On Friday, Sam Bankman-Fried sat on the stand, once again in an oversized gray suit and purple tie, and testified in front of a jury. He’s on trial for seven charges related to fraud and money laundering and has been sitting silently the past four weeks, waiting for his chance to speak.
Bankman-Fried co-founded FTX in 2019 alongside Gary Wang, after they co-founded crypto trading firm Alameda Research in the fall of 2017. At the time, they were 25 years old with no history of starting a company, he said. When he got into the crypto world, he said he knew “basically nothing.” But over time, he said, his vision grew to “build the best [crypto exchange] product on the market” and to “move the ecosystem forward.”
“Turned out [to be] the opposite of that,” Bankman-Fried said. “A lot of people got hurt.”
When asked by his lead lawyer, Mark Cohen, whether he defrauded or took customer funds, Bankman-Fried said, “No, I did not.”
On Thursday, Judge Lewis Kaplan heard from Bankman-Fried without a jury to determine whether his testimony could be shared with jurors. Among those topics: FTX’s data retention policy, the fact that he “skimmed over” terms of service, Alameda’s use of the exchanges’ customer funds, and more information about Dan Friedberg, who Bankman-Fried hired to be FTX’s general counsel.
On the stand on Friday, Bankman-Fried seemed more thoughtful with his answers than he had the previous day. “I made a number of small mistakes,” Bankman-Fried said Friday. But he said the biggest mistake was having no risk management team at FTX, which led to “significant oversights.”
FTX grew its users into the “millions” before its collapse, and revenue expanded from $10 million to $20 million in 2019, to $80 million in 2020 and to $1 billion in 2021. Daily revenue in 2021 was $3 million, Bankman-Fried said. At the time, FTX had teams that managed compliance, legal, KYC (know your client) and other areas.
As FTX grew, “it became untenable” to run the exchange and Alameda as CEO, he said. So in 2021, he tapped Caroline Ellison and Sam Trabucco to be co-CEOs. Trabucco left the company in May 2022. Even though he was no longer the face of the crypto firm, Bankman-Fried said he was still involved in venture, hedging and risk management for Alameda while running FTX.
Every row in the courtroom’s galley was full for the testimony on Friday, but the room stayed mainly silent aside from what was happening at the front of the room.
When asked whether Alameda “borrowed” money from FTX, Bankman-Fried said his understanding was that the funds came from the exchange’s users who were margin trading, and it was the collateral from them. He said that the money was “sent to FTX for security” and “lent out to Alameda.”
During the first two years, Alameda was the “biggest” payment processor for FTX, he said. People would wire money to Alameda accounts to deposit their funds into FTX because the exchange didn’t have its own bank account at the time.
When asked whether the funds were tracked, Bankman-Fried said, “Wish I had a better understanding,” adding that FTX didn’t have custody of the assets — Alameda did. “At the time I wasn’t entirely sure what was happening with the funds.” He said he thought they were sitting in Alameda’s account and sent to FTX “or if Alameda ‘borrowed’ that it would be reflected and ultimately owed back to FTX.”
FTX didn’t have restrictions with funds it borrowed, he said: So long as Alameda’s assets were greater than their liabilities, it was OK to use funds.
But in earlier testimony, prosecutors highlighted the terms of service, which did not permit the exchange to touch customer funds. One provision stated that “none of the digital assets in your accounts are the property of, or shall or may be loaned to FTX trading”; there was another that said customers “control the digital assets held in your account.”
The defense did not ask Bankman-Fried about those provisions.
Comment