FTX Co-Founder Testifies to Fabricating Insurance Fund Value and Faces Fraud Charges
Summary:
Gary Wang, FTX's co-founder, has testified that the crypto exchange falsely represented the value of its insurance fund using hidden Python code. He also disclosed that the supposed $100 million insurance fund in 2021 held no FTX tokens as claimed and the reported figure was manipulated. The fund, designed to protect users from abrupt market losses, was often insufficient to cover these falls. Furthermore, Wang confessed to charges of wire fraud, commodities fraud, and securities fraud alongside Sam Bankman-Fried, former CEO of Alameda Research Caroline Ellison, and former-FTX director of engineering Nishad Singh.
Gary Wang, the co-founder of the cryptocurrency exchange FTX, had testified that the company had falsely presented the value of its insurance fund by utilizing concealed Python code. This particular fund was designed to safeguard users from significant losses during events of large-scale liquidation. According to information that came to light on October 6, Wang, who was formerly the chief technology officer at FTX, stated that the claim made by FTX that its insurance fund amounted to $100 million in 2021 was untrue. In fact, it held no FTX tokens (FTT) as the company proposed.
Instead, the display figure for the public was obtained by multiplying the FTX Token's daily dealing volume by a randomly chosen figure close to 7,500. During the court session, Wang confirmed the inaccuracy of the said insurance fund amount when he was questioned by the prosecution about it. There was no FTT in the fund, and it solely consisted of USD. Furthermore, the figure does not match what is recorded in the database.
FTX had designed its insurance fund to prevent users from suffering losses during moments of significant, rapid market fluctuations. This asset was repeatedly highlighted on the company's website and across social media networks. Wang, however, spoke about the inadequacy of the fund's contents to cover such losses. In 2021, for instance, a trader had managed to manipulate a loophole in FTX's margin system, creating an oversized position in MobileCoin. Due to this, FTX faced a loss of hundreds of millions of dollars, as revealed by Wang.
In his testimony, Wang also disclosed that, upon discovering the fund's depletion, he was instructed to handle the loss via Alameda. This was allegedly to conceal the losses, given that Alameda's financial statements were more discreet than FTX's.
Alongside this exposure of FTX's insurance fund, Wang also stated that he, along with Nishad Singh, had been directed by Bankman-Fried to implement an "allow_negative" balance feature in the FTX code. This enabled Alameda Research to engage in high-liquidity trading through the crypto exchange. On October 5, Wang confessed to several accusations of wire fraud, commodities fraud, and securities fraud with Bankman-Fried, Caroline Ellison - the previous CEO of Alameda Research, and Nishad Singh - the former director of engineering at FTX.
Published At
10/9/2023 2:49:39 AM
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