FTX Scandal Unveiled: Allegations of Fraud and Insider Trading

In recent developments reported by the Wall Street Journal (WSJ), a group of American employees from FTX, a major cryptocurrency exchange, discovered a hidden backdoor in the exchange's code. This vulnerability granted Alameda Research, a crypto trading firm, unauthorized access to potentially as much as $65 billion, utilizing clients' assets. The revelation of this security breach has raised serious questions about the safety of digital assets on the platform.

As the FTX team diligently examined the platform to ensure compliance with U.S. regulations, they immediately alerted their boss, Julie Schöning, about the discovered backdoor. Schöning, in turn, reported the issue to FTX's Chief Technology Officer, Nishad Singh, who is a close associate of Sam Bankman-Fried, the CEO of FTX. Initially, it was believed that the problem had been resolved when Singh removed a portion of the problematic code. However, the vulnerability remained unresolved.

Approximately a month before the eventual collapse, FTX employees uncovered a financial fraud scheme and reported it. In a controversial move, Julie Schöning was terminated, officially cited for allegedly sending "inappropriate messages" to other employees. However, some insiders claim that her dismissal was a result of her risk management concerns at FTX, which she had raised in the case against Bankman-Fried.

Nishad Singh now faces charges of fraud for his role in interconnected operations of the companies involved. Singh has already admitted guilt and may provide testimony against the head of the exchange.

Gary Fan, co-founder and former CTO of FTX, revealed that he had created "special privileges for Alameda Research" through custom exchange code. He claimed that Sam had instructed him to provide Alameda with advantages not available to regular FTX clients. This included the ability to place orders faster than other market makers. Furthermore, using these privileges, Alameda could withdraw an unlimited amount from FTX accounts, even if the balance went negative or below zero. Astonishingly, none of these advantages granted to the company were known to the public.

Adam Yedidia disclosed an $8 billion deficit reported by the cryptocurrency exchange before its bankruptcy. Additionally, he revealed that he left the company upon discovering that it was using customer deposits to cover its own debts.

According to Matthew Huang, co-founder and managing partner of crypto investment firm Paradigm, Bankman-Fried vehemently resisted bringing investors into FTX's board of directors. In his testimony on the third day of Bankman-Fried's trial in the Federal Court of New York, Huang claimed that Bankman-Fried believed that having investors on the board would not be beneficial.