryptocurrency industry, including exchanges, regulations, and price movements, and strives to bring fresh angles to breaking news. With experience as a freelance crypto news writer, David upholds the highest journalistic standards, telling complete stories and answering lingering questions whenever possible.