During Sam Bankman-Fried's fraud trial, FTX co-founder Gary Wang provided further insights into the questionable relationship between Alameda Research and the FTX exchange. Wang's testimony revealed that the functionalities required by Alameda to misappropriate customer funds had been integrated into FTX's systems as early as 2019.
According to Wang, Alameda received special privileges at FTX, including access to the "Allow Negatives" feature, which enabled them to trade with more funds than were actually in their account. This feature allowed Alameda to withdraw an unlimited amount of funds from FTX.
This privilege was later exploited, resulting in the withdrawal of approximately $8 billion in fiat and cryptocurrencies, surpassing Alameda's actual account balances. This situation resembled the crisis FTX faced in the previous year when it couldn't meet customer withdrawal demands due to a similar funding gap. Wang clarified that the additional funds for these withdrawals came from FTX clients who hadn't explicitly chosen to lend their funds. Importantly, Wang asserted that he became aware of Alameda's negative balance as early as 2019.
Initially, withdrawals were restricted to around $50 million to $100 million, roughly equivalent to FTX's annual revenue. However, within a year, this limit was breached.
"In early 2020, I did a database query and Alameda had more negative balances than FTX had in revenue," Wang stated. While FTX's revenue was approximately $150 million, Alameda had incurred losses of at least $200 million. Furthermore, Alameda was well aware of FTX's substantial $65 billion credit line, which Wang indicated no other client had access to in excess of $1 billion.
These revelations contradicted Bankman-Fried's previous claims that FTX customer funds remained unaffected. According to Wang, Bankman-Fried publicly stated this on Twitter and during phone conversations. Wang additionally claimed that Bankman-Fried personally witnessed Alameda's balance situation, challenging Bankman-Fried's assertions in interviews that he had no knowledge of the financial circumstances leading to Alameda's collapse.
During cross-examination, Bankman-Fried's attorney emphasized that Alameda's negative balance was allowed to facilitate its role as a market maker for FTT, FTX's native exchange token. However, Wang clarified that the trading desk was exempted from automatic liquidation, in part because Alameda's position was so massive that it had the potential to "cause damage."
