Mon. Feb 26th, 2024

Former FTX Chief Government Sam Bankman-Fried, who faces fraud fees over the collapse of the bankrupt cryptocurrency trade, walks outdoors the Manhattan federal court docket in New York Metropolis, U.S. March 30, 2023. 

Amanda Perobelli | Reuters

FTX founder Sam Bankman-Fried informed jurors in his felony trial on Friday that he did not commit fraud, and that he thought the crypto trade’s outdoors expenditures, like paying for the naming rights at a sports activities enviornment, got here out of firm income.

Bankman-Fried addressed the New York courtroom a day after U.S. District Choose Lewis Kaplan despatched jurors residence early to contemplate whether or not some elements of the defendant’s deliberate testimony, associated to authorized recommendation he bought whereas operating FTX, can be admissible in court docket.

On Friday morning, protection lawyer Mark Cohen requested Bankman-Fried if he defrauded anybody.

“No, I didn’t,” Bankman-Fried responded.

Cohen adopted by asking if he took buyer funds, to which Bankman-Fried mentioned “no.”

Bankman-Fried, 31, faces seven felony counts, together with wire fraud, securities fraud and cash laundering, that would land him in jail for all times if he is convicted. Bankman-Fried, the son of two Stanford authorized students, has pleaded not responsible within the case.

Previous to the defendant’s look on the stand, the four-week trial was highlighted by the testimony of a number of members of FTX’s prime management staff in addition to the individuals who ran sister hedge fund Alameda Analysis. All of them singled out Bankman-Fried because the mastermind of a scheme to make use of FTX buyer cash to fund all the things from enterprise investments and a high-priced condominium within the Bahamas to overlaying Alameda’s crypto losses.

Courtroom sketch displaying Sam Bankman Fried questioned by his lawyer Mark Cohen. Choose Lewis Kaplan on the bench

Artist: Elizabeth Williams

Prosecutors walked former leaders of Bankman-Fried’s companies by particular actions taken by their boss that resulted in shoppers shedding billions of {dollars} final yr. A number of of the witnesses, together with Bankman-Fried’s ex-girlfriend Caroline Ellison, who ran Alameda, have pleaded responsible to a number of fees and are cooperating with the federal government.

The choose’s resolution to ship the jury residence on Thursday allowed Bankman-Fried and his protection staff to audition their greatest authorized materials for Choose Kaplan.

‘Important oversights’

On Friday, Bankman-Fried acknowledged that one in all his largest errors was not having a danger administration staff or chief regulatory officer. That led to “important oversights,” he mentioned.

Cohen walked Bankman-Fried by his background and the way he bought into crypto. The defendant mentioned he studied physics on the Massachusetts Institute of Expertise and graduated in 2014. He then labored as a dealer on the worldwide desk at Jane Road for over three years, managing tens of billions of {dollars} a day in buying and selling. That is the place he discovered the basics of issues like arbitrage buying and selling.

Within the fall of 2017, Bankman-Fried based Alameda Analysis.

“This was when crypto was beginning to develop into publicly seen for the primary time,” Bankman-Fried testified.

He mentioned individuals had been enthusiastic about it, watching bitcoin, which had jumped from $1,000 to $10,000 in a two-month interval. Banks and brokers weren’t concerned but and it appeared like there would most likely be large demand for an arbitrage supplier, he mentioned.

“I had completely no thought” how cryptocurrencies labored, Bankman-Fried mentioned. “I simply knew they had been issues you may commerce.”

The primary Alameda workplace was in an Airbnb in Berkeley, California, he mentioned. It was listed as a two bed room however they used the sofa in the lounge as a 3rd mattress and in addition used the attic.

He began FTX in 2019. Buying and selling quantity grew considerably on FTX from a couple of million {dollars} a day to tens of thousands and thousands of {dollars} that yr to lots of of thousands and thousands of {dollars} in 2020. By 2022, that quantity was as much as $10 billion to $15 billion of {dollars} per day in buying and selling quantity, he mentioned.

Bankman-Fried mentioned Alameda was permitted to borrow from FTX, however his understanding was that the cash was coming from margin trades, collateral from different margin trades or property incomes curiosity on the platform.

At FTX, there have been no normal restrictions on what may very well be completed with funds that had been borrowed so long as the corporate believed property had been better than liabilities, Bankman-Fried testified.

In 2020, a routine liquidation gone unsuitable led to among the particular borrowing permissions at Alameda, he mentioned. The danger engine was sagging below the burden of progress. A liquidation that ought to have been within the 1000’s of {dollars} was within the trillions of {dollars}. Alameda was all of a sudden underwater due to closing the place.

The incident uncovered a bigger concern, that the potential of an misguided liquidation of Alameda may very well be disastrous for customers.

Bankman-Fried mentioned he talked to FTX’s engineering director Nishad Singh and co-founder Gary Wang, each of whom testified earlier on behalf of the prosecution. They instructed creating an alert, which might immediate the consumer to deposit extra collateral, or a delay, Bankman-Fried mentioned. They later applied a characteristic like that, he mentioned, including that he discovered it was the “enable detrimental” characteristic.

Bankman-Fried testified that he wasn’t conscious of the quantity Alameda was borrowing or its theoretical max. So long as the web asset worth was constructive on the trade and the dimensions of borrowing was affordable, growing the road of credit score so Alameda might maintain filling orders was superb, he mentioned. Bankman-Fried added that he now believes what Singh and Wang did was enhance the road of credit score.

Robust promote

Convincing the jury will likely be a tall order for Bankman-Fried after a mountain of damning proof was offered by the federal government.

Prosecutors entered corroborating supplies, together with encrypted Sign messages and different inside paperwork that seem to point out Bankman-Fried orchestrating the spending of FTX buyer cash.

The protection’s case, which consists of Bankman-Fried’s testimony together with that of two witnesses who took the stand Thursday morning, hinges largely on whether or not the jury believes the defendant did not intend to commit fraud.

On Thursday, below questioning led by Cohen, Bankman-Fried appeared to position a lot of the felony blame on FTX’s chief regulatory officer, Dan Friedberg, in addition to outdoors counsel Fenwick & West, which suggested the crypto trade. Bankman-Fried spoke about Friedberg’s lively involvement in all the things from the companywide auto-deletion coverage on messaging apps like Sign, to the creation of Alameda’s North Dimension checking account, the place billions of {dollars} value of FTX buyer cash was funneled.

The previous FTX chief additionally mentioned that the lots of of thousands and thousands of {dollars} in private loans to himself and different founders of the platform had been structured by promissory notes drafted by his in-house authorized staff and mentioned in live performance along with his normal counsel and Friedberg. Having the blessing of his authorized counsel was one thing that Bankman-Fried mentioned he “took consolation in.”

The emblem of FTX is seen on a flag on the entrance of the FTX Area in Miami, Florida, November 12, 2022.

Marco Bello | Reuters

In afternoon testimony, Bankman-Fried was requested about FTX’s advertising and promotions.

He mentioned there have been 15 individuals on the advertising staff, and famous that he bought extra concerned with it as time progressed. Specifically, he mentioned the naming rights in 2021 for the basketball enviornment in Miami, which was to be a 19-year deal for $135 million.

Bankman-Fried mentioned the sponsorship of FTX Area would ship returns for the corporate and create extensive model consciousness as a result of even he, as an “common stage sports activities fan,” might identify dozens of stadiums. He mentioned the funding can be about $10 million a yr, or 1% of income. The corporate had been deciding amongst a couple of totally different stadiums, together with the properties to the NFL’s New Orleans Saints and Kansas Metropolis Chiefs, Bankman-Fried mentioned.

A vital a part of his testimony got here when Bankman-Fried mentioned he thought the stadium deal funding was coming from income from the trade and returns from enterprise investments, versus buyer cash.

Equally, Bankman-Fried testified that he believed the lavish Bahamas properties had been being paid for with FTX working money that got here from income and enterprise investments. He mentioned having accessible property to lease was a needed incentive if the corporate wished to poach builders from Fb and Google.

As for the enterprise investments, Bankman-Fried mentioned he thought that cash was coming from Alameda’s working income and third-party lending desks. Alameda’s enterprise arm was renamed Clifton Bay Investments, which Bankman-Fried mentioned was a primary step in constructing a devoted enterprise model.

When requested about loans he took from the enterprise, Bankman-Fried mentioned they had been to pay for enterprise investments and political donations. He mentioned that, as the first proprietor of Alameda, he thought he had a couple of billion {dollars} in arbitrage revenue from the previous few years and there was no motive he could not borrow from it. He mentioned the loans, aside from the newest one previous to the agency’s chapter submitting, had been all documented by promissory notes.

Bankman-Fried mentioned he by no means directed Singh or former FTX government Ryan Salame to make political donations. Salame pleaded responsible in September to federal marketing campaign finance and money-transmitting crimes, admitting that from fall 2021 to November 2022, he steered tens of thousands and thousands of {dollars} of political contributions to each Democrats and Republicans in his personal identify when the cash truly got here from Alameda.

Bankman-Fried, who allegedly used FTX buyer funds to assist finance over $100 million in political giving throughout the 2022 midterms, testified that he talked to politicians about pandemic prevention and crypto regulation. He mentioned he had a vested excited about crypto coverage despite the fact that FTX’s U.S. operation was comparatively small, as a result of the corporate was searching for to supply crypto futures merchandise within the U.S.

Bankman-Fried then mentioned his public persona. He mentioned he hadn’t meant to be the general public face of the corporate as a result of he is “naturally introverted.” However a couple of interviews went nicely, and it snowballed from there. He mentioned he was the one individual on the firm that the press sought.

He wore T-shirts and shorts as a result of they had been comfy and mentioned he let his hair develop out as a result of he was busy and lazy.

Bankman-Fried was photographed on the 2022 Tremendous Bowl in Los Angeles with Katy Perry. He informed the jury, which was beforehand offered with the photograph by the prosecution, that he thought it was pure to go to the sport as a result of he was on the town for conferences and the corporate had a business operating.

“I assumed possibly it could be attention-grabbing,” he mentioned.

The afternoon testimony largely targeted on Bankman-Fried’s repeated and unsuccessful request to Ellison that she hedge Alameda’s danger. Bankman-Fried mentioned in late 2021, he had talked to Ellison about placing on trades to guard in opposition to the danger of market strikes since Alameda had been leveraged lengthy, which means they’d lose cash if market went down.

Ellison mentioned she would look into it, which Bankman-Fried mentioned he “interpreted” as her being “far much less keen about it.” Over the course of 2022, Bankman-Fried mentioned each two months he would examine in to see if Alameda had hedged, and every time he was informed not but, however Ellison would say she was planning to take action within the close to future.

Particularly, Bankman-Fried mentioned he had talked with Ellison and Ramnik Arora, who had been the pinnacle of product at FTX, about placing a $2 billion hedge on the corporate’s funding in Genesis Digital Property, a bitcoin miner. He informed the jury that the hedge was by no means made.

There was additionally extra element on how Bankman-Fried was informed about FTX’s $8 billion legal responsibility. In keeping with the defendant, in October 2022, builders constructed a Google database that included monetary information. That is the place Bankman-Fried seen the detrimental $8 billion stability, which he mentioned he was “very stunned” to see.

Bankman-Fried testified that he’d began taking a extra complete have a look at whole property. He mentioned he was comfortable to pledge all the things he had as backup for the liabilities.

Cohen then introduced the jury by the summer season months of 2022, a time when Alameda’s lenders, particularly Genesis, BlockFi, Celsius and Voyager, all had direct conversations with Bankman-Fried in regards to the want for emergency capital. In the long run, solely BlockFi and Voyager obtained funds from Alameda and Bankman-Fried.

In late 2021 and early 2022, Bankman-Fried mentioned he wished FTX income to be above $1 billion as a result of it was a spherical quantity. He requested firm executives if there have been methods to achieve that mark. Singh mentioned he’d handled it by staking the corporate’s funding in crypto token Serum, a means of placing the cash to work. That might add one other $50 million in income. Bankman-Fried testified that he was “somewhat stunned” they discovered that further cash, but it surely bought him to $1 billion.

— CNBC’s Daybreak Giel contributed to this report

WATCH: Sam Bankman-Fried testifying in his felony case

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