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October 25, 2023 The Daily Hodl

FTX’s ‘Insurance Fund’ Was an Arbitrary, Made-Up Number, According to Co-Founder Gary Wang: Report

October 10, 2023 The Daily Hodl

SBF seeks to probe FTX lawyers’ roles in $200M Alameda loans

October 10, 2023 Coin Telegraph

Alameda

Sam Bankman-Fried’s legal team is seeking permission to cross-examine Gary Wang over FTX lawyers' involvement in Alameda loan approvals.

Sam Bankman-Fried’s legal team is looking for permission to probe the alleged involvement of FTX lawyers in the issuance of $200 million worth of loans from Alameda that were approved by Gary Wang.

As previously reported in the build-up to the highly anticipated trial, an Oct. 1 court ruling provisionally barred Bankman-Fried from apportioning blame to FTX lawyers who were allegedly involved in structuring and approving loans between Alameda and FTX.

United States Judge Lewis Kaplan granted the government’s motion and ruled that Bankman-Fried's legal team would have to request permission to make any mention of FTX lawyers' involvement throughout the trial.

Following the initial cross-examination of former FTX co-founder Gary Wang by the prosecution on Oct. 9, the defense is now seeking permission to question Wang over the alleged involvement of FTX counsel in structuring loans issued to FTX by Alameda.

A letter filed on Oct. 9 highlighted the government’s questioning of Wang over a series of personal loans worth up to $300 million from Alameda that FTX used to fund venture investments. Wang had also used some of the funds to purchase a home in the Bahamas.

During the prosecution's line of inquiry, Wang said that either Bankman-Fried or FTX lawyers had presented him with loans which he was then directed to sign.

Bankman-Fried’s attorneys argue that the prosecution has already established that FTX lawyers were present and involved in structuring and executing the loans and intend to carry out their own line of questioning over the scope of FTX counsel involvement.

A screenshot of the defense's letter requesting permission to question Gary Wang over the involvement of FTX lawyers in the structuring of loans to Alameda and senior executives. Source: Court Listener.

The defense adds that it could potentially introduce promissory notes that memorialized the loans to Wang, who has previously indicated to the prosecution in proffer meetings that he did not suspect FTX lawyers would coerce him to sign illegal agreements:

“Mr. Wang's understanding that these were actual loans - structured by lawyers and memorialized in formal promissory notes that imposed real interest payment obligations - is relevant to rebut the inference that these were simply sham loans directed by Mr. Bankman-Fried to conceal the source of the funds.”

Cointelegraph journalist Ana Paula Pereira is on the ground in New York covering the trial of Bankman-Fried. Her latest report from the Federal District Court in Manhattan highlights the defense's efforts to paint Bankman-Fried as a young entrepreneur who tripped up amid the rapid growth of FTX and Alameda.

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FTX used Python code to fake its insurance fund figure: Gary Wang

October 9, 2023 Coin Telegraph

Coin Telegraph

FTX’s so-called “Backstop Fund” figure was a big lie, according to the former chief technology officer of the crypto exchange

Crypto exchange FTX used hidden Python code to misrepresent the value of its insurance fund — a pool of funds meant to prevent user losses during huge liquidation events — according to testimony from FTX co-founder Gary Wang.

In a damning new testimony on Oct. 6, FTX's former chief technology officer, Gary Wang, said that FTX’s so-called $100 million insurance fund in 2021 was actually fabricated, and also never actually contained any of the exchanges’ FTX tokens (FTT) as claimed.

Instead, the figure shown to the public was calculated by multiplying the daily trading volume of the FTX Token by a random number close to 7,500.

The 5.25 million FTT we put in our insurance fund in 2019 now makes the fund worth over 100 million USDhttps://t.co/tMYgJOAdqI pic.twitter.com/vQDkmkufD2
— FTX (@FTX_Official) February 14, 2021

When the prosecution surfaced the above tweet — among other public statements of its value — and asked Wang whether this amount was accurate he replied with a single word: “No.”

“For one, there is no FTT in the insurance fund. It's just the USD number. And, two, the number listed here does not match what was in the database.”

An exhibit in the Oct. 6 trial shows the alleged code used to generate the size of the so-called "Backstop Fund” or public insurance fund.

From yesterday's exhibits in US v. Sam Bankman-Fried:

The prosecution shows that the "insurance fund" that FTX bragged about was fake, and just calculated by multiplying daily trading volume by a random number around 7500 pic.twitter.com/EDiVPOHODP
— Molly White (@molly0xFFF) October 7, 2023

FTX's insurance fund was designed to protect user losses in case of huge, sudden market movements and its value was often touted on its website and social media.

According to Wang’s testimony, however, the amount contained within the fund was often insufficient to cover these losses.

For example, in 2021, a trader was able to exploit a bug in FTX's margin system to take an outsized position in MobileCoin, which resulted in a loss to the tune of hundreds of millions dollars for FTX, according to Wang.

When Bankman-Fried realized that the insurance fund had all but been exhausted, Wang said he was told to make Alameda “take on” the loss. This was supposedly in an attempt to hide the loss, as Alameda’s balance sheets were more private than those of FTX.

In addition to revealing the allegedly fraudulent nature of FTX’s insurance fund, Wang claimed that he and Nishad Singh were prompted by Bankman-Fried to implement an “allow_negative” balance feature in the code at FTX, which allowed Alameda Research to trade with near-unlimited liquidity on the crypto exchange.

On Oct. 5 Wang — who has already pleaded guilty to all charges pressed against him — admitted to committing wire fraud, commodities fraud and securities fraud with Bankman-Fried, former Alameda Research CEO Caroline Ellison and former-FTX director of engineering Nishad Singh.

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Alameda Tapped Billions of Dollars in FTX User Funds As Early as 2019, Says Co-Founder Gary Wang: Report

October 8, 2023 The Daily Hodl

FTX court filing reveals former Alameda CEO’s $2.5M yacht purchase

September 3, 2023 Coin Telegraph

<div>FTX court filing reveals former Alameda CEO's .5M yacht purchase</div>

Alameda Research

The payment to the American Yacht Group was disclosed under the category of payments benefiting any insider within one year prior to the crypto exchange collapse.

FTX Debtors have disclosed a series of financial statements revealing any transactions that benefited company executives shortly before the major cryptocurrency exchange’s collapse in November 2022.

In a recent court filing with the United States Bankruptcy Court for the District of Delaware, several payments that directly benefited senior company executives at FTX and Alameda Research were disclosed. Specifically payments or property transfers executed within one year preceding the collapse of FTX.

*Court Filing in the United States Bankruptcy Court for the District of Delaware. Source: Kroll*

In March 2022, a transaction of $2.51 million was directed from the company to the American Yacht Group, benefiting former Alameda Research co-CEO Sam Trabucco.

Just a few months after this transaction, Trabucco confirmed ownership of a boat while informing his followers about his resignation in an August 2022 tweet.

The filing also revealed that Bankman-Fried and FTX co-founder Gary Wang purchased Robinhood shares in April 2022, totalling $35,185,242. They continued their acquisitions of Robinhood in May 2022, spending an additional $19.45 million. It discloses that Bankman-Fired held a 90% share ownership, with Wang owning the remaining 10%.

Recently, Robinhood declared that it has bought back all shares previously held by FTX and Alameda Research.

On Aug. 31, Robinhood completed the purchase of 55,273,469 shares for roughly $606 million. Following the purchase announcement, Robinhood’s chief financial officer Jason Warnick emphasized that the company is happy with the result:

“We are happy to have completed the purchase of these shares and look forward to executing on our growth plans on behalf of our customers and shareholders.”

Several cash payments were disclosed to executives including Bankman-Fried and Wang, as well as FTX director of engineering Nishad Singh, former FTX chief marketing officer Darren Wong, and former FTX chief operating officer Constance Wang, all within the twelve months prior to the collapse.

However, it notes that the disclosures are limited to fiat currency. “Responses to this question do not currently include all transfers of cryptocurrency, other digital assets or other assets,” it stated.

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FTX’s former law firm hit with lawsuit alleging it set up shadowy entities

August 9, 2023 Coin Telegraph

Caroline Ellison

The suit claims “shadowy entities” set up by Fenwick & West were allegedly used by FTX and former top executives to misappropriate customer funds.

FTX’s former primary counsel Fenwick & West LLP has been hit with a class-action suit claiming it aided the crypto exchange’s alleged multi-billion dollar fraud.

An Aug. 7 filing by a group of FTX customers in a California District Court alleged the law firm set up several “shadowy entities” allowing FTX co-founder Sam Bankman-Fried and other executives to adopt “creative but illegal strategies” to perpetuate fraud.

The suit claims Fenwick & West provided services to FTX that “went well beyond those a law firm should and usually does provide,” such as structuring acquisitions by FTX US in ways that circumvented regulatory scrutiny and supplying staff to execute strategies the law firm proposed.

The “shadowy entities” were named as North Dimension and North Wireless Dimension, which the suit alleged siphoned misappropriated FTX customer funds.

*Highlighted excerpt from the class complaint against Fenwick & West. Source: CourtListener*

The plaintiffs said Fenwick & West aided and abetted FTX’s alleged fraud by choosing not to intervene in a series of misrepresentations supposedly made by FTX to its customers.

There was an implied agreement between FTX US, other FTX affiliates and Fenwick & West to deceive customers, the class suit said — something that appealed to the law firm because it “stood to gain financially” from FTX’s alleged misconduct, it added.

Bankman-Fried, former Alameda Research CEO Caroline Ellison, former FTX co-founder Gary Wang and former FTX engineering lead Nishad Singh were the four so-called FTX insiders listed by the plaintiffs.

Fenwick & West was named in a similar class-action lawsuit in February that also alleged it assisted Bankman-Fried and FTX in setting up its business.

The February lawsuit — which also targeted FTX investor and venture capital firm Sequoia Capital — claimed the services provided by Fenwick & West were central to Bankman-Fried’s fraud.

The law firm recently hired peer firm Gibson Dunn to assist with legal matters related to its alleged role at FTX, according to a June 21 Reuters report.

FTX collapsed and filed for bankruptcy in November 2022 when it was unable to process a large volume of customerwithdrawals.

Bankman Fried remains under house arrest and faces 12 charges including wire fraud, conspiracy and money laundering. He is set to have two criminal trials in October and March.

Prosecutors said on Aug. 8 that they plan to re-add a charge relating to illegal campaign finance, which was previously dropped due to it potentially violating a treaty obligation with the Bahamas.

Cointelegraph contacted Fenwick & West for comment but did not immediately receive a response.

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Gary Wang

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