- FTX attorney Andrew Dietderich testifies that SBF ordered a secret backdoor between FTX and Alameda.
- Alameda used the backdoor to access more than $65 billion of FTX user assets without their consent.
Andrew Dietderich, an attorney for now bankrupt cryptocurrency exchange FTX, has revealed further details of the events that led to the firm’s demise.
According to a New York Post report, Dietderich told the Delaware bankruptcy court that FTX’s collapse ties back to former CEO Sam Bankman-Fried. SBF, as he is commonly called, ordered FTX co-founder Gary Wang to create a “secret” backdoor that allowed his hedge fund Alameda Research to borrow funds.
Using this, Alameda borrowed $65 billion of FTX clients’ money without their permission, according to Dietderich’s testimony. His testimony marks the first time an FTX official has placed a dollar value on the FTX-Alameda line of credit.
“Mr. Wang created this backdoor by inserting a single number into millions of lines of code for the exchange, creating a line of credit from FTX to Alameda, to which customers did not consent. And we know the size of that line of credit. It was $65 billion,” Dietderich said.
During the hearing Adam Landis, a Landis Rath & Cobb attorney representing FTX, also shed light on what Alameda did with the line of credit. Landis told Judge John Dorsey that Alameda used the FTX customer funds to buy planes and houses, host parties, and make political donations.
The funds also went to personal loans for Alameda founders, as well as to sponsoring FTX’s marketing campaign. Court filings also reveal that SBF spent nearly $40 million on hotels, travel, food, and luxury items in nine months.
FTX employees in the Bahamas also had access to perks including free travel to anywhere in the world. While millions of dollars were spent on meals and entertainment just a few months before FTX filed for bankruptcy in November 2022.
However, the attorneys have revealed that funds tracing and recovery efforts are advancing. FTX has recovered around $5 billion in cash and liquid crypto assets with which it intends to repay creditors. The recovered funds exclude assets confiscated by the Securities Commission of the Bahamas, and also illiquid crypto tokens.
Can SBF beat the charges?
The testimony echoes allegations made against FTX and Alameda executives by the Commodities Futures Trading Commission (CFTC). In December, the U.S. derivatives market regulator accused Wang of creating a “virtually unlimited” secret line of credit between FTX and Alameda.
The CFTC also filed charges against Alameda Research’s former CEO Caroline Ellison at the time. Notably, the duo pleaded guilty to the charges according to a statement by attorney Damian Williams, the U.S. Attorney for the Southern District of New York (SDNY).
Statement of U.S. Attorney Damian Williams on U.S. v. Samuel Bankman-Fried, Caroline Ellison, and Gary Wang pic.twitter.com/u1y4cs3Koz
— US Attorney SDNY (@SDNYnews) December 22, 2022
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Regardless, SBF has continued to profess his innocence as he awaits the trial scheduled for October 2023. He wrote in a lengthy blog post that he did not steal funds or stash billions away. He added that all his assets “were and still are utilizable to backstop FTX customers.”
