Employees at the “bankrupt” cryptocurrency exchange FTX, based in the United States, recently discovered a supposed “secret exit” that Alameda Research, FTX’s sister company, used to withdraw funds from customers. This revelation was reported by The Wall Street Journal (WSJ) on Thursday. The employees stumbled upon the “backdoor” just before the exchange’s collapse in November of last year.
According to the report, the employees came across this “backdoor” while assessing the feasibility of replicating the code used by FTX International for FTX.US, the exchange’s US unit. These employees were part of the LedgerX team, which FTX acquired in 2021.
However, the discovery did not go unnoticed. The employees reportedly alerted Zach Dexter, the CEO of FTX. In a message in May 2022, Jim Outen, a LedgerX employee, wrote, “Just wanted to emphasize that there are currently some places in the codebase where Alameda receives special treatment in one way or another,” which was seen by WSJ.
Dexter allegedly forwarded this information to Nishad Singh, FTX’s engineering director. However, it appears that the situation was not resolved, and the “secret exit” remained open. Moreover, Julie Schoening, LedgerX’s risk director who raised the alert, was reportedly sidelined in August 2022 for allegedly sending “inappropriate messages” to other employees.
Furthermore, the new owner of LedgerX, Miami International Holdings, denied that its employees were aware of the backdoor. They stated, “Following a thorough internal investigation, LedgerX did not find any evidence that any of its employees were aware of any reported code that would allow Alameda to take assets from FTX customers and strongly denies any allegations to the contrary.”
This report comes after previous statements from FTX and Alameda executives confirming their knowledge of the use of customer funds. Caroline Ellison, the former CEO of Alameda Research, allegedly told some employees that she, Nishad Singh, and Gary Wang were aware of the transfer of funds from customers to Alameda. It is estimated that Alameda “borrowed” a total of $10 billion in funds.
The revelation comes at a time when FTX’s founder and former CEO, Sam Bankman-Fried, is facing trial in the United States for conspiracy, fraud, and other crimes. However, he maintains his innocence regarding all charges.