Some U.S.-based employees of FTX reportedly knew that the exchange had a backdoor that allowed Alameda to withdraw customers’ funds, The Wall Street Journal (WSJ) reported on Oct. 5.

According to the report, the employees stumbled upon this backdoor while examining the feasibility of replicating the code used by FTX International for FTX US. These employees were part of the LedgerX team, which FTX acquired in 2021.

After discovering the backdoor, Julie Schoening, the Chief Risk Officer at LedgerX, brought it to the attention of Zach Dexter, the company’s CEO. Dexter reportedly forwarded this information to Nishad Singh, Director of Engineering at FTX. Despite the discovery, the issue was not fixed. However, WSJ added that the issue eventually led to Schoening’s retrenchment in August 2022.

Meanwhile, a statement from LedgerX’s new owners, Miami International Holdings, denied that their employees knew of the backdoor. They wrote:

“Following a thorough internal investigation, LedgerX has found no evidence that any of its employees were aware of any reported code enabling Alameda to take FTX customer assets, and firmly denies any contrary allegation.”

Alameda, FTX execs knew of customer funds’ usage

This report comes in the wake of previous statements from FTX and Alameda executives, confirming their knowledge of the use of customer funds.

Caroline Ellison, the former CEO of Alameda Research, purportedly informed certain employees that she, Nishad Singh, and Gary Wang were privy to the transfer of customer funds to Alameda.

These funds were purportedly borrowed to address Alameda’s financial obligations, with reports suggesting they amounted to as much as $10 billion.

These developments occur against the backdrop of the ongoing trial of the former FTX CEO, Sam Bankman-Fried. Before the trial’s commencement, several executives from the defunct exchange had already pleaded guilty and were expected to provide testimony in court.

Bankman-Fried has maintained his innocence and currently faces seven charges related to the alleged fraudulent activities.