Former CEO FTX Sam Bankman-Fried (SBF) is said to have ordered Gary Wang, co-founder of the exchange , opening a "secret backdoor" with a $65 billion line of credit for , according to attorney Andrew Dietderich of .

The attorney disclosed the information during a hearing in Delaware bankruptcy court on January 11. The line of credit was allegedly funded with client money . According to Dietderich's testimony, "the backdoor is a secret way for Alameda to borrow money from customers on the exchange without permission."

“Wang created this backdoor by inserting a unique number into millions of lines of the exchange's code, creating a line of credit from FTX to Alameda without the customer's consent. And we know the size of that line of credit. That's 65 billion dollars.”

is FTX's sister company, and it was at the center of the massive collapse that prompted FTX and more than 130 of its subsidiaries to file for bankruptcy in the United States last November due to a "liquidity crisis."

In the “review before in-depth investigation” published on January 12, the SBF denied the allegations of stealing FTX coins. He said that “when Alameda became illiquid, so did FTX International, because Alameda opened a margin position on FTX; and the bank run turned that illiquidity into insolvency.”

Read more  Sei Labs raised capital for mainnet launch and token airdrop

In December, the US Commodity Futures Trading Commission () filed a complaint alleging some unusual business practices between both companies. The commission stated that FTX executives created features in the code, allowing “Alameda to maintain an unlimited basic credit line on FTX.”

Former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang pleaded guilty to charges related to the case. Bankman-Fried previously pleaded not guilty to eight criminal charges.

Bitmex co-founder criticizes former FTX CEO

Arthur Hayes, Co-Founder of Derivatives Platform Bitmex, criticized Bankman-Fried following a recent blog post pushing accountability.

SBF wrote that “Alameda failed to adequately protect its market exposure” and that “a severe, rapid, intentional collapse led by its CEO caused Alameda to be insolvent.”

However, Hayes disagrees with this justification:

“The exchange will never lose money if customers are liquidated. There is no reason to give the Alameda hedge fund an account with liquidation turned off. All this shows that Alameda did it wrong from the start. It doesn't matter if they hedge or don't hedge or what's in their portfolio."

Read more  ConsenSys acquires blockchain data screening tool Hal

Hayes then told Bankman-Fried that if he really wanted to explain what happened, he should tell the community why he thought it was a good idea to give his hedge fund a disabled account. liquidation.

Ellison’s statements explain that she fully “understands that executives have implemented special settings on Alameda’s account that allow Alameda to maintain negative balances in fiat and fiat currencies encode."

Furthermore, the former Alameda CEO had a negative leveraged FTX trading account of $1.3 billion in May 2022. Hayes emphasized that if Alameda were to be removed from the equation through a legal liquidation legally, FTX can still work.

“So stop talking about Alameda and tell us how you approach risk management at the FTX level. Why some customers get special treatment than others. I would love to understand why you would turn off automatic liquidation on a billion dollar position.”

The US DOJ opposes the selection of a lawyer of the FTX exchange

The US Department of Justice has voiced objections to FTX's hiring of the New York law firm Sullivan and Cromwell (S&C) because it believes there is a potential conflict of interest from its previous activity, according to a report from the US Department of Justice. file legal January 13.

Read more  FTX sues Grayscale to unlock $9 billion from trust fund

The complaint echoes those of a bipartisan group of U.S. Senators and by Bankman-Fried, and expresses concern that the company could be "moving hands and feet" in a controller's future job. independent investigation.

“S&C's disclosures as filed are completely inadequate to assess whether S&C meets the Bankruptcy Code's non-conflict and non-discrimination standards. Inadequate disclosure is grounds for denial of the application.”

Vara noted that FTX's General Counsel, Ryne Miller, previously worked at S&C for eight years, and the law firm would be in a "contradictory position" when it comes to investigating the company and its former employees.

Join our channel to get the latest investment signals!