Weeks before the FTX collapse, a top executive raised concerns to founder and then CEO Sam Bankman-Fried (SBF) about Alameda’s significant debt to FTX, the New York Times (NYT) reported.

The report cited documents viewed by the NYT, detailing private communications between the governments of the U.S. and the Bahamas.

The FTX executive — labeled CC-2 in the documents — was “alarmed” to learn from another executive — labeled CC-1 — that hedge fund Alameda Research owed $13 billion to FTX.

Alameda had suffered a $5 billion loss, which included funds users had entrusted to FTX for safekeeping.

When confronted by CC-2, SBF acknowledged that Alameda’s loss was a problem. He told the executive that the “situation was causing him concern,” and hampering his productivity by 5-10%. But at that point, SBF was still banking on the problem resolving itself, although he discussed shutting down the hedge fund.

According to the documents:

“Bankman-Fried indicated that the situation could correct itself if they raised more equity, and cryptocurrency prices went up.”

The FTX executives — including the one who discussed Alameda’s debt to FTX with SBF — are high-level software engineers with access to the exchange’s code the document stated, according to the NYT.

Court documents revealed that the two people with access to FTX’s code were co-founder Gary Wang and then engineering chief Nishad Singh.

Wang pleaded guilty to criminal charges and is cooperating with prosecutors in the case against SBF. Singh is reportedly also seeking a plea deal but has not been charged. SBF has pleaded ‘not guilty‘ to multiple counts of fraud and money laundering. His trial is set to begin in October.

As trouble started brewing in early November 2022, CC-1’s initial calculations indicated “that FTX would be able to satisfy all customer withdrawals,” as per the documents. But according to the document:

“Bankman-Fried then indicated to CC-1, in substance and in part, that CC-1 had overlooked a separate, hidden account that included an approximately $8 billion liability owed to FTX.com by Alameda.”

A recent court filing in the FTX bankruptcy case indicated that Alameda had a “$65 billion backdoor” into FTX.

In 2020, CC-1 learned that Alameda had a negative balance of “approximately hundreds of millions of dollars” on the FTX exchange the documents revealed, according to the NYT.

The data — which CC-1 obtained by running a query on the company database — led the executive to conclude that Alameda was “inappropriately using FTX.com customer funds,” the documents revealed, reported the NYT.

As per the documents, CC-1 highlighted the issue to SBF who responded with “it was okay,” because Alameda’s loans from FTX were backed by FTT, the exchange’s native token.

The price of FTT started plunging rapidly after Binance CEO Changpeng Zhao (CZ) announced plans to sell Binance’s FTT holdings on Nov. 6, 2022.

When CC-1 approached SBF in 2020, FTX was undergoing an audit, the documents reportedly revealed. CC-1 asked SBF if auditors would be concerned about Alameda’s use of FTX user funds. SBF assured CC-1 that “auditors did not typically focus on such issues,” reported the documents, according to the NYT.

The post SBF said it was ‘okay’ that Alameda was borrowing FTX user funds appeared first on CryptoSlate.

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