The legal saga surrounding Sam Bankman-Fried, the founder of cryptocurrency exchange FTX, has taken another twist as allegations of a secret backdoor and fund co-mingling between FTX and Alameda Research have emerged. These accusations have added fuel to a high-profile trial that began on October 3, 2023, and could potentially result in severe consequences for Bankman-Fried.
The Secret Backdoor
A Wall Street Journal report revealed that employees at LedgerX, a Commodity Futures Trading Commission (CFTC) regulated derivative trading platform acquired by FTX.US in August 2021, had discovered a backdoor in FTX’s codebase. This backdoor reportedly granted special privileges to the cryptocurrency hedge fund Alameda Research.
The concerning discovery was brought to light when LedgerX employee Jim Outen sent a text message to their team lead in May 2022. In the message, Outen noted that “there are currently a few places in the… codebase where Alameda gets special treatment in one way or another.” Julie Schoening, the team lead, acknowledged the issue, stating, “There are less rigid rules on the offshore exchange, but yea we should clean up this sort of stuff.”
Schoening reported the matter to LedgerX head Zach Dexter, who then conveyed it to Nishad Singh, an individual closely associated with Sam Bankman-Fried. Notably, Singh would later plead guilty to fraud charges in February 2023, along with other inner circle members of the FTX organization. Singh’s comments in the FTX code, cautioning against liquidation, raised further concerns.
Amid these revelations, Julie Schoening, the team lead who reported the special treatment issue, was terminated in August 2022, prior to FTX’s subsequent troubles. This raises questions about whether her dismissal was related to her efforts to address the codebase concerns.
The trial of Sam Bankman-Fried began on October 3, with the selection of a jury consisting of nine women and three men, ranging in age from their early 30s to late 60s. The trial is expected to extend for at least six weeks and has garnered significant attention within the cryptocurrency community and beyond.
If Sam Bankman-Fried is convicted of all the charges he faces, including the allegations of secret backdoors and fund co-mingling, the consequences could be severe. A potential outcome might see him spending the rest of his life in prison, marking a significant turning point in the cryptocurrency industry and regulatory landscape.
The ongoing trial of Sam Bankman-Fried and the allegations surrounding FTX, Alameda Research, and the secret backdoor highlight the complex and evolving nature of the cryptocurrency industry. As the trial unfolds, it will be closely watched not only by those directly involved but also by observers interested in the impact it may have on cryptocurrency regulation and investor confidence. The outcome of this trial could set important precedents for the industry and shape its future.