SNEAKY

Secret FTX Software Tweak Allowed Site to Use Client Cash, Report Says

The change allegedly gave Sam Bankman-Fried’s hedge fund a “virtually unlimited line of credit.”

The chief engineer of FTX—the bankrupt crypto exchange—secretly altered the platform’s code to benefit Sam Bankman-Fried’s hedge fund, according to a report. In 2020, Nishad Singh allegedly altered FTX’s software so that Alameda Research would not be affected by a feature which would automatically sell its assets if it lost a certain amount of borrowed money. A note written by Singh accompanying the change said FTX should never sell Alameda’s positions, adding: “Be extra careful not to liquidate,” Reuters reports. The secret switch meant Alameda could keep borrowing cash from FTX regardless of how much collateral was securing the loans. On Tuesday, the SEC charged Bankman-Fried with fraud, arguing that the code change effectively gave Alameda a “virtually unlimited line of credit.” The SEC added that the billions of dollars furtively lent by Bankman-Fried’s exchange to his hedge fund came from FTX customers’ deposits rather than the exchange’s own reserves. Bankman-Fried was arrested in the Bahamas on Monday and was also charged with criminal offenses by U.S. prosecutors on Tuesday.