Allegations of fraud have emerged regarding FTX’s insurance fund, as former FTX chief technology officer Gary Wang testified that the fund’s value was inflated using covert Python code. Wang claimed that FTX’s reported exchanges of FTX tokens (FTT) in 2021 were fraudulent and did not accurately reflect the fund’s actual value. Prosecutors presented evidence, including a tweet, questioning the accuracy of the fund’s value, to which Wang responded with a simple “No.”
Wang’s testimony also revealed that FTX’s insurance fund, known as the “Backstop Fund,” often had insufficient funds to cover losses during significant market activities. He alleged that he was instructed to have Alameda Research, a related entity, absorb the losses to conceal them, as Alameda’s balance sheets were more private than FTX’s. Additionally, Wang stated that FTX founder Bankman-Fried instructed him and Nishad Singh to implement an “allow_negative” balance feature in the code, allowing Alameda Research to trade with almost unlimited liquidity on the cryptocurrency exchange.
The alleged fraudulent manipulation of FTX’s insurance fund raises concerns about the accuracy and adequacy of the fund’s coverage for users.