Alameda’s privileges at FTX will always exist, including its ability to accept client funds.

FTX co-founder Gary Wang revealed more details about Alameda Research’s corrupt relationship with his exchange during the Sam Bankman-Fried fraud trial on Friday.

During his testimony, Wang claimed that the functionality required for Alameda to steal customer funds had been implanted into FTX’s computer system as early as 2019.

Special Privileges of Alameda

As Inner City Press summarized on Twitter, Gary Wang said Alameda received three privileges at FTX compared to other customers.

One of these was a “allow negative amounts” feature that allowed Alameda to trade with more funds than he actually had in his account. As Wang previously testified, Alameda could withdraw unlimited funds from FTX.

This feature was later exploited to withdraw $8 billion worth of fiat and cryptocurrencies, exceeding the amount the trading firm held in its accounts and roughly the same shortfall FTX faced when it failed to meet customer withdrawal requests last November.

Wang clarified that the additional funds came from FTX customers who did not explicitly choose to lend their funds. Although the scheme took years to be uncovered, Wang said he knew about Alameda's negative balance as early as 2019.

Initially, withdrawals were limited to approximately $50 million to $100 million, the amount of FTX’s annual revenue. However, just one year later, Wang discovered that this rule had been violated.

“In early 2020, I did a database query and Alameda had a more negative balance than FTX had in revenue,” he said. While the exchange had revenue of about $150 million, Alameda had lost at least $200 million.

Alameda's huge credit line

Alameda also knew about the massive $65 billion credit line FTX had provided. Wang said no other client had access to more than $1 billion in credit.

Wang said the reality contradicted Bankman-Fried’s repeated claims that FTX customer funds were unaffected. “He said this on Twitter and on the phone, and I heard him walking around the office,” Wang added.

The co-founder also claimed that Bankman-Fried witnessed Alameda’s balance firsthand. This contradicts SBF’s multiple claims in interviews that he had no knowledge of the financial situation that led to Alameda’s collapse.

During cross-examination, Sam Bankman-Fried’s lawyers stressed that Alameda’s balance was allowed to go negative so that it could act as a market maker for FTT, FTX’s native exchange token. However, Wang clarified that part of the reason the trading desk was exempted from automatic liquidation was that Alameda’s positions were so large that they could “cause damage.” #FTX  #Alameda