Alameda’s Secret Backdoor Was Discovered Months Before FTX’s Collapse: Report

Amid the ongoing trial of FTX co-founder and former CEO Sam Bankman-Fried, a report has surfaced stating that some of the company’s employees based in the United States found a hidden backdoor allegedly used by Alameda Research to siphon billions worth of customer funds from FTX, six months before the crypto exchange’s eventful fall.

The firm’s top management fired the leader of the FTX team, who discovered the secret backdoor for Alameda.

FTX Employees Alerted Exec About Alameda’s Backdoor

Some US-based FTX employees found the hidden backdoor favoring Alameda in May 2022, according to the Wall Street Journal. The team who were working for LedgerX – which was acquired by FTX in October 2021 and later bought by Miami International Holdings in 2023 – discovered that Alameda could have a negative balance without being subject to the usual automatic liquidation process.

The employees reported the issue to the head of their division, Julie Schoening, who was the Chief Risk Officer at LedgerX and was concerned about Alameda’s supposed preferential treatment. Schoening took the matter to LedgerX boss Zach Dexter, while Dexter alerted FTX’s director of engineering, Nishad Singh, about the auto-liquidation issue.

Dexter, meanwhile, believed the problem to be resolved after Singh reportedly removed a section of code, but the issue was never fixed, with Schoening instead fired from her job in August 2022 following reports that she circulated inappropriate messages to employees.

According to WSJ, some sources suggested that Schoening’s job termination may have happened as a result of her team’s identification of FTX’s risk management issues, which “irritated her bosses.”

In a written statement to the WSJ, a spokesperson for Miami International Holdings said:

“Following a thorough internal investigation, LedgerX has found no evidence that any of its employees were aware of any reported code enabling Alameda to take FTX customer assets, and firmly denies any contrary allegation.”

The fired LedgerX executive threatened to sue FTX over the termination, with anonymous sources stating that both sides reached a $5 million settlement deal, which, however, could not be completed due to the crypto exchange’s collapse in November 2022.

SBF not Guilty of Fraud, Says Defense Counsel

Alameda’s secret backdoor is one of the cases brought by prosecutors against Sam Bankman-Fried, who is facing criminal charges. The former FTX boss is currently undergoing trial in New York, and the prosecution’s first witness, an FTX customer, recently testified against SBF in court.

Marc-Antoine Julliard, a cocoa bean trader, said he lost $100,000 on the bankrupt FTX. But Bankman-Fried’s attorneys are looking to make users accountable, arguing that it was their choice to buy and hold crypto. The defense counsel also maintains that SBF did not defraud anyone.