The group of employees at FTX US stumbled across a backdoor that allowed FTX affiliate Alameda Research to have a $65B negative balance.
It’s the third day of the much anticipated trial of Sam Bankman-Fried and his operation of Alameda Research and the well known FTC exchange.
Alameda had backdoor access
Just months after Julie Schoening, former chief risk officer at FTX-owned LedgerX, reported that Alameda Research enjoyed special privileges that allowed it to have a negative balance, her employment was terminated.
The group of employees at FTX US stumbled across a backdoor that allowed FTX affiliate Alameda Research to have a $65B negative balance. The code for this backdoor access was buried deep in FTX code.
“Just wanted to point out that there are currently a few places in the…code base where Alameda gets special treatment in one way or another,” Jim Outen, a LedgerX employee, wrote in a message gotten by The Wall Street Journal.
Schoening had reported the bug to her boss Zach Dexter, the head of LedgerX, who then discussed the auto-liquidation issue with FTX Director of Engineering, Nishad Singh. Singh, being SBF’s close ally had ensured that the code was kept within by pretending to have deleted the code.
The hole persisted, though, and by August 2022 Schoening was reportedly fired for allegedly sending “inappropriate messages” to other workers. The texts, according to some WSJ sources, were altered or taken out of context, and Schoening displeased her superiors by pointing up FTX’s poor risk management practices.
Prior to FTX’s demise, Schoening had threatened to file a lawsuit over her termination and had agreed to a tentative $5 million settlement with the company.
This issue of backdoor access has been a bone of contention among the prosecution and the defence. Singh already pleaded guilty and shall be expected to testify against Sam Bankman-Fried.
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