Today in Court
Today’s morning session was devoted to Bankman-Fried’s college friend (and later Alameda intern and FTX developer) Adam Yedidia.
Yedidia spoke about being assigned to work on a project to automate customer deputies and withdrawals. In this process, he learned that customer money was going into North Dimension, a bank account controlled by sister company Alameda Research, but this didn’t initially worry him because he thought Alameda was simply holding on to the money. This customer money was tracked in an account called fiat@ftx.com.
Later, Yedidia discovered that the automation process had a bug that inflated the amount of money in the fiat@ftx.com account—the actual amount was $8 billion, not the $16 billion recorded.
Concerned about the large number, Yedidia asked SBF (while on a paddle tennis court in the Bahamas) whether the companies were OK. Bankman-Fried responded that they had been “bulletproof” in 2021 but were not in 2022. It might take six months to three years to be bulletproof again, SBF allegedly said.
The prosecution is clearly trying to focus on lavish spending, showed photos of the original, very ordinary FTX offices in Hong Kong and then the gorgeous penthouse view in the Bahamas, and of the paddle tennis court.
The defense, trying to counter, emphasized that the penthouse was a group house and not Bankman-Fried’s personal apartment, that he didn’t have a yacht, and asked Yedidia if he was aware that SBF drove a Toyota Carolla.
The defense also tried to emphasize that SBF cared about proper business practices, implementing geofencing to ensure that US-based customers couldn’t trade in the platform, and argued that it was not a secret that Alameda held FTX funds—and that even customers knew this, because it was on deposit instructions. We return to cross-examination after the lunch break.
One amusing detail from the prosecution: they asked Yedidia whether SBF really slept in a bean bag chair, as was often reported. Yedidia said SBF used to do it more in Hong Kong; but, by the time they were in the Bahamas, SBF only took occasional naps on the bean bag.
More Witnesses Take the Stand
In today’s afternoon session, the prosecution introduced its next witness: Matt Huang, cofounder of Paradigm, which invested more than $200 million in FTX.
Huang described meeting SBF and, after discussing investment, being concerned that the company didn’t have a traditional governance structure, and also worried that Alameda Research might enjoy preferential treatment as an FTX customer, such as being able to trade faster. If this were true, he testified, it would erode customer trust in FTX, but he was led to believe that Alameda had no preferential treatment.
The prosecution then brought in FTX CTO Gary Wang, first asking him where he was working a year ago (FTX, naturally) and then immediately asking whether he had committed financial crimes while working at FTX. (“Yes.“)
Wang, who has already pleaded guitly on fraud-related charges, recounted his friendship with Bankman-Fried and then reiterated the special privileges for Alameda that SBF had, he claimed, asked him to write into the code: being able to place orders faster, having a negative balance, and the ability to have a $65 billion line of credit. These features—some of which Wang implemented and some which he reviewed—were not publicly disclosed.
Wang’s testimony continues tomorrow. The prosecution has indicated that the next witnesses will be Zac Prince, CEO of BlockFi, and Elan Dekel of Pinecone.
Judge Lewis Kaplan chastised the defense several times today—particularly during the cross-examination of Adam Yedidia—for asking repetitive questions. At one point, he asked the lawyers to sidebar with him over this issue, at which point a white noise machine was turned on for privacy.
During Yedidia’s cross-examination earlier today, the defense asked him whether living in the Bahamas penthouse was similar to being in a dorm.
The prosecution, during their response, showed the court a photo of the penthouse with its airy white furniture and ocean views and asked how the picture “compared to your experience living with the defendant at MIT?” Yedidia’s response? “More luxurious.”
That’s all for today’s live coverage of the trial of Sam Bankman-Fried. We’ll be back tomorrow.
FTX co-founder testifies against Sam Bankman-Fried, saying they committed crimes and lied to public
Updated 6:03 AM GMT+8, October 6, 2023
NEW YORK (AP) — Prosecutors went to the heart of their case against FTX founder Sam Bankman-Fried on Thursday as the company’s co-founder began his testimony, telling a New York jury that he and Bankman-Fried committed financial crimes and lied to the public before the cryptocurrency trading platform collapsed last year.
Gary Wang, 30, said he committed wire, securities and commodities fraud as the chief technical officer at FTX after also sharing ownership in Alameda Research, a cryptocurrency hedge fund that he and Bankman-Fried started in 2017 and eventually used to withdraw $8 billion in FTX funds illegally. He said Bankman-Fried directed the illegal moves.
His assertions came on the second day of testimony at a trial expected to last up to six weeks as prosecutors try to prove that Bankman-Fried stole billions of dollars from investors and customers to buy luxury beachfront real estate, enrich himself and make over $100 million in political contributions aimed at influencing cryptocurrency regulation.
Bankman-Fried, 31, who has been jailed since August, was brought to the United States from the Bahamas last December after he was charged in Manhattan federal court. He has pleaded not guilty.
Before the trial began Tuesday, prosecutors promised to use testimony from Bankman-Fried’s “trusted inner circle” to prove he intentionally stole from customers and investors and then lied about it. Defense lawyers say Bankman-Fried had no criminal intent as he took actions to try to save his businesses after the cryptocurrency market collapsed.
In just over a half hour of testimony, Wang said he and Bankman-Fried allowed Alameda Research to withdraw unlimited funds from FTX “and we lied to the public.”
Wang said not only was Alameda Research permitted to maintain negative balances and unlimited open positions, but the computer code that controlled its operations was written to provide a line of credit of $65 billion, a number so large that Judge Lewis A. Kaplan questioned Wang briefly to ensure he was talking about billions rather than millions.
Wang testified that the special computer code features were directed by Bankman-Fried, a man he met over a decade ago at a high school summer camp after moving to the United States from China and growing up in Minnesota.
Wang said he was paid $200,000 in salary, along with owning 10% of Alameda and 17% of FTX, enough shares to be a billionaire before the businesses collapsed.
He said money flowed so freely at Alameda that he was able to borrow a million dollars for a home and between $200 million and $300 million to make investments.
Wang is the first of a trio of former top executives slated to testify against Bankman-Fried after pleading guilty to fraud charges in cooperation deals that could win them substantial leniency at sentencing.
The others are Carolyn Ellison, Alameda Research’s former chief executive and a former girlfriend of Bankman-Fried, and Nishad Singh, the former engineering director at FTX.
Earlier in the day, jurors heard testimony from Adam Yedidia, who said he developed software for FTX before quitting the company when he learned last November that Alameda had used money from investors to pay creditors.
He said he lived with Bankman-Fried and other top executives in June or July of 2022 when he told Bankman-Fried one day that he was concerned that Alameda owed FTX a large debt. He said he wanted to know if things were OK.
“Sam said something like, ‘We weren’t bulletproof last year. We’re not bulletproof this year,’” he recalled. When he asked how long it might take to become bulletproof again, he said a seemingly nervous and worried Bankman-Fried responded that it could take three months to three years.
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