That's a wrap: SBF concludes Friday testimony
The much-awaited testimony of FTX founder Sam Bankman-Fried in his fraud trial concluded for the week as court proceedings wrapped up on Friday. He will be back in court on Monday, where the federal judge overseeing the case said he anticipates the trial will soon begin to wind down.
Bankman-Fried is facing of a number of charges related to accusations that he siphoned billions of dollars from FTX customers to plug a shortfall at Alameda Research, a hedge fund connected to FTX.
He has pleaded not guilty to all charges. Here is what we learned from Bankman-Fried’s time on the stand today.
Bankman-Fried denies charges: The former executive said on the stand that he did not defraud anyone or take customer funds, but admitted to “significant oversights”. He said he started FTX to create “the best exchange on the market” but it turned out to be “basically, the opposite”.
Defense tries to explain deleted messages about alleged fraud: Much of the trial has centered around the deletion and encryption of communication at FTX and whether it was done so purposefully to obscure fraudulent activity. He said lawyers approved of FTX auto-deleting communications, and that he believed it was allowed under FTX data retention policies. He also stated that the company encrypted communications due to “concern[s] about hacking attempts” and ex-employees interfering in its business.
Bankman-Fried says he knew ‘basically nothing’ about cryptocurrency when he founded FTX: “I had absolutely no idea how they worked,” he told his lawyer on the stand. “I just knew they were things you could trade.”
Bankman-Fried seeks to blame Alameda Research for failures: Many of the fraud allegations center around FTX dealings with Alameda Research – a hedge fund it was closely tied to that was helmed by Bankman-Fried’s former romantic partner Caroline Ellison. Ellison has become a star witness for the prosecution, accusing Bankman-Fried of brazen fraud. Bankman-Fried meanwhile has criticized Ellison’s management practices, and stated that he repeatedly advised her to hedge Alameda Research assets against potential losses, but that she refused. Bankman-Fried testified that FTX borrowed funds from Alameda Research with the understanding that the firm had enough assets to cover its liabilities, when it in fact did not.
Attorneys seek to humanize their notoriously-unconventional defendant: Bankman-Fried has long been criticized for his persona, with some saying he purposefully curated his affect and appearance as that of a tech savant. His ex-girlfriend Caroline Ellison testified that he made aesthetic choices like not cutting his hair to put forward a more compelling image. Attorneys sought to dispel this, asking him about his habits as an executive and the unusual set-up of FTX employees, who at one point lived together in a sprawling apartment in the Bahamas. The executive said he became the face of the company “somewhat by accident” and said the co-living set up of FTX “served as an office away from the office”. He also stated that his relationship with Ellison began in 2020 and had dissolved by spring 2022.
Updated
Bankman-Fried seeks to pin blame on Alameda Research and Ellison
The remainder of Bankman-Fried’s testimony on Friday dove further into the final months of Alameda Research and FTX. His team sought to blame Caroline Ellison, the head of Alameda Research and former romantic partner of Bankman-Fried, for the collapse.
Bankman-Fried said he repeatedly suggested Alameda Research hedge its holdings against market crashes, making it more stable in the case of mass crypto decline. He claims he brought up the topic a number of times, including in late 2021 and again in August 2022.
“I became fairly concerned about Alameda’s risk. “It had not hedged against the market crashes despite the many conversations about hedging.”
Bankman-Fried said Ellison said she would look into hedging, but never followed through. He said that if there had been “sufficient quantity of hedges made the previous year”, it would have offset the major losses Alameda experienced as the crypto market declined.
Defense attorney Mark Cohen showed the court a list Ellison had created titled “Things Sam is freaking out about.” At the top of this list? Hedging.
“Were you freaking out?” Cohen asked.
“I don’t tend to show a lot of freakout-ness but relative to my standard, yes,” Bankman-Fried said.
Bankman-Fried said he felt that Alameda was in peril and made a number of critical statements regarding his former romantic partner Ellison and her management practices.
“Its culture had been decaying somewhat,” Bankman-Fried said. “It was harder and harder for Alameda to hire good employees – chiefly because they kept going to FTX instead.”
On the stand, Bankman-Fried described a message he sent around that time stating that Alameda Research may need to shutter because it had not hedged.
“The fact that we should have hedged alone cost more in [expected value] than all of the money Alameda has ever made or ever will make, and that’s the kind of critical mistake we’re likely to make if I’m not actually running the show there,” he wrote at the time.
He expressed similar views in a conversation he had with involved parties – including Ellison, FTX co-founder Gary Wang, and FTX director of engineering Nishad Singh – at the time.
“And what was Caroline’s view?” Cohen said.
“She did not think we should [shutter Alameda],” Bankman-Fried replied.
“And did you end up shutting Alameda down in September?” the attorney asked.
“No,” Bankman-Fried said.
Updated
Bankman-Fried discusses 2022 crypto crash and decline of FTX
Bankman-Fried is now answering questions about the crypto crash in spring 2022 and its impact on Alameda Research, a hedge fund closely associated with FTX, through which Bankman-Fried allegedly funneled FTX customers’ cash.
Alameda Research was headed by Caroline Ellison, the ex-girlfriend of Bankman-Fried who has become a star witness against him in the trial.
Bankman-Fried said that when “the whole crypto market” fell at the time, it had a large impact on Alameda Research, which was leveraged long in the market. The nearly $40bn in assets it had as of late 2021 had fallen to just $10bn in June 2022.
“That basically means it had a bunch of assets that were correlated with the market and it had loans, liabilities, many of which were in dollars,” he said. “And as the market crashed, the value of its assets [decreased].”
The testimony alluded to a point the defense team for Bankman-Fried made at several prior junctures during the trial: that Alameda ailed financially due to Ellison’s refusal to hedge – despite Bankman-Fried’s suggestion she do so.
Answering Cohen’s questions, Bankman-Fried said he first discussed hedging with Ellison in late 2021, but that she seemed hesitant to do so.
“I would check in periodically to see if Alameda had, in fact, hedged, and was told each time that it had not done so but was planning to … in the near future.”
Bankman-Fried said he first learned that Alameda Research was saddled with debt in summer 2022, when Ellison approached executives and said she was concerned the firm “might have just gone bankrupt”.
“She was nervous,” Bankman-Fried said of her demeanor. “She asked what we should do, what we should tell Alameda’s lenders … I was very surprised and very concerned.”
Bankman-Fried said before determining what to do, the company had to investigate what was happening. At that time, he enlisted two FTX confidants to analyze their books and discovered a bug that made Alameda seem like it was some $16bn in debt, when it wasn’t.
But they also discovered that it had $8bn debt.
Updated
SBF again questioned about data practices at FTX
Much of the case has focused on business practices at FTX that prosecutors say show evidence that Bankman-Fried purposefully obscured his wrongdoing.
In questioning on Friday, the defense team attempted to explain away the two biggest allegations – Bankman-Fried’s deletion of messages and use of encrypted communications.
FTX used encrypted communications as a protective measure, Bankman-Fried said, explaining the company was “concerned about hacking attempts” and ex-employees interfering in its business.
Bankman-Fried said he had also heard of, and reviewed, the FTX data-retention policy. “My understanding was that there were groups of documents and records of communications that needed to be conserved for the foreseeable future,” he said.
Updated
SBF legal team attempts to humanize the notoriously unconventional executive
Questioning in the second part of the day made it clear that defense attorney Mark Cohen was doing his best to humanize the quirks of Sam Bankman-Fried, whose testimony has been largely unemotional and matter-of-fact.
Bankman-Fried has long been criticized for his persona, with some saying he purposefully curated his affect and appearance as that of a tech savant. His ex-girlfriend Caroline Ellison testified that he made aesthetic choices like not cutting his hair to put forward a more compelling image. Defense attorneys sought to dispel the prosecution’s narrative of a hubristic and inauthentic tech executive seeking to profit at all costs.
“Who was responsible for being the public face of FTX?” Cohen asked.
“I was,” Bankman-Fried said. “It was an accident at first – I hadn’t intended to be a public face of anything. I’m somewhat introverted naturally.”
Bankman-Fried described how interviews “ended up going better than I thought they would”, leading to more and more press appearances.
“Even when it became sort of overwhelming, when there were more PR and interview requests than I could manage … By that point, it was too late to have a new public face of that company,” he said.
Cohen also addressed Bankman-Fried’s unconventional physical appearance, asking why the executive wore shorts and T-shirts to work and had unkempt hair.
Bankman-Fried also described his efforts to influence politics in seemingly altruistic terms saying that of the issues that most concerned him, “pandemic prevention being the chief one, I had a belief that the most effective way to help prepare the world for future pandemics was through policy”.
Updated
SBF is questioned about co-living at FTX, his relationship with Ellison – and poker
When testimony resumed after a lunch break on Friday, lawyers for Bankman-Fried dove into questioning about the unusual housing and lifestyle habits of FTX employees. The former executive was also questioned about his romantic relationship with the former Alameda CEO, Caroline Ellison – a star witness for the prosecution.
Bankman-Fried was asked about his luxe apartment at the Albany, a sprawling development in the Bahamas. Bankman-Fried said that he had been living in a different area, but when multiple FTX employees set down roots there, it seemed like a good idea to be there too.
After a month living with two company execs, he said, “we moved into a larger apartment for 10 of us. … It replicated the living experience, in some sense, that we had in college."
“It also served as an office away from the office … it gave us a good spot to hang out to chat after work.”
Cohen then showed a photo of Bankman-Fried holding playing cards, which the prosecution previously displayed in court.
“Why did you hold playing cards?” Cohen asked.
Bankman-Fried appeared to chuckle.
“I compulsively fidget with things with my hands,” he said. “For a while I had decks of playing cards … I would go through a deck a week or so before the cards got worn out.”
Eventually, he “transitioned to fidget spinners”, he said.
“Ever play poker?” Cohen asked.
“No, haven’t for years.”
“Did you ever go to Las Vegas?” Cohen said, prompting an objection from the prosecution.
He then asked about Bankman-Fried’s emotional entanglement with Ellison. Bankman-Fried said the two began dating on and off starting in 2020, and that their final breakup was in spring 2022. Cohen asked the reason for the relationship’s end.
“I didn’t have the time or the energy to put in what I think she wanted from our relationship,” Bankman-Fried said. “It wasn’t the first time that I’d had that problem,” he added, saying he has struggled to sustain romantic relationships.
Cohen asked Bankman-Fried if he had “philosophical conversations” with Ellison, and established that she often initiated them.
“Generally, she would take a contrarian position on some philosophical topic, and we’d debate it,” Bankman-Fried said.
Cohen’s question on their philosophical tête-à-têtes is an apparent effort to undermine Ellison’s testimony about Bankman-Fried’s philosophical discourse. She relayed during her testimony that his brand of utilitarianism made it easier to lie and cheat.
Updated
Bankman-Fried testifies that he worked a lot as CEO of FTX
As the morning session neared the lunch break, defense attorney Mark Cohen tried to bolster Bankman-Fried’s contention that he was hopelessly overloaded and thus could not have known how wrong things were going at FTX, the now-bankrupt cryptocurrency exchange he founded. Cohen noted how FTX went from single-digit millions of daily trading in 2019 to tens of billions in 2022.
“When you started FTX in 2019, did you expect this level of growth?” Cohen asked.
“Absolutely not,” said Bankman-Fried.
“Did FTX at that time have a risk management department?” Cohen asked.
“We sure should have but no, we did not,” Bankman-Fried said.
Cohen asked how much SBF worked.
“Light [day], 12 hours or so, on a heavy [day], 22 probably,” Bankman-Fried said.
“How many emails did you receive in a typical day?” Cohen asked.
“Uh, thousands,” Bankman-Fried said. “I was shooting for inbox 60,000. Sixty thousand unread messages would be a slightly less overwhelming number. I didn’t usually succeed.”
Updated
Bankman-Fried testifies about the central role of FTX’s own crypto token in the collapse
Defense attorney Mark Cohen’s questioning is again intimating that nothing was particularly awry with how FTX operated or Bankman-Fried’s business decisions. The attorney brought up the bankrupt exchange’s terms of service, which were finalized in early to mid-2022, and asked Bankman-Fried about this.
While it’s unclear how much jurors will care about FTX’s terms of service to some extent, there was a provision in them that let a client’s balance be clawed back to cover others’ losses in some situations, including futures trading.
Bankman-Fried also answered questions about FTT, the FTX-created cryptocurrency. FTT’s role in the stunning collapse of FTX and Alameda Research, the exchange’s closely associated hedge fund, can’t be overstated.
In late 2022, customers rushed to withdraw money out of FTX following a report that Alameda’s loans were extensively buoyed by FTT, meaning that a possible decline could make everything crumble.
During his testimony, Bankman-Fried tried to make FTT sound like a creation that was good for the company and the customers.
“The purpose of FTT was to be a token that users of FTX could buy and trade if they wanted,” Bankman-Fried said, and that “would give their account benefits if they held it”. Most non-American crypto exchanges, Bankman-Fried noted, issued their own house-brand tokens.
“Did you ever hear the term ‘buy and burn’?” asked Cohen.
“Yes. So one of the features of FTT was the feature of buy and burn,” Bankman-Fried said. “What that refers to is every week, FTX would take one-third of the money it made that week and would use that to buy FTT tokens and burn them.”
“So for instance, if FTX had 3m of rev in a week, it would take 1m of those dollars and use that to buy FTT tokens, effectively giving value to FTT token holders,” he said.
Updated
Did Bankman-Fried manage risk at all?
As Bankman-Fried is describing the growth of his exchanges, he is trying to firm up the claim that things spiraled out of control due to growing pains and not ill intent.
With Alameda Research – which prosecutors said illegally used customer funds to support itself during crypto’s crash – Bankman-Fried said that borrowing from FTX was in keeping with the setup of the exchange and its sister hedge fund.
Alameda was a customer of FTX, so it was allowed to borrow from it, he said.
“So long as we believed that the risk was being managed, which is to say, so long as we believed its assets were greater than its liabilities, we didn’t care if the user, you know, withdrew funds and used them to buy muffins, to pay business expenses, to invest or anything else,” he said.
Bankman-Fried did describe technical issues – which he feared could have ruinous consequences – as growth swelled from a few million in daily trading in 2019 to billions in 2022.
FTX’s “risk engine” – which, as simply put as possible, was a software intended for closing positions that fell below a safe level – malfunctioned at one point, putting Alameda at risk.
“It grew into a ridiculous set of erroneous trades,” Bankman-Fried said. “Once we realized – once the humans realized – what was really happening, we shut it down.”
“It was still a really inconvenient event for everyone involved – the exchange was basically unusable for an hour and it was scary,” he added.
The question of whether Bankman-Fried is a crypto criminal mastermind or just an unlucky “math nerd” has been at the center of the fraud trial.
Updated
Bankman-Fried says he knew 'basically nothing' about cryptocurrency
Sam Bankman-Fried said he didn’t know much about cryptocurrency before launching FTX and its closely associated hedge fund Alameda Research. Prosecutors allege he siphoned billions in FTX customer funds for his own ends via Alameda. Bankman-Fried has denied wrongdoing.
“I had absolutely no idea how they worked,” he told his lawyer on the stand. “I just knew they were things you could trade.” He said he saw an opportunity, gaps in knowledge – there was a lot of excitement about crypto, but bigger, more established trading outfits didn’t have the framework to create exchanges. He said he thought there was “maybe a 20 percent chance” that FTX would be successful and “maybe an 80 percent chance…that we’d fail.”
When he partnered with his co-founder Gary Wang – who has testified against him at this trial – Bankman-Fried said, “We had no idea at all how we’d get customers.”
Updated
Bankman-Fried’s defense tries to explain why he deleted so many messages
FTX executives automatically deleted their emails and messages on Signal, an encrypted texting app, including texts discussing company balance sheets. The practice, which began in 2021, has come up repeatedly at Bankman-Fried’s fraud trial, and his defense attempted to explain it during his Friday testimony.
Defense attorney Mark Cohen asked Bankman-Fried about his time at Jane Street, the trading firm where he worked prior to launching Alameda and FTX.
Asked about “The New York Times test”, Bankman-Fried said: “Basically anything that you wrote, there’s some chance it could end up on the front page on the New York Times.” In his case, it refers to his own writing and remarks as well as those of his ex-girlfriend Caroline Ellison. He leaked documents about her to the New York Times, and the Times published entries from her diary. She testified against him as the prosecution’s star witness.
During his testimony on Thursday, Bankman-Fried had said that he thought the FTX terms of service allowed the use of exchange customer funds for loans to Alameda and that lawyers had given their blessing to the automatic deletion of messages.
The exchange plays into Bankman-Fried’s efforts to push back on claims he was secretive for criminal and conspiratorial purposes. This also plays into discussion of data-retention policies. The defense is emphatically trying to convey that Bankman-Fried was not cleaning up potential evidence of wrongdoing by deleting messages, but just engaging in normal practices for financial institutions.
Thursday’s evidentiary hearing concerned FTX’s data-retention policies. Judge Lewis Kaplan was deciding what Bankman-Fried can and cannot say about his lawyers’ involvement in several business practices – including the drafting of FTX’s data-retention policy as well as terms of service.
Updated
Sam Bankman-Fried denies committing fraud but admits ‘significant oversights’
Within moments of starting his testimony, Bankman-Fried admitted that he made management mistakes.
The defense appears to be emphasizing the “overwhelmed math savant” argument to mitigate allegations of criminal intent.
“Mr Bankman-Fried, did you make any mistakes along the way?” the defense attorney asked.
“Yes, I made a number of small mistakes and a number of large mistakes. By far, the largest mistake was we didn’t have a dedicated risk management team,” Bankman-Fried said. “There were significant oversights.”
Bankman-Fried is now going over his personal history. He went to MIT and lived with people such as FTX co-founder Gary Wang and exchange developer Adam Yedida. Wang has pleaded guilty to wire and securities fraud and testified against Bankman-Fried earlier in the trial.
Updated
‘The defense calls Sam Bankman-Fried’
The defendant took the stand early on Friday in Manhattan federal court. It’s a risky decision, as it opens him up to cross-examination later.
When defense attorney Mark Cohen asked what he wanted to accomplish in creating FTX, Bankman-Fried answered: “We thought we would be able to build the best [exchange] on the market.”
“Did it turn out that way?” Cohen asked.
“No,” Bankman-Fried said. “Basically, the opposite.”
“Did you defraud anyone?” asked Cohen.
“No, I did not,” said Bankman-Fried.
“Did you take customer funds?” Cohen followed up.
“No,” said Bankman-Fried. Previous witnesses have said that FTX, under the direction of Bankman-Fried, misappropriated billions of its customers’ dollars.
Yesterday, Bankman-Fried took the stand in an evidentiary hearing before Judge Lewis Kaplan to determine what testimony would be admissible. The jury was not present. The entrepreneur, 31, is charged with seven counts of wire fraud and conspiracy to launder money.
Updated
‘Math nerd’ or crypto criminal? Question at heart of Sam Bankman-Fried’s trial
If there’s a single question that has dominated SBF’s fraud trial so far, it can be summed up as: which version of this tech bro do you believe?
Prosecutors have cast Bankman-Fried as the mastermind of a $10bn fraud, among the largest and most nefarious in American history. They say he selfishly squandered the money of customers who put their trust in FTX. He lavished the cash on ritzy properties, ill-gotten influence, glamorous travel and the highest-profile ads, all while concealing a hidden mountain of debt, they allege.
His lawyers, by contrast, have done their best to portray him as a wayward boy genius – a “math nerd who didn’t drink or party”, according to his lawyers’ opening statement. They describe the motivation for his actions not as malice so much as inexperience with normal business operations.
Bankman-Fried’s decision to take the stand in his own defense will offer jurors a chance to consider, in his own words, which version they should believe.
Updated
Caroline Ellison: what did we learn, and what does it mean for SBF's testimony?
In the second week of FTX founder Sam Bankman-Fried’s crypto fraud trial, Manhattan federal prosecutors called their star witness to the stand: former Alameda Research CEO Caroline Ellison. She delivered stunning, detailed testimony against the failed crypto mogul.
Her accusations offer a guide as to what Bankman-Fried may try and refute when he takes the stand today.
Here’s a recap of the five things we learned.
Summary
Sam Bankman-Fried is expected to testify in a New York City courtroom today, in what will likely be a blockbuster moment in the criminal fraud trial.
Bankman-Fried, 31, was charged with multiple crimes in the wake of the collapse of his cryptocurrency exchange, FTX. Prosecutors say the founder siphoned billions from FTX customers to plug a shortfall at Alameda Research, a hedge fund connected to FTX, to make speculative investments, and to donate to political campaigns.
During the weeks-long trial, former business partners and members of Bankman-Fried’s inner circle have taken the stand against him.
The prosecution’s star witness was Caroline Ellison, Bankman-Fried’s ex-girlfriend and the former CEO of Alameda. She testified that he directed her to commit crimes, saying that he siphoned $10bn in customer funds from FTX to prop up Alameda after a crash in the crypto market.
He has pleaded not guilty to all charges.
Updated
