During the recent trial of Sam Bankman-Fried, a former FTX developer, Adam Yedidia, dropped a bombshell revelation. Yedidia revealed that he quit FTX after discovering that its sister company, Alameda Research, had used FTX customer deposits to repay its creditors.
Yedidia, who took the stand on the third day of Bankman-Fried’s trial, recounted the events that led to his resignation. Bankman-Fried, the former chief of FTX, is currently facing fraud and conspiracy charges in connection with the collapse of his crypto empire.
Former FTX Developer revealed a software bug that had a profound impact
One of the important moments in Yedidia’s testimony was his revelation of a software bug that had a profound impact on the financial landscape of both FTX and Alameda. This bug, resulting from the unorthodox way FTX handled customer deposits, led to an overstatement of the debt Alameda owed to FTX customers by a staggering $8 billion.
The root of this financial entanglement lay in the early days of FTX when customers deposited fiat currency by wiring money directly to Alameda rather than FTX. This unusual arrangement created complexities in tracking debts owed to customers.
Yedidia pinpointed a bug in the accounting software that, by June 2022, erroneously reflected that Alameda owed far more money than it actually did.
Prosecutors honed in on a critical conversation between Yedidia and Bankman-Fried that took place on a tennis court. Yedidia had just rectified the accounting bug in mid-June. The bug had falsely indicated that Alameda owed FTX customers a staggering $16 billion. In the process, he stumbled upon the revelation that there was still an $8 billion debt lingering.
The bug fix coincided with Bankman-Fried’s meeting with former FTX and Alameda executives, Nishad Singh, Gary Wang, and Caroline Ellison. Those three are expected to testify in the ongoing trial.
This revelation adds a new layer of complexity to the trial’s proceedings. It raises questions about the financial practices within the SBF ecosystem.