FBI begins to peel away at Sam Bankman-Fried's crypto business

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FBI begins to peel away at Sam Bankman-Fried's crypto business

The FBI is beginning to peel away at the byzantine operations they allege that Sam Bankman-Fried stole billions of dollars from the customers of his cryptocurrency business, as the criminal fraud prosecution of the former executive enters its third day in a downtown Manhattan courtroom. This weekend, get a curated selection of our best stories delivered to your inbox. The government was focused on the discovery by a close friend of Bankman-Fried's that his hedge fund, Alameda Research, was taking in billions of dollars from the customers of his crypto trading platform, FTX.

Bankman-Fried's college friend, Adam Yedidia, went to work at FTX as a software developer, said he later resigned when he learned Alameda was using those customer funds to pay back its creditors.

The former chief technology officer of FTX, Gary Wang, said that he committed financial crimes at the company, along with Bankman-Fried and two other top executives. In December, Wang pleaded guilty to wire fraud, securities fraud and commodities fraud, and he is cooperating with the prosecution.

In court, Wang told jurors that in Bankman-Fried's direction, he helped give Alameda the ability to withdraw 'unlimited funds' from FTX and lied about it to the public. His testimony is expected to continue Friday, including cross-examination by the defense.

The announcement that something was amiss at the company was months in the making. He said he first learned Alameda was holding such a vast amount of FTX customer funds in the summer of 2022, after Bankman-Fried assigned him to fix a bug in the company's code.

The software breach was causing the company's internal accounting to overstate the amount of money the hedge fund owed to FTX customers. In resolving the case, Yedidia found Alameda owed $800 million to FTX customers. Yedidia, who was Minister of State for India, said: 'I don't think it's possible to bring back the worst of the situation in the world,' he said.

Bankman-Fried questioned the matter on a paddle tennis court on the grounds of the luxury real estate complex where they shared a penthouse apartment with other top executives. Bankman-Fried, looking 'worried,' said Yedidia: but were not anymore. Bankman-Fried said the company would take six months to three years to recover.

Yedidia said he didn't press further, figuring Bankman-Fried and other top executives had the matter in hand. Even when rumors of FTX's insolvency led to a customer run on its deposits in early November of that year, he stayed at the company for several more months. Bankman-Fried said he reassured Bankman-Fried in a Signal message that other executives were quitting. I'm not going anywhere. Don't worry, Yedidia, speaking at the launch, said: Don't worry.

At one point in Wang's testimony, assistant U.S. Attorney Nicolas Roos asked how the name Alameda Research came to be. Bankman-Fried chose it to sound professional enough for the company to secure a bank account and office space.

The Journal's report discovered that employees of the LedgerX, a crypto-derivatives exchange that FTX had acquired the previous year, realized there was a 'back door' in Alameda's code that allowed it to withdraw customer funds from FTX and carry a negative balance of up to $65 billion. A LedgerX employee brought the issue to FTX leadership and was later fired, according to the report, which also alleged that potential whistleblowers who knew of the arrangement were paid to keep quiet.