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

October 9, 2023 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.

Magazine: How to protect your crypto in a volatile market — Bitcoin OGs and experts weigh in

Sam Bankman-Fried’s political donations can be surfaced in trial, rules judge

September 27, 2023 Coin Telegraph

Coin Telegraph

Despite campaign finance charges being dropped in July, the prosecution has been granted permission to present evidence of Bankman-Fried’s political donations in his upcoming fraud trial.

Prosecutors from the United States Department of Justice will be allowed to surface the details of Sam Bankman-Fried’s political donations as the evidence is directly relevant to his fraud charges, ruled U.S. District Judge Lewis Kaplan.

The decision was part of a series of rulings made by Kaplan in a 16-page pretrial order on Sept. 26, where he cleared up which evidence would be admissible in court during the FTX founders’ fraud trial, currently scheduled to begin on Oct. 3.

Federal prosecutors initially charged Bankman-Fried with conspiring to break United States campaign finance laws, as well as seven other fraud and conspiracy charges — however, later dropped the charges as part of an extradition agreement with the Bahamas.

"Evidence that the defendant spent FTX customer funds on political contributions is direct evidence of the wire fraud scheme because it is relevant to establishing the defendant's motive and allegedly fraudulent intent.”

In addition to allowing discussion of Bankman-Fried’s campaign donations, Kaplan also approved the prosecution’s motion to bring forward evidence that details Bankman-Fried’s alleged role in the creation of the FTX Token (FTT), and the ways in which he allegedly directed Alameda Research and its then-CEO Caroline Ellison to manipulate the price of the token.

*Judge Kaplan’s ruling on Bankman-Fried’s political donation evidence. Source: CourtListener*

"The alleged manipulation of the cryptocurrency tokens, which resulted in an alleged manipulation of Alameda’s balance sheet, was an act 'done in furtherance of the alleged conspiracy' and therefore is considered 'part of the very act charged,’” wrote Kaplan.

“Moreover, defendant’s alleged directive to Ms. Ellison to manipulate the price of FTT is direct evidence of their “relationship of mutual trust.” The probative value of this evidence outweighs any risk of unfair prejudice. It is admissible,” Kaplan concluded.

While Kaplan approved many submissions of evidence for the DOJ, he also approved Bankman-Fried’s lawyers to question government witnesses about their recreational drug use, as long as they provided prior notice to the court.

Government witnesses include Caroline Ellison, former FTX engineer Nishad Singh and FTX co-founder Gary Wang.

Kaplan also denied the DoJ's motions to block the defense from cross-examining witnesses on certain “privileged” issues. Additionally, he ruled that Bankman-Fried would not be able to discuss any details of his pre-trial detention, family background, wealth, or age before a jury.

Big Questions: What’s with all the crypto deaths?

Toughen up. Mt. Gox’s ex-CEO only had a ‘little calculator’ to prepare for trial

September 14, 2023 Coin Telegraph

Coin Telegraph

Mark Karpelès was seemingly drawing parallels to Sam Bankman-Fried's recent antics, claiming to have gotten through 20,000 pages of evidence in pre-trial detention with only a "simple calculator."

Mark Karpelès, the former CEO of the collapsed exchange Mt. Gox, seems to have little in the way of sympathy for former FTX CEO Sam Bankman-Fried, who’s been trying to get released from prison to prepare for his upcoming trial, citing poor internet.

“When I was arrested back in 2015, the most computing power I got was a simple calculator (+-*/√),” Karpelès wrote in a Sept. 13 post on X (formerly known as Twitter).

Karpeles was arrested on two separate occasions in 2015 for the alleged misappropriation of nearly $3 million of Mt. Gox customer funds.

When I was arrested back in 2015, the most computing power I got was a simple calculator (+-*/√). Had 20000 pages of evidence including over 5000 pages of accounting. Calculation I did at the time helped me to earn release under bail and eventually be cleared of all embezzlement…
— Mark Karpelès (@MagicalTux) September 13, 2023

Karpelès eventually earned release under bail using a trusty “little calculator” he bought from the prison commissary and was eventually cleared of all embezzlement and breach of trust charges.

“I spent a total of 11 months and 15 days in pre-trial detention, and didn't have access to any of the evidence until about 7 to 8 months in,” he said.

By using supplies he’d gotten from the jail's store, Karpelès used folders and stickers to create an index of all the evidence he’d been sent by his legal counsel, which was all squeezed into a very complex eight-page file, he said.

Karpelès said he was even initially going to brave it with an abacus — an ancient counting tool that uses sliding beads to add and subtract — which was the only item listed that could assist with calculations. Luckily, a prison guard told him that he could use a calculator for accounting cases and thus spared him the headache.

pic.twitter.com/XuNzAdBvsI
— Mark Karpelès (@MagicalTux) September 14, 2023

“I spent around $120 to buy the best calculator they had, which could do additions, subtractions, multiplications and divisions, square roots for some reason, and had buttons to add/remove consumption tax,” he explained.

Finally, four years after his initial arrest in August 2015, Karpelès was said he was cleared of all embezzlement and breach of trust charges, “all thanks to that little calculator” and “of course the tremendous work” done by his lawyers.

Karpelès’ comments come days after lawyers for Bankman-Fried filed a request to have him released from prison, claiming that his poor internet access was a significant impediment to the preparation for the upcoming trial.

District Court judge Lewis Kaplan denied the request for temporary release on Sept. 12, declaring that poor internet access wasn't sufficient grounds for release.

Bankman-Fried currently faces 12 criminal charges, which will be spread across two trials scheduled to begin on Oct. 2, 2023, and March 11, 2024. He has pleaded not guilty to all counts.

Big Questions: What’s with all the crypto deaths?

sam bankman-fried trial