The prosecution doesn’t just allege that Alameda had special, secret privileges — it claims they were used to obfuscate basic elements of FTX’s operations that exposed its supposed selling points as a lie.
For instance, FTX advertised that it had a good liquidation system. In many crypto networks, if someone lost enough money, the exchanges could stick other traders with the losses too. FTX touted its automated liquidation as a way to
avoid this, so that one customer going bankrupt wouldn’t affect the others.
FTX lied about how much money was in the backstop fund
In the process of liquidating, FTX would try to sell the collateral on the open market, but if it couldn’t finish, then backstop liquidity providers would step in. These were market makers, including Alameda, which could be compensated for the losses they take from a “backstop fund,” Wang said.
But FTX lied about how much money was in the backstop fund, Wang said. In court we saw the code that generated the fake number published on the website: it took the daily trading volume on FTX, multiplied it by a random number, divided it by a billion, and added it to the existing number displayed on the site. It had nothing to do with the actual amount of money in the insurance fund.
And when there wasn’t enough money in the fund, money was moved there from Alameda’s accounts in order to pay the insurance out, Wang said.
In late 2019, Alameda had a negative balance on FTX. Because they sat in an open-plan office, Wang heard a trader ask Bankman-Fried if it was okay to keep withdrawing money from that account. Bankman-Fried said it was okay as long as it was lower than FTX’s total trading revenue. He was the CEO of both companies at the time.