FTX Trial Update: Automation Code Bug Sparks $500 Million Controversy
The second day of the trial of former FTX CEO Sam Bankman-Fried unfolded with riveting testimony from Adam Yedidia, a former college roommate of Bankman-Fried and an early employee of FTX. Yedidia, who was granted immunity by the prosecution, provided critical insights into the workings of FTX and its relationship with Alameda Research.
Under the scrutiny of Assistant U.S. Attorney Danielle Sassoon, Yedidia shed light on his journey within the cryptocurrency trading world. He began his career as a trader for Alameda Research before transitioning to FTX as a software developer in January 2021. His tenure at FTX lasted until November 2022, when he decided to resign. During this time, he was part of a select group residing at the luxurious Albany Resort in the Bahamas known as the “people of the house.” In terms of his professional hierarchy, Yedidia reported to former FTX engineering director Nishad Singh and informally to FTX co-founder Gary Wang and Bankman-Fried.
Adam Yedidia, SBF snitch deleted his X account. @adamyedidi10070
Homie you have to take this L for the rest of your life to the grave. You lived with the man, went to college with the man and you can’t even wait for his guilt to be established before you turn on him. Smdh 😡
— Martin Shkreli (e/acc) (@wagieeacc) October 4, 2023
One of the most striking revelations from Yedidia’s testimony was his understanding that when Alameda Research traded on FTX, the ultimate beneficiaries of the profits were Sam Bankman-Fried and Gary Wang. This statement raises intriguing questions about the relationship between the two entities.
Yedidia also disclosed his involvement in developing the code to automate customer deposits and withdrawals from FTX. Bankman-Fried played a significant role in this project, demonstrating his hands-on approach to the platform’s operations. Initially, Yedidia believed that customer deposits were funneled into an FTX bank account. However, he later discovered that FTX faced challenges in opening a bank account, causing deposits to flow into an account under the name of “North Dimension Inc.,” a company controlled by Alameda Research.
Customers were allegedly instructed to send their deposit funds to this North Dimension account, with no apparent knowledge that it was under the control of Alameda Research. According to Yedidia, this arrangement was communicated to him by either Nishad Singh or FTX’s head of settlements, Ray Salame.
In late 2021, FTX managed to open a bank account, allowing customers the option to send funds to “FTX Digital Markets.” However, Yedidia confirmed that some customer deposits continued to be directed to the Alameda Research-controlled account even after this development.
Yedidia also detailed how deposits were tracked within FTX, highlighting an internal database called “Fiat at FTX.com.” Importantly, this database contained information but not actual funds. Yedidia explained that the total sum of customer deposits should have matched the liability recorded in the “Fiat at FTX.com” account.
In a surprising twist, Yedidia revealed a significant bug in the automation code he helped develop. This bug had serious implications, as it caused customer withdrawals to decrease the liability recorded in “Fiat at FTX.com,” which was correct. However, it failed to decrease the liability of Alameda Research to FTX, as it should have.
Yedidia disclosed that he learned of this bug in late 2021, and after conversations with either Gary Wang or Nishad Singh, he discussed it with Sam Bankman-Fried. The bug led to an exaggerated Alameda Research liability of $500 million over six months, and it wasn’t rectified until around June 2022, with Yedidia personally addressing the issue in mid-June 2022.
The pivotal moment for addressing the bug occurred during a meeting where Sam Bankman-Fried, former Alameda Research CEO Caroline Ellison, Gary Wang, and Nishad Singh convened to discuss a “full accounting of the two companies” – FTX and Alameda Research.
At the time of the bug fix, the Alameda Research liability, as reflected in the “Fiat at FTX.com” account, stood at $16 billion. Post-fix, this figure was significantly reduced to $8 billion, making the revised amount visible to other employees within the company.
Adam Yedidia’s testimony has provided a detailed and eye-opening account of the inner workings of FTX and its relationship with Alameda Research. As the trial unfolds, it promises to reveal more insights into the cryptocurrency industry and the alleged improprieties at the heart of this high-stakes legal battle.
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