The missing billion from FTX has been tracked down and led to Alameda Research, a hedge fund owned by FTX founder Sam Bankman-Fried (SBF). Reports say that the software code in FTX's system was altered to prevent Alameda Research's funds to remain untouched.
Coding Loophole
The company's code was changed around 2020, which allowed Alameda Research to not be affected by the automatic liquidation of assets if it was losing money. This meant that Sam Bankman-Fried could use the money in the trading company without a trace.
The FTX founder could easily use money from Alameda Research for investments, political donations, real estate, luxury cars, and others without having to provide collateral for a loan. This meant that SBF basically had unlimited access to money that investors trusted him with.
The code was altered by a lead engineer in FTX, Nishad Singh. There was even a note within the code stating that software engineers should be careful not to liquidate the funds, as mentioned by Interesting Engineering.
The Securities and Exchange Commission (SEC) detected the change in the code, which ultimately became the last nail in the coffin and led the court to charge Sam Bankman-Fried with multiple counts of fraud.
How Did SBF Do It?
SBF previously claimed that the missing funds were caused by financial mismanagement, all while claiming that he was not criminally liable. Although according to Economic Times, it was Bankman-Fried who directed his engineers to tweak the software.
According to the SEC, the liquidation exemption gave SBF a "virtually unlimited line of credit." The money SBF was spending came from the deposits of FTX customers, which were diverted to Alameda Research.
Another way was FTX directing the now-tracked $8 billion worth of deposits to bank accounts controlled by Alameda Research. SBF previously claimed that it was due to FTX not having its own bank accounts yet.
Bankman-Fried managed to keep these activities under wraps by programming the digital dashboard used by the staff to hide Alameda withdrawals. This prevented the staff from detecting customer assets and liabilities being transferred to Alameda Research.
All this happened as the former FTX CEO claimed that the crypto firm was safe, tested, and conservative. He testified implying that the company would never have the risk of overspending as opposed to the value of the exchange.
However, reports say that Bankman-Fried spent billions of FTX assets for himself. The customer and investors were unaware of the fraud, even his own employees. As for never having the risk of overspending, he actually spent billions more than FTX was making.
In the hearing held by the House Committee on Financial Services, John Ray, the current CEO of FTX, stated that the crypto firm's collapse was caused by "old-fashioned embezzlement" according to The New York Times.
Sam Bankman-Fried was also accused of lying to the company's investors from the start. The SEC also claimed that Bankman-Fried misappropriated billions worth of customer deposits to pay for his business, political activities, and other forms of spending.
