Crypto Exchange FTX: Sam Bankman Fried's $65 Billion Backdoor

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Insolvent crypto exchange FTX:

A few lines of code - and a backdoor to withdraw $65 billion

Photo: Marta Lavandier / dpa

The fraud trial of FTX founder

is expected to begin in early October in New York District Court.

The US authorities accuse him of "fraud of epic proportions" and money laundering.

In addition, FTX customers have filed a class action lawsuit in the US bankruptcy court in Delaware, saying they want priority service out of the bankruptcy estate and not have to wait in line for the bankruptcy proceedings.

For insolvency administrator

, who replaced Bankman-Fried as CEO of FTX, there are still nine months to track the money and sort through the claims of the creditors.

Insolvency administrator Ray will also need this time.

It's about a lot of money, thousands of victims - and a variety of channels through which the money flowed.

The source of the ominous cash flows was a backdoor that allowed up to $65 billion in customer funds to be withdrawn from FTX — and funneled it to Bankman-Fried-controlled hedge fund Alameda.

Credit line of $65 billion - unbeknownst to FTX customers

Sam Bankman-Fried (nickname: SBF) instructed his co-founder Gary Wang to create such a backdoor at FTX.

"In this way, Alameda was able to 'borrow' up to $65 billion for its own dealings with FTX without the knowledge of FTX customers," FTX attorney Andrew Dietderich told the Delaware bankruptcy court.

According to a Business Insider report, Wang only had to insert a single number into the FTX electronic payment code and the result was a secret "line of credit" for Alameda of up to $65 billion, according to Dietderich.

The SBF hedge fund, which was run by his ex-girlfriend Caroline Ellison, did not exhaust this line of credit, but nevertheless made good use of the deposits of FTX customers: According to the latest estimates by the US authorities and the bankruptcy trustees, there were ten to twelve Billions of dollars pushed over from FTX to Alameda.

Alameda invested half of this in around 150 start-ups worldwide and financed various risky crypto bets, including a Bitcoin mining farm in Kazakhstan: How much money will have to be written off is not yet certain.

Seven million dollars for meals and entertainment

A good part of the money also flowed into the wild life of the golden crypto boy and his gang: "Alameda not only invested in companies. The hedge fund financed houses and luxury apartments in the Bahamas, bought planes, paid for parties and made large-scale donations to the political Parties," continued FTX lawyer Dietderich, according to Business Insider.

Almost $7 million was spent on "meals and entertainment" alone within nine months.

The real estate in the Bahamas listed on Bankman-Fried is valued at $260 million.

40 million for the Democrats – and black money for the Republicans?

In addition, there are donations in the millions to various political parties.

Bankman-Fried was one of the top contributors to the Democratic Party until FTX collapsed, to which he officially donated around $40 million on his behalf.

However, in a sensational interview with journalist Tiffany Fong on YouTube, SBF claimed that he also donated tens of millions to the Republican Party - but that he used "black money" to donate to the Republicans to avoid criticism.

As a result, in 2022 he donated “almost the same amount” to Democrats and Republicans.

It is still unclear whether part of these donations also come from the "back door" and thus belong to the cheated FTX customers.

Authorities in the US have seized around $5 billion in cash and crypto assets from FTX so far.

In addition, there are crypto assets worth around 3 billion dollars in the Bahamas and the investments made by Alameda, the residual value of which has yet to be quantified.

The public prosecutor's office in New York assumes that after the remainders have been used, there will still be a gap in the billions.

If SBF is convicted of fraud, he faces more than 100 years in prison.

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