Former FTX cofounder Gary Wang testified in court on Friday that the number published by the crypto exchange’s insurance fund was made up, adding fuel to allegations that the firm lied to customers and investors and attempted to cover up its misdeeds.
An insurance fund, also referred to as a backstop fund, is a safeguard many exchanges use to ensure profits are paid out and losses are covered. According to Wang, FTX’s insurance fund was set up to protect FTX and its customers in the event that a single customer was to lose a large sum of money trading.
FTX advertised the amount of money in its insurance fund publicly, Wang said, at one point tweeting that it had “five and a half million USD and five million FTT,” the cryptocurrency created by the exchange. But according to Wang, that number was not accurate — In fact, he said there was no FTT in the insurance fund and that the number listed was entirely fake.
“Was the real number higher or lower than the fake number?” asked the prosecution. “Lower,” he responded.
Even more surprising, Wang said that the insurance fund number FTX published on the site took the site’s daily volume, multiplied it by a random number, and divided it by a billion.
“Does that number have anything to do with the actual number in the insurance fund?” the prosecutor asked, to which Wang responded, “no.”
During his testimony, Wang, one of several FTX insiders who are cooperating with the government to possibly avoid prison time, revealed a number of surprising facts about the relationship between FTX and its sister company Alameda Research, namely that Alameda was given a $65 billion line of credit and had special trading privileges coded into the FTX site.
