FTX Used Python Code To Fake Its Insurance Fund Figure

Tom Mitchelhill reports via CoinTelegraph: Crypto exchange FTX used hidden Python code to misrepresent the value of its insurance fund -- a pool of funds meant to prevent user losses during huge liquidation events -- according to testimony from FTX co-founder Gary Wang. In a damning testimony on Oct. 6, FTX's former chief technology officer, Gary Wang, said that FTX's so-called $100 million insurance fund in 2021 was fabricated and never contained any of the exchanges' FTX tokens (FTT) as claimed. Instead, the figure shown to the public was calculated by multiplying the daily trading volume of the FTX Token by a random number close to 7,500.

When the prosecution surfaced the above tweet -- among other public statements of its value -- and asked Wang whether this amount was accurate, he replied with a single word: '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.' An exhibit in the Oct. 6 trial shows the alleged code used to generate the size of the so-called 'Backstop Fund' or public insurance fund.

FTX's insurance fund was designed to protect user losses in case of huge, sudden market movements and its value was often touted on its website and social media. According to Wang's testimony, however, the amount contained within the fund was often insufficient to cover these losses. In addition to revealing 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 in the code at FTX, which allowed Alameda Research to trade with near-unlimited liquidity on the crypto exchange.

Read more of this story at Slashdot.