Bankruptcy Attorneys: Sam Bankman-Fried Ordered FTX Cronies to Program a Backdoor to Access Clients’ Funds

Sam Bankman-Fried had a “secret” $65 billion back door into FTX clients’ funds, attorneys claim, alleging that the disgraced FTX founder and Democrat super donor had ordered a co-founder to insert a secret back door into FTX code to funnel clients’ money into his hedge fund. The attorneys claim that SBF “bought planes, houses, threw parties, made political donations,” with client money.

Bankruptcy lawyers testified on Wednesday that Sam Bankman-Fried ordered FTX co-founder Gary Wang to create a “secret” back door to his trading firm Alameda Research, enabling him to “borrow” $65 billion in customer-funded loans, according to a report by Business Insider.

The cash was then used for luxury purchases, FTX lawyer Andrew Dietderich said, telling the court that Bankman-Fried “bought planes, houses, threw parties, made political donations.”

In addition to being the founder of the cryptocurrency exchange FTX, Bankman-Fried was also known as a Democrat super donor.

Dietderich explained to the court that Wang was instructed to create a “back door, a secret way for Alameda to borrow from customers on the exchange without permission.”

“Wang created this back door by inserting a single number into millions of lines of code for the exchange, creating a line of credit from FTX to Alameda, to which customers did not consent,” Dietderich said. “And we know the size of that line of credit. It was $65 billion.”

While the Commodity Futures Trading Commission (CFTC) made similar allegations in December, the value of that credit line has not been talked about until now, Business Insider noted.

Dietderich said much of the money went to personal loans, sponsorships, and investments, adding, “We know that all this has left a shortfall in value to repay customers and creditors,” and that the amount “will depend on the size of the claims pool and our recovery efforts.”

So far, FTX has been able to recover $5 billion in cash, crypto, and securities, the attorneys told the court, adding that the company “plans to monetize over 300 other non-strategic investments” that are worth $4.6 billion.

Earlier this month, Bankman-Fried pleaded not guilty to eight charges related to the collapse of FTX. The 30-year-old has been charged with two counts of wire fraud conspiracy, two counts of wire fraud, and one count of conspiracy to commit money laundering. Each charge carries a maximum sentence of 20 years.

Bankman-Fried is also charged with conspiracy to commit commodities fraud, conspiracy to commit securities fraud, and conspiracy to defraud the United States and commit campaign finance violations, each of which carries a maximum sentence of five years.

The disgraced FTX founder has been accused by U.S. authorities of committing “one of the biggest financial frauds in US history.”

Last week, Bankman-Fried launched a newsletter on Substack in an attempt to defend himself from allegations of fraud. “No funds were stolen. Alameda lost money due to a market crash it was not adequately hedged for,” he defiantly claimed.

You can follow Alana Mastrangelo on Facebook and Twitter at @ARmastrangelo, and on Instagram.