FTX Tweaked Firm's Software To Spare Alameda From Scrutiny

In mid-2020, FTX's chief engineer made a secret change to the cryptocurrency exchange’s software.

Photo Insert: FTX Engineer Nishad Singh tweaked the code to exempt Alameda Research from a feature on the trading platform that would have automatically sold off Alameda's assets if it were losing too much borrowed money.

He tweaked the code to exempt Alameda Research, a hedge fund owned by FTX founder Sam Bankman-Fried, from a feature on the trading platform that would have automatically sold off Alameda's assets if it were losing too much borrowed money, Angus Berwick, John Shiffman and Koh Gui Qing reported for Reuters.

The engineer, Nishad Singh, emphasized that FTX should never sell Alameda's positions.

"Be extra careful not to liquidate,” Singh wrote in the comment in the platform's code, which it showed he helped writer.

Reuters reviewed the code base, which has not been previously reported. The exemption allowed Alameda to keep borrowing funds from FTX irrespective of the value of the collateral securing those loans.

That tweak in the code got the attention of the US Securities and Exchange Commission (SEC), which charged Bankman-Fried with fraud on Tuesday.

SEC said the tweak meant Alameda had a “virtually unlimited line of credit.” Furthermore, the billions of dollars that FTX secretly lent to Alameda over the next two years didn't come from its own reserves, but rather were other FTX customers' deposits, the SEC said.

The regulator, which called the exchange “a house of cards,” alleged Bankman-Fried concealed that FTX diverted customer funds to Alameda in order to make undisclosed venture investments, luxury real estate purchases, and political donations.

US prosecutors and the Commodity Futures Trading Commission (CFTC) also filed separate criminal and civil charges, respectively.

The complaints – along with previously unreported FTX documents seen by Reuters and three people familiar with the crypto exchange – provide new insights into how Bankman-Fried dipped into customer funds and spent billions more than FTX was making without the knowledge of investors, its customers and most employees.

Police in the Bahamas, where FTX was based, arrested Bankman-Fried on Monday evening, capping a stunning fall from grace for the 30-year-old former billionaire.

His company collapsed in November after users rushed to withdraw deposits and investors shunned his requests for more financing. FTX declared bankruptcy on Nov. 11 and Bankman-Fried resigned as chief executive.

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