A Secretitive Software Change Allowed FTX To Use Client Funds

_{^{Image credit: REUTERS/Dante Carrer}}

Just when you thought this whole FTX saga could not get any worse: it gets worse. It has come to light that in mid-2020, the chief engineer at FTX made a secret change to the software powering the platform. What kind of secret change? Based on the title of this article alone, I am sure you have a pretty good idea of what this secretive change was for.

Rather than reiterate what the linked news story says about the change, here is the quote:

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.

And if you thought this was an innocent change, the notes regarding the code change prove otherwise:

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. Reuters reviewed the code base, which has not been previously reported.

HOLY MOLY.

Let's take a step back here for a moment. An intentional software change allowed FTX to be exploited, allowing Alameda to keep borrowing funds from FTX regardless of the value of the collateral securing the loans. It all makes sense how SBF was charged in the Bahamas alongside a sealed indictment, attempting to be extradited to the US. This isn't a smoking gun; it's a freakin' out-of-control warehouse fire.

Not only is this warehouse fire spreading, but copious amounts of jet fuel are also being used to extinguish it and it keeps growing bigger and hotter.

If you're still confused about what this means, it allowed Alameda an unlimited line of credit. Money on tap. It's the kind of evidence a prosecutor could only dream of, an intentional code change allowing a platform to be exploited for fraudulent purposes. Alongside the notes from Singh, SBF is no doubt going to jail for this. And his chief engineer will be going with him.

In the Bernie Madoff scandal, two of his programmers also saw jail time. Pay attention if you are a developer reading this and believe that your employment and obligation to your employer gives you immunity. As a developer or anyone in a position where you have an ethical responsibility to do the right thing, you can be held responsible for being a part of a crime even if you did not profit directly.

In the case of Singh, he has more culpability than the two programmers that saw almost three years of jail time for their involvement. I anticipate that Singh will see at least the same amount of jail time, if not more. Imagine if you were a developer at a bank and someone like Jamie Dimon came over and said, "Hey, let these customers withdraw as much money as they want" everyone would be in jail, and this situation is not too dissimilar.

The conspiracy theorists that were so certain that SBF wouldn't be jailed because he was allegedly a top donor to the DNC and how FTX was allegedly being used to launder Ukraine war money and other garbage theories are quiet now. There is far too much evidence and I am sure a lot more that hasn't been revealed for SBF to get away with this and others involved are definitely going to jail too.

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