Dec 14, 2022 17:00:00

It is clear that software changes have been made to allow FTX to divert customer funds

Sam Bankmanfried, founder of the virtual currency exchange FTX, which filed for bankruptcy on November 11, 2022,

has been arrested and indicted on suspicion of fraud, such as the illegal misappropriation of customer funds. I will . A complaint filed by the U.S. Securities and Exchange Commission (SEC) found that FTX's system had undergone software changes that allowed it to divert customer funds.

Exclusive: How a secret software change allowed FTX to use client money | Reuters
https://www.reuters.com/technology/how-secret-software-change-allowed-ftx-use-client-money-2022-12-13/

According to Reuters, FTX chief engineer Nishad Singh made a secret change to the software in mid-2020. The change Singh made is to exclude Alameda Research, a hedge fund owned by Bankman-Fried, from the trading platform's ability to automatically sell assets if the loss on borrowing is large. This allowed Alameda Research's assets to never be sold and allowed Alameda Research to continue borrowing money from FTX without collateral.

The SEC said, 'Alameda Research's indemnification allowed Alameda Research to continue to borrow money from FTX regardless of the value of the collateral. This provided Alameda Research with virtually unlimited credit.' Plus, the billions of dollars FTX secretly lent to Alameda Research after the code change were customer deposits, not FTX reserves. '' he pointed out.

The code was reportedly known only to Singh, Bankman-Fried and a few others. Singh left a comment in the code, emphasizing that 'FTX should never sell Alameda's position.'

Regulators allege Bankman-Fried covered up diverting client money to Alameda to make private venture investments, luxury real estate purchases and political contributions. 'The SEC complaint alleges that Bankman-Fried, without the knowledge of investors, their clients, and most of his employees, tampered with client funds and spent billions of dollars more than FTX's revenues,' Reuters said. It provides new insights.'

Then in 2022, as the value of the cryptocurrency plummeted, several of Alameda Research's lenders demanded repayments, but Alameda Research did not have the funds to meet the demands. As such, the SEC alleges that Bankman-Fried directed Alameda Research to borrow billions of dollars under the aforementioned credit facility.

Under such circumstances, FTX's bankruptcy turmoil came. In November 2022, customers attempted to withdraw funds after being told there was financial risk to FTX, but by this time many of the funds were already reported to be non-existent. FTX was working on resolving outstanding payments while suffering from hacking, but ultimately decided to go through bankruptcy proceedings with an estimated 1 million creditors.

The price of Bitcoin fell 12.7% to the lowest level since November 2020, and the world's largest virtual currency exchange ``Binance'' indicated its intention to acquire rival ``FTX''-GIGAZINE

In response to the report, the social site Hacker News said, 'The real problem behind this is that people who make money have no concept of what honesty is. Their work is customer profit and money.' It does not stand on the basic premise that it is to protect ', and a comment accusing Mr. Singh assuming that 'I knew the circumstances', and 'As a software engineer, I should never do it, I will definitely be sentenced to imprisonment.' A comment was posted.

A software change allowed FTX to use client money | Hacker News
https://news.ycombinator.com/item?id=33975926