FTX Co-Founder Exposes Fraudulent Insurance Fund

Gary Wang, co-founder of FTX, testified that the exchange misrepresented the value of its insurance fund a pool of funds intended to prevent user losses during massive liquidation events using concealed Python code.

Gary Wang, FTX’s former chief technology officer, stated in a damning testimony on October 6 that FTX’s alleged $100 million insurance fund in 2021 was a fabrication and never contained any FTX tokens (FTT) as claimed.

Instead, the public figure was calculated by multiplying the daily trading volume of FTX tokens by a random number close to 7,500.

When the prosecution presented this tweet, along with other public statements of its value, and asked Wang whether this amount was accurate, he responded, “No.”

“For one, there is no FTT in the insurance fund. It’s just the USD number. And, two, the number listed here does not match what was in the database.”

The alleged code used to calculate the extent of the so-called “Backstop Fund,” or public insurance fund, was presented in court on October 6.

FTX’s insurance fund was designed to safeguard user losses in the event of massive, sudden market fluctuations, and its value was frequently advertised on its website and social media channels.

Nevertheless, according to Wang’s testimony, the fund was frequently insufficient to cover these losses. According to Wang, a trader exploited a flaw in FTX’s margin system in 2021 to acquire an oversized position in MobileCoin, resulting in a loss of hundreds of millions of dollars for FTX.

Wang stated that when Bankman-Fried realized that the insurance fund was nearly depleted, he instructed Alameda to “take on” the loss.

This was allegedly an attempt to conceal the loss, given that Alameda’s financial statements were more confidential than FTX’s. In addition to disclosing the allegedly fraudulent nature of FTX’s insurance fund.

Wang claimed that Bankman-Fried prompted him and Nishad Singh to implement an “allow_negative” balance feature at FTX, which enabled Alameda Research to trade with nearly unlimited liquidity on the cryptocurrency exchange.

Wang, who has already pleaded guilty to all charges brought against him, admitted to committing wire fraud, commodities fraud, and securities fraud with Bankman-Fried, former Alameda Research CEO Caroline Ellison, and former FTX director of engineering Nirmal Singh on October 5.