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Secret Software Change Allowed FTX to Use Client Money

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former FTX director of engineering Nishad Singh

Only Nishad Singh and a few other top FTX and Alameda executives knew about the exemption in the code, former executives said.

Credit: WikiBio

In mid-2020, FTX's chief engineer made a secret change to the cryptocurrency exchange's software.

He tweaked the code to exempt Alameda Research, a hedge fund owned by FTX founder Sam Bankman-Fried, from a feature on the trading platform that would have automatically sold off Alameda's assets if it was losing too much borrowed money.

In a note explaining the change, the engineer, Nishad Singh, emphasized that FTX should never sell Alameda's positions. "Be extra careful not to liquidate," Singh wrote in the comment in the platform's code, which it showed he helped author.

The exemption allowed Alameda to keep borrowing funds from FTX irrespective of the value of the collateral securing those loans. That tweak in the code got the attention of the U.S. Securities and Exchange Commission, which charged Bankman-Fried with fraud on Tuesday (Dec. 13). The SEC said the tweak meant Alameda had a "virtually unlimited line of credit."

From Reuters
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