According to the former CTO of the cryptocurrency exchange, FTX’s so-called “Backstop Fund” figure was a massive fabrication.
Bitcoin exchange Gary Wang, co-founder of FTX, testified that FTX used concealed Python code to misrepresent the value of its insurance fund — a pool of funds intended to prevent user losses during massive liquidation events.
Gary Wang, the former chief technology officer of FTX, testified in a damning new hearing on October 6 that FTX’s alleged $100 million insurance fund in 2021 was a fabrication and never contained any FTX tokens (FTT) as claimed.
Instead, the public figure was calculated by multiplying the daily trading volume of FTX Tokens by a random number close to 7,500.
The 5.25 million FTT we put in our insurance fund in 2019 now makes the fund worth over 100 million USDhttps://t.co/tMYgJOAdqI pic.twitter.com/vQDkmkufD2
— FTX (@FTX_Official) February 14, 2021When the prosecution uncovered the tweet mentioned above and other public statements of its value and asked Wang if this amount was accurate, he responded with a single word: “No.”
“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.”
The alleged code used to calculate the extent of the so-called “Backstop Fund” or public insurance fund was presented in court on October 6.
From yesterday's exhibits in US v. Sam Bankman-Fried:
The prosecution shows that the "insurance fund" that FTX bragged about was fake, and just calculated by multiplying daily trading volume by a random number around 7500 pic.twitter.com/EDiVPOHODP
— Molly White (@molly0xFFF) October 7, 2023FTX’s insurance fund was designed to safeguard user losses in the event of massive, sudden market fluctuations, and its value was frequently advertised on its website and social media channels. Nevertheless, according to Wang’s testimony, the fund was frequently insufficient to cover these losses.
According to Wang, a trader exploited a flaw in FTX’s margin system in 2021 to acquire an oversized position in MobileCoin, resulting in a loss of hundreds of millions of dollars for FTX.
Wang stated that when Bankman-Fried realized the insurance fund was nearly depleted, he instructed Alameda to “take on” the loss. This was allegedly an attempt to conceal the loss, as Alameda’s financial statements were more confidential than FTX’s.
In addition to revealing the allegedly fraudulent nature of FTX’s insurance fund, Wang claimed that Bankman-Fried prompted him and Nishad Singh to implement an “allow_negative” balance feature in the code at FTX, which allowed Alameda Research to trade with near-unlimited liquidity on the crypto exchange.
Wang, who had previously pleaded guilty to all charges against him, acknowledged committing wire fraud, commodities fraud, and securities fraud with Bankman-Fried, former Alameda Research CEO Caroline Ellison, and former FTX director of engineering Nishan Singh on October 5.
