FTX ‘Insurance Fund’ Was Fiction, Testifies Co-Founder Wang

A supposed $100 million (£82m) insurance fund intended to prevent loss of FTX user funds in the event of liquidation events in fact held no money, company co-founder and former chief technology officer Gary Wang testified on Friday in the New York trial of Sam Bankman-Fried.

The figure shown to the public was instead calculated by multiplying the daily trading volume of the FTX Token (FTT) by a random number close to 7,500, Wang said.

The crypto exchange had made frequent public statements reassuring customers about the large size of the fund, stating in February 2021, for instance, that the fund was “worth over 100 million USD”.

“There is no FTT in the insurance fund. It’s just the USD number,” Wang told the court.

‘Not fine’

Wang, 30, a friend of Bankman-Fried from high school maths camp who has already pleaded guilty to fraud, said a tweet by Bankman-Fried that FTX was “fine” was false.

At the time of the tweet Bankman-Fried knew the firm had an $8bn hole in its accounts, he said. The company declared bankruptcy days later, in November of last year.

In his second day of testimony Wang said FTX was “not fine”.

“Assets were not fine, because FTX did not have enough assets for customer withdrawals,” he said.

Massive debt

Bankman-Fried has denied charges of fraud, money-laundering and stealing funds from FTX customers for his own use, including making property purchases and political donations.

By the end of 2019 Alameda Research, Bankman-Fried’s crypto trading firm, was already withdrawing more from FTX than FTX took in in customer fees, Wang said.

By June 2022 Wang calculated Alameda’s debt to FTX at about $11bn.

Alameda’s account with FTX had unique features, such as the ability to run a negative balance and a $65bn line of credit, he said.

Public statements

But in a public statement in 2019 Bankman-Fried wrote on Twitter that Alameda had an account on the exchange “just like everyone else’s”.

Bankman-Fried’s lawyer Christian Everdell said in cross-examination of Wang that the unique features were due to Alameda’s role on the platform as a “market-maker” helping trading flow smoothly.