FTX Takes Action Against Executive Who Exposed Alameda’s Hidden Backdoor

Former Chief Risk Officer Julie Schoening, previously employed at LedgerX, an FTX-owned entity, faced termination shortly after raising concerns about the preferential treatment given to FTX’s affiliated trading firm, Alameda Research. This revelation has emerged from sources cited by the Wall Street Journal.

In May 2022, Schoening’s team unearthed code that indicated Alameda was enjoying distinct advantages, including the ability to maintain a negative balance of up to $65 billion.

A LedgerX employee named Jim Outen shared this discovery, noting, “Just wanted to point out that there are currently a few places in the… code base where Alameda gets special treatment in one way or another.”

Schoening promptly reported her findings to Zach Dexter, her superior and the head of LedgerX. Dexter then engaged Nishad Singh, a top engineer at FTX, to address the issue of auto-liquidation.

Although Dexter believed that Singh had resolved the problem by eliminating some of the code, the special privileges continued unabated.

In August 2022, Schoening was abruptly dismissed from her position. Some FTX executives allegedly circulated edited and inappropriate messages attributed to her.

Schoening’s legal representatives contended that this act constituted retaliation for her raising concerns about FTX’s risk management practices.

Following her termination, Schoening threatened legal action against FTX and reached a tentative settlement agreement worth $5 million to resolve her dismissal-related disputes. However, the deal failed to materialize before FTX’s eventual collapse in November 2022.