Gary Wang, the co-founder and former Chief Technology Officer of now-defunct crypto exchange FTX testified on 6 October 2023 that the company had manipulated the value of its insurance fund. This fund was purportedly established to safeguard users from significant losses during large-scale liquidation events.
According to a report by Tom Mitchelhill for Cointelegraph published earlier today, Wang alleged that the $100 million insurance fund FTX claimed to have in 2021 was a fabrication. Contrary to the company’s claims that the fund contained FTX tokens (FTT), Wang stated that it had none. The publicly displayed value of the fund was artificially calculated by multiplying the daily trading volume of FTX tokens by an arbitrary number close to 7,500.
During the trial, the prosecution presented a tweet from FTX dated 14 February 2021, which claimed that the insurance fund was worth over $100 million.
When questioned about the accuracy of this statement, Wang responded with a simple “No.” He further clarified that the fund only contained a USD amount and that the number displayed did not correspond with the actual database records.
The trial also revealed that the insurance fund, often promoted on FTX’s website and social media as a safety net for users, was frequently inadequate to cover losses. Wang cited an instance from 2021 where a trader exploited a flaw in FTX’s margin system to take an oversized position in MobileCoin, causing FTX to incur losses amounting to hundreds of millions of dollars.
When Sam Bankman-Fried, the CEO of FTX, realized that the insurance fund was nearly depleted, Wang was instructed to shift the loss to Alameda Research, a more privately held entity. This move was seen as an attempt to conceal the loss from public scrutiny.
Wang also disclosed that Bankman-Fried had directed him and another employee, Nishad Singh, to introduce an “allow_negative” balance feature in FTX’s code. This feature enabled Alameda Research to trade with almost unlimited liquidity on the cryptocurrency exchange.
Wang, who has already pleaded guilty to multiple charges, including wire fraud, commodities fraud, and securities fraud, implicated Bankman-Fried, former Alameda Research CEO Caroline Ellison, and former FTX director of engineering Nishad Singh in his testimony.
