Gary Wang, a co-founder and former Chief Technology Officer (CTO) of FTX, took the stand as a prosecution witness in the ongoing criminal trial of fellow co-founder Sam Bankman-Fried on 6 October.

Wang disclosed that he could potentially face a maximum prison sentence of up to 50 years, despite his prior agreement with prosecutors.

Despite that, Wang expressed optimism about receiving a lenient sentence due to his cooperation with the prosecution.

He hopes to avoid prison altogether, with the possibility of a 5K letter being submitted on his behalf to bolster his chances of leniency.

Wang's testimony primarily focused on the collapse of FTX, starting from the events leading up to the firm's bankruptcy in November 2022.

Collapse of FTX

He explained that heightened withdrawal requests overwhelmed FTX, as the company had transferred billions of dollars to its affiliate, Alameda Research.

Wang revealed that Alameda owed FTX as much as $14 billion in November.

Bankman-Fried, FTX's co-founder, reportedly declined to shut down Alameda despite the financial difficulties.

Additionally, Wang highlighted several specific issues within FTX.

He mentioned a backstop insurance fund, designed to cover losses in case of user position liquidation, was falsely represented on FTX's website.

Wang also described a 2021 exploit in FTX's margin system, which resulted in a substantial loss that Bankman-Fried directed Alameda Research to absorb.

Unauthorised Use of Funds

Of significance was Wang's revelation that FTX permitted Alameda to borrow any amount within FTX's trading volumes and maintain an unlimited negative balance.

Wang stated that this borrowed money essentially belonged to FTX's customers and was used without their consent.

Under cross-examination by Bankman Fried's defense lawyer, Wang provided further details.

He explained that allowing a negative balance enabled Alameda to carry out stablecoin conversions for customers.

Additionally, Alameda's substantial line of credit, worth $65 billion, was intended to safeguard trading activities.

These details could potentially play a crucial role in Bankman-Fried's defense, as his lawyer may argue that Alameda's special privileges were necessary to sustain FTX's operations.