Oct 10, 2023 - Economy

FTX co-founder Gary Wang says SBF steered privileges given to Alameda

A man in a suit walks past a camera inches from his face, outside a courtroom

Gary Wang leaves court Friday. Photo: Yuki Iwamura/Bloomberg via Getty Images

The prosecution in the case against Sam Bankman-Fried spent roughly five hours over two days last week questioning his longtime friend and fellow FTX co-founder Gary Wang about special privileges the exchange extended to its sister hedge fund Alameda Research.

What he's saying: Wang, who was also FTX's chief technology officer, said Alameda's privileges were written right into the code, the software language behind the FTX platform. "He asked us to do it, so we did it," Wang told the jury.

The big picture: The U.S. government's case against SBF hinges on key witnesses persuading the jury that they committed fraud at the behest of the chief executive.

  • That effort has largely focused on the special relationship between the crypto exchange, FTX, and the trading firm, Alameda — one that Wang testified allowed the latter to draw billions in FTX customer funds virtually unchecked.

Zoom in: One feature rolled out on July 31, 2019, at the behest of SBF, according to Wang, allowed Alameda to withdraw money from the exchange even if it didn't have the funds to pull.

  • For example: If Alameda had $10 in its exchange account, but wanted to pull $100, the code allowed the firm to do that and carry a negative balance, Wang said.
  • "A trader from Alameda came up to Sam to ask him if it's fine for Alameda to continue borrowing and to continue borrowing [after having passed a stated liability limit]," Wang testified.
  • "Sam said 'yes' because at this point Alameda's borrowing was less than FTX's trading revenue to date," he told the jury.
  • SBF suggested the math would work if other Alameda assets like FTT — FTX's utility token — were included in the calculation.
  • Wang said that he accepted this as a reasonable response at the time.

Another piece of code ensured that Alameda's position would never be liquidated, bypassing FTX's model of governing credit risk by automating margin checks on exchange customers when they approached credit limits, Wang testified.

The other side: SBF lawyers are trying to paint the privileges Alameda enjoyed as less special, and more a function of its role as a market maker on FTX.

  • "Isn't it true, Mr. Wang, that ... you [previously] told the prosecutors that the allow-negative flag was added to Alameda as part of their role as a market maker?" SBF lawyer Chris Everdell of Cohen & Gresser asked.
  • Wang said he didn't remember exactly.
  • He did agree, in part, that the auto-liquidation function was due to its market-maker role.

Crystal's thought bubble: From computer code to backend financial processes, it's a lot for the jury to chew on.

Go deeper: The trial of Sam Bankman-Fried: Key players

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