Caroline Ellison, the former CEO of Alameda Research, has allegedly confirmed knowledge of how client funds were being used.

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

Employees who were part of the LedgerX team acquired by FTX in 2021 reportedly stumbled upon the backdoor while checking the feasibility of copying the code used by FTX International to FTX US.

After LedgerX Chief Risk Officer Julie Schoening discovered the backdoor, it came to the attention of the company’s CEO Zach Dexter. Dexter reportedly forwarded the information to FTX Director of Engineering Nishad Singh. Despite the discovery, the issue was not resolved. However, the WSJ added that the issue ultimately led to Schoening’s layoffs in August 2022.

Meanwhile, LedgerX’s new owner, Miami International Holdings, issued a statement denying that its employees knew about the backdoor. They wrote:

“After a thorough internal investigation, LedgerX has found no evidence that any of its employees had knowledge of any of the reported code that enabled Alameda to access FTX customer assets, and vehemently denies any allegations to the contrary.”

Alameda, FTX executives understand how customer funds are being used

The report follows previous statements from FTX and Alameda executives confirming their knowledge of the use of customer funds.

Caroline Ellison, former CEO of Alameda Research, allegedly informed certain employees that she, Nishad Singh and Gary Wang were involved in the transfer of client funds to Alameda.

The funds were allegedly borrowed to address Alameda’s financial obligations, which some reports put at as much as $10 billion.

These developments come against the backdrop of the ongoing trial of former FTX CEO Sam Bankman-Fried. Prior to the trial, several executives of the defunct exchange have pleaded guilty and are expected to provide testimony in court.

Bankman-Fried, who maintains his innocence, now faces seven charges related to the alleged fraudulent activity.