Secret credit lines, hidden losses, fake accounts: The co-founder of the FTX platform lifted the veil on Friday on the financial acrobatics of former cryptocurrency idol Sam Bankman-Fried that ultimately led to his downfall.
• Also read: Former cryptocurrency star Sam Bankman-Fried has been charged with fraud in New York
FTX and “SBF” co-founder Zixiao “Gary” Wang was its technical manager at the time of its bankruptcy in November 2022. Like Sam Bankman-Fried, he was indicted in the courts and pleaded guilty to four counts and agreed to cooperate with federal prosecutors in Manhattan.
He is the first key witness to appear in his former partner’s trial, which began on Tuesday in New York and could last six weeks.
Sam Bankman-Fried is accused of diverting funds from customers of the cryptocurrency exchange platform without their knowledge to finance risky investments by the hedge fund he controls, Alameda Research, but also to buy real estate in the Bahamas.
Gary Wang on Friday portrayed a character willing to break the law and lie to enable FTX and Alameda to achieve sustainable growth and profits.
As early as 2019, a few months after FTX was founded, “SBF” had the operating software modified so that Alameda could take out limited loans on the platform, which only a handful of customers were authorized to do.
This change has not been communicated to the public, customers or investors, said Gary Wang, whose as-yet-unannounced sentence should be reduced because of his cooperation with the state minister.
“The customers did not allow us to use this money for other purposes,” explained the computer scientist, whose assets, estimated at $4.6 billion before the FTX crash, like those of “SBF” were invested in the has skyrocketed.
To make matters worse, Sam Bankman-Fried claimed to journalists and investors that “Alameda was treated like any other trader on the platform,” according to Gary Wang.
The limit of this credit line granted to Alameda was gradually increased, eventually reaching the astronomical sum of $65 billion.
At the time of FTX’s bankruptcy, about $8 billion that belonged to the platform’s customers and had been borrowed from Alameda, which was unable to repay it, was missing.
Sam Bankman-Fried also deposited these debts into a false account that was created in the name of a fictitious person, according to the platform’s co-founder.
Gary Wang also explained that Sam Bankman-Fried had repeatedly requested that customers’ losses exceeding their assets be absorbed by Alameda in order to hide these transactions from the public and not damage FTX’s image.