SBF trial recap: ‘FTX was not fine, assets were not fine’

Here’s everything that happened during week one of the Sam Bankman-Fried trial

article-image

Artwork by Crystal Le

share

Sam Bankman-Fried is being tried for seven counts of federal offenses in a Manhattan courthouse. While the trial is expected to last roughly six weeks, there’s a chance it runs longer. 

The prosecution told the judge on Thursday, “We’re a little behind where we were hoping to be at the end of the week.” Anthony Scaramucci, whose name was mentioned in a long list of possible witnesses or people who may be mentioned throughout the trial, said that he thinks the trial will be done by Christmas.

The prosecution and the defense set the tone of the trial in their opening remarks

Lawyers representing the government claimed that Bankman-Fried “lied to the world” and “stole billions of dollars from thousands of people.”

Alameda received “special access” from FTX, they continued. 

Bankman-Fried’s legal team attempted to set up his character: “a math nerd who didn’t drink or party.” He didn’t “defraud anyone…Sam didn’t intend to defraud anyone.”

“Working on a startup, or at a startup, is like building a plane while you’re flying it,” attorney Mark Cohen said of FTX’s work environment. 

Following jury selection and opening statements, the first week really boiled down to what the witnesses had to say. The prosecution presented its initial four witnesses, clearly building out the government’s intended approach for the duration of the trial.

Here’s a look at everyone we’ve heard from during week one as we get ready for a slew of new witnesses this week, including ex-Alameda CEO (and Bankman-Fried’s ex-girlfriend) Caroline Ellison.

In December 2022, Ellison pleaded guilty to two counts of conspiracy to commit wire fraud, two counts of wire fraud, a count of conspiracy to commit commodities fraud, conspiracy to commit securities fraud, and conspiracy to commit money laundering.

Gary Wang

FTX co-founder and co-owner of Alameda took the stand on Thursday. He didn’t mince words, with his testimony and cross-examination going late into the afternoon on Friday. Wang pleaded guilty alongside Ellison last year, with slightly fewer charges.

The prosecution began his testimony by asking if he had committed crimes while working at FTX, and Wang simply said, “Yes.”

He added that he, alongside Bankman-Fried, Engineering chief Nishad Singh and Alameda CEO Caroline Ellison committed wire fraud, securities fraud and commodities fraud

When asked specifically how Wang committed wire fraud with SBF, he said, “We gave special privileges to Alameda Research on FTX, which allowed it to withdraw unlimited amounts of funds from the platform, and we lied about this to the public.”

Basically, FTX allowed Alameda to withdraw “unlimited amounts of money,” it didn’t matter what was in the account and didn’t even matter if it was negative. This was done through coding, which both Singh and Wang were in control of. Bankman-Fried, Wang said on Friday, asked for Alameda to be granted “special privileges.”

The funds, which obviously have to come from somewhere, came from customer deposits. 

Wang disputed on Friday the infamous Nov. 7 tweet from Bankman-Fried, in which SBF assured customers that “FTX is fine. Assets are fine.”

“FTX was not fine. Assets were not fine” and FTX did not have enough assets for customer withdrawals, Wang said.

By the time FTX declared bankruptcy, Alameda had withdrawn $8 billion, a number we heard in a previous testimony. 

Adam Yedidia

Yedidia was a former friend, college roommate, and employee of Bankman-Fried. He first took the stand on Wednesday, with his testimony and cross-examination lasting till Thursday afternoon. Suffice it to say, Yedidia — who quit FTX before the bankruptcy — had a lot to say

Yedidia was one of the handful who lived in the $35 million Bahamian condo alongside Bankman-Fried. He worked as a developer for FTX, reporting to Nishad Singh, the former director of engineering at FTX.

Through Yedidia’s testimony, the court and spectators learned a few things: there was a bug that Yedidia fixed, leading to him learning about the $8 billion figure that Alameda owed to FTX. He also had a meeting with SBF where Bankman-Fried admitted that FTX was not ‘bulletproof.’

Let’s start with the bug.

The error caused FTX’s liability to FTX customers to be higher than it was. Yedidia fixed it and found that Alameda owed roughly $8 billion to FTX customers back in June 2022. 

Yedidia conducted a post-mortem on the bug, sharing his findings in a document via Signal. He explained that Bankman-Fried had directed employees to set messages to auto-delete on the encrypted messaging app.

“He said that it was all downside for messages to be kept around,” Yedidia explained. “If regulators found something they didn’t like in those messages, that could be bad for the company.”

Yedidia said that the $8 billion figure concerned him, prompting him to meet with Bankman-Fried at a paddle tennis court.

“We were bulletproof last year but we’re not bulletproof this year,” Bankman-Fried told Yedidia in 2022. 

When asked about a timeline for re-achieving “bulletproof” status, Bankman-Fried said, “I’m not sure…maybe something like six months to three years.”

Bankman-Fried seemed “worried, or nervous” after the conversation, according to Yedidia.

Matt Huang, Marc-Antoine Julliard

Two other witnesses took the stand this week, Paradigm co-founder Matt Huang and former FTX customer Marc-Antoine Julliard. 

Let’s start with Huang. He explained that Paradigm invested around $278 million into FTX and FTX.US, an investment that is now worth $0. 

He also said he pushed Bankman-Fried to establish a more traditional governance structure, including a board of directors. Bankman-Fried allegedly seemed reluctant to appoint investors — such as Paradigm — to the board. 

Huang noted his concerns about potential “special privileges” being granted to Alameda at the time, though he was reportedly assured that it wasn’t the case. 

Don’t miss a moment of SBF’s time in court. Stay up to date with all trial coverage from Blockworks.

Julliard, the first witness in the fraud trial, talked about the trust he had in Bankman-Fried and FTX. He believed that SBF wanted to “do good” for the industry,” and believed SBF was a “leader of the [crypto] industry.”

Julliard kept both crypto and fiat in his FTX collapse up to the “FTX is fine. Assets are fine,” tweet from Bankman-Fried. When he made a withdrawal attempt the next day, “it was never processed.”


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

Mon - Wed, March 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience: Attend expert-led panel discussions and fireside chats Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts.

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research report - cover graphics (1).jpg

Research

In this report, we dive into crypto private market data to gather insights on where the future of the industry is headed. Despite a notable downturn in private raises, capital continues to infuse promising projects that aim to transform payments, banking, consumer experiences, community, and more, with 2023 being the fourth-largest year for crypto venture capital.

article-image

Revolut said that the standalone crypto exchange is currently “invite only”

article-image

The stock price jump comes after Coinbase reported ending its seven-quarter run of net losses during the fourth quarter

article-image

BUZZ holds shares of Coinbase, Robinhood and MicroStrategy

article-image

Opinion: Even though I didn’t pay for my “Diamond Hands” burger with BTC, don’t let that fool you into thinking that crypto’s development is futile

article-image

The results mark “a major positive inflection point,” one analyst says, as the exchange carries net income momentum into a crypto rally

article-image

While the slate of 10 US spot bitcoin funds have tallied $4.6 billion of net inflows thus far, half of the field is lagging the leaders