Chelsea Jia Feng/Insider
After a paddleball game at a Bahamas resort, where they shared a $35 million apartment, Adam Yedidia confronted his boss.
Some months earlier, Yedidia had found a bug in the code he had written for FTX, the cryptocurrency exchange where he worked as a developer.
The code was supposed to automate the process of deposits, allowing customers to put money into their FTX accounts faster and alleviating employee workloads. But it introduced a major problem: In the internal ledger on FTX's exchange, the numbers for Alameda Research, a cryptocurrency hedge fund, were wrong.
Alameda Research, it was discovered, had $500 million less in liabilities than previously realized.
By the time the bug was fixed, in June 2022, six months after its discovery, that figure had grown to $16 billion — $8 billion off from the true sum.
"The number seemed large to me," Yedidia testified Thursday in a federal court in downtown Manhattan. "It concerned me."
In a hut between paddleball courts, Yedidia expressed his concern to Sam Bankman-Fried, the CEO of FTX, who also controlled Alameda Research.
"Are things OK?" Yadidia recalled asking Bankman-Fried.
The two had known each other for years, living together while students at MIT.
Since that time, Bankman-Fried became SBF, a rockstar in the crypto world and a billionaire who comfortably rubbed shoulders with heads of state and fellow business titans.
Bankman-Fried appeared unusually nervous when responding, Yedidia testified Thursday.
"We were bulletproof last year, but we're not bulletproof this year," Bankman-Fried answered, according to Yedidia.
Understanding "we" to mean both FTX and Alameda, Yedidia asked how long it would be until the companies would be "bulletproof" once again.
Bankman-Fried said it could take between six months to three years, assuring his employee and friend that things would turn out fine.
"It was a very large debt, and I wanted to know that Alameda could repay it," Yedidia said in court.
They didn't.
Jane Rosenberg/Reuters
The bug — and the time in took to fix it — suggests Bankman-Fried was keenly aware of how much money Alameda Research was losing, and how much it must have relied on money borrowed from FTX to sustain itself.
FTX collapsed in November 2022, after the public learned about the unusual exposure between the exchange and Alameda Research. Alameda had used the deposits of ordinary FTX customers to repay the hedge fund's creditors.
The events ultimately led to criminal charges against Bankman-Fried. He faces seven counts, including alleged wire fraud, conspiracy to commit securities fraud, and conspiracy to commit money laundering. Caroline Ellison, the now-former CEO of Alameda Research and Bankman-Fried's on-and-off girlfriend, pleaded guilty to fraud charges for the same scheme and is cooperating with prosecutors against him, along with two other former FTX executives.
Testifying in Bankman-Fried's trial for a second day in Manhattan federal court on Thursday, Yedidia told jurors about his relationship with the crypto mogul, and just how the finances between FTX and Alameda Research became so intertwined in the first place.
Yedidia and Bankman-Fried both lived together at MIT, where Yedidia majored in electrical engineering, computer science, and math as an undergraduate. Before pursuing a PhD at MIT, he briefly worked at Alameda Research as a trader.
Michael M. Santiago/Getty Images
In January 2021, Yedidia began working for FTX as a programmer. At that time, FTX was establishing itself as a major cryptocurrency exchange that would soon be worth tens of billions of dollars. Bankman-Fried was becoming a crypto power broker at the same time, throwing money into different causes and meeting with lawmakers to shape regulation of digital tokens.
Yedidia observed just how incestuous the two companies were. They shared an office and had some of the same executives. In the Bahamas, top employees and their significant others in both companies shared a $35 million penthouse apartment that Alameda Research paid for.
At FTX, Yedidia was tasked with developing software that automated customer deposits, making the process faster for FTX users and easier on employees who would otherwise have to do it manually.
While working on the program, he discovered that FTX customer funds were held in an account owned by Alameda Research, rather than an account owned by FTX. Customers were never told that Alameda owned the account, he said. Eventually, FTX got its own bank account for customer deposits, but a large amount of funds remained in Alameda's account anyway, Yedidia said.
Yedidia said the bug in FTX's code overstated how much money Alameda owed to FTX customers. In other words, FTX's software thought Alameda Research had more debt than it actually has. The balance was off by $500 million at the time the bug was discovered, in around December 2021.
Bankman-Fried told Yedidia to fix the bug. Sometime after that, Bankman-Fried, Ellison, and executives Gary Wang and Nishad Singh met in a conference room in FTX's office area, Yedidia testified. Singh later said the group made a full accounting of FTX and Alameda's assets and liabilities during the meeting, Yedidia said.
"I trusted Sam. I hoped that Sam and Caroline and others at Alameda would handle the situation," Yedidia said.
Department of Justice
Yedidia fixed the bug by June 2022, Yedidia said. By that time Alameda's understated liabilities on the FTX exchange had reached $8 billion, he testified.
In the months that followed, Bankman-Fried sought to raise funds from financiers in Saudi Arabia and the United Arab Emirates, but the investments never materialized.
In testimony on Friday, FTX co-founder and former executive Gary Wang gave other indications that Bankman-Fried knew about Alameda's massive losses, and that it was taking funds from FTX customers who never gave permission to have their money used for Alameda's risky cryptocurrency bets.
At his desk at the FTX office in the Bahamas, Bankman-Fried had multiple monitors set up by his computer. One of them usually showed Alameda's balances, Wang testified.
"The money belonged to customers, and the customers did not give us permission to use it for other things," Wang said.
By November 2022, FTX employees were resigning en masse. In a private text message on Signal, Yedida assured he would stick around.
"I love you, Sam. I'm not going anywhere. Don't worry," he wrote to Bankman-Fried.
Shortly after, Yedidia learned that Alameda Research had used the funds of FTX customers, meaning that customers may not have been able to withdraw their money from the fund.
He resigned.
When he began testifying on Wednesday, Yedidia said he insisted on getting immunity because he believed he "may have unwittingly written code that contributed to the commission of a crime."
"What Alameda did seemed like a flagrantly wrong thing to have done," Yedidia said Thursday.
Correction: October 6, 2023 — An earlier version of this story misstated how the bug in FTX's code misrepresented Alameda Research's liabilities on FTX. The liabilities were overstated, not understated.
