Sam Bankman-Fried never wanted to be the face of FTX: SBF trial live updates
“We’re in the home stretch,” Judge Lewis Kaplan told the court Thursday
Artwork by Crystal Le
FTX co-founder Sam Bankman-Fried faces seven federal charges in a criminal trial taking place in Manhattan. The former crypto exchange exec is accused of misappropriating billions of dollars of customer funds for real estate, donations, political contributions and investments.
The current state of play: Bankman-Fried took the stand on Thursday, though no jury were present. He’s expected to take the stand yet again today, this time in front of the jury. After SBF wraps up his testimony, the defense’s case is pretty much wrapped, which means the jury can mull over the case before delivering a verdict. Read more here.
5:30 pm ET: Surprise!
Perhaps the most exciting thing to come from the roughly five hours of direct exam testimony we got from SBF Friday is his denial that he and Caroline Ellison ever discussed seven “alternative” balance sheets.
Ellison testified earlier this month that Bankman-Fried told her to create seven different versions of their real balance sheet, which the pair agreed was too bad to send to lenders asking for an update, according to Caroline. Bankman-Fried on Friday presented his version of the story: Ellison sent him one balance sheet, referenced in the government’s exhibit, which was provided by Ellison, as the “alt 7” tab.
The two agreed that this “alt 7,” although Bankman-Fried never confirmed it they called it by this name at the time, was “reasonable” and decided to send it to lenders, Bankman-Fried testified Friday.
“Surprised” was a word thrown around by SBF frequently during his late afternoon testimony as his lawyer, Cohen, covered alleged events at FTX and Alameda.
According to Bankman-Fried, a lot of information was dropped on him in 2022 prior to the collapse, like the real value of Alameda’s liability to FTX ($8 billion) and the fact that Alameda’s net asset value was not in the green.
When Ellison came to him, Singh, Wang and others in June 2022 proclaiming that Alameda may be bankrupt, he was “surprised and fairly concerned.”
Bankman-Fried was later told, he testified, that Ellison’s concern was not warranted; it was based on the $8 billion bug we have heard so much about. SBF thought once the bug was fixed, they were actually showing a positive net asset value of $8-$10 billion for Alameda, he testified Friday.
When Bankman-Fried said he learned of Alameda’s fiat liability to FTX amounting to $8 billion in Oct. 2022, he told the jury that he was surprised.
Bankman-Fried also claimed ignorance about the fiat@ account, which tracked Alameda’s fiat liability to FTX, as late as June 2022. This contradicts what the inner circle — particularly Singh and Wang who dealt with the FTX code most closely — has testified to previously.
The June 2022 conversation between Adam Yedidia and Bankman-Fried about FTX not being “bulletproof” was revisited. SBF confirmed he did use the word “bulletproof” but the context was not what Adam had implied, testifying that the conversation instead was about Alameda’s risk profile as opposed to the general financial state of the company.
At this time, bitcoin had just crashed roughly 70%, and Bankman-Fried was concerned that an additional 50% drop could cause Alameda to become “insolvent.”
On several occasions, Bankman-Fried sought to undermine Ellison’s leadership at Alameda and make the point that her and others’ mistakes had the potential to bring the firm to the brink.
Chief among those mistakes, according to SBF: Not hedging. He wanted Alameda to put on a $2 billion bitcoin hedge because of its late 2021 investment in bitcoin miner GDA. The hedge was never put on, he explained, which later caused Alameda to lose “north of $10 billion.”
Bankman-Fried said if the hedges had been in place, Alameda’s net asset value wouldn’t have fallen by 75% in 2022 compared with the year prior.
The defense is trying to strike the credibility of Ellison, who testified that most major decisions were run through Bankman-Fried, even after she had taken over as CEO of Alameda.
Perhaps since it’s Friday, Judge Kaplan adjourned the court a few minutes early. After hearing from the government and the defense, the judge said he thinks the jury will not receive the case until at least Thursday or Friday. Monday is a possibility as well.
3:45 pm ET: Jurors learn about SBF idiosyncrasies
When court resumed after lunch, Cohen shifted to why FTX and Alameda moved to the Bahamas, which led into a line of questioning focused on how Bankman-Fried ended up at the Albany luxury resort.
And all of those roommates? Well, Bankman-Fried admitted he preferred having multiple people around all the time.
Bankman-Fried also admitted to “compulsively” fidgeting with things, such as a deck of cards and “transitioned” to a fidget spinner.
SBF also explained why he wore shorts and a t-shirt so often. Rather simply, he “found them comfortable.”
And why no haircut?
“I was kind of busy and lazy,” he said. A contradiction to some of the testimony from his ex-colleague (and ex-girlfriend), Caroline Ellison, who initially said that personal image was important to Bankman-Fried. However, she admitted that, in 2022, “he looked like he didn’t put a lot of effort into his personal appearance. He dressed sort of sloppily and didn’t cut his hair often.”
Bankman-Fried claimed he fell into the role of being the public face of FTX after more interview requests started coming in. This was not initially a role he wanted, he said.
Beyond learning of the former CEO’s quirks (which many familiar with crypto knew about anyway), the jury was also enlightened about Bankman-Fried’s perspective on a number of topics the government has brought up.
The FTX Arena sponsorship deal was one. His opinion was that getting FTX’s name on a professional sports stadium would give it far more brand awareness than TV ads or online ads.
While no one is faulting the logic of SBF at the time, it is worth mentioning that his defense has called FTX a start-up multiple times, including in their opening remarks. Branding an arena is rare -– if not unheard of — for a startup.
But we digress. According to SBF, there were four arenas under consideration. The Miami Heat’s arena (which ultimately received the endorsement), the New Orleans Saints stadium, the Kansas City Chiefs’ stadium and the Kansas City Royals stadium.
“We didn’t want to be known as the Kansas City Royals of crypto,” Bankman-Fried said with a smile. Sorry, Royals fans.
When the questioning moved to politics, Bankman-Fried claimed he never “directed” FTX Digital Markets CEO Ryan Salame or Nishad Singh to make any political donations.
He also claimed that roughly $50 million in ECO Serum staking revenue the government alleges he backdated throughout 2021 to fraudulently buoy FTX’s revenue beyond $1 billion was simply something Singh found. He even said he was “surprised” by the additional revenue, adding that he never had discussions about “backdating” when it came to FTX’s revenue.
1:30 pm ET: No fraud here, officer
“No, I did not” defraud anyone, SBF said at the top of his testimony Friday morning.
Bankman-Fried also admitted that not having a risk management officer was “by far the biggest mistake.”
SBF’s demeanor is different today. He comes off as more cautious and he’s talking slower than he did Thursday. Either he took into account Judge Kaplan’s comments about answering the questions asked or maybe it’s the extra eyes — aka the jury — focused squarely on him.
Unlike with most other witnesses, the jury is paying attention to the former FTX CEO’s testimony. Everyone in the jury box has their bodies and heads angled toward the witness stand, perhaps to be expected as he is the defendant in the trial, after all.
The testimony began with defense attorney Mark Cohen asking for a slew of definitions. Bankman-Fried jumped right into describing what FTX was — primarily a margin exchange — and discussing the various derivatives users could trade. This included futures and a spot margin system.
A thrilling subject for the jury, who don’t seem enamored with the subject, although Bankman-Fried’s explanations were fairly digestible.
In some ways, the defense’s line of questioning follows the narrative author Michael Lewis lays out in “Going Infinite”, his book on the “rise and fall” of Bankman-Fried. Cohen opted to start with his client’s beginnings: college at MIT, followed by an internship and eventual full-time position at quantitative trading firm Jane Street Capital, all of which Lewis details extensively in his book.
Cohen then asked SBF about the beginning of Alameda, explaining where he found his employees and how he decided upon the Hong Kong headquarters location (he thought it was a more established regulatory environment, plus the networking was better, Bankman-Fried said both on the stand and to Lewis).
Cohen asked his client whether Alameda was permitted to borrow from the FTX exchange, a pivotal part of the government’s theory of the case: that Bankman-Fried and others stole money from FTX customers.
Bankman-Fried responded with a yes, clarifying that he believed Alameda could borrow from spot margin traders — users who’d agreed to lend out their funds to support the broader function of the exchange.
The court finally got Bankman-Fried’s point of view on the auto-deleveraging event FTX faced in 2020 that threatened the integrity of the entire exchange.
He explained that the risk engine was supposed to liquidate a single account’s position worth about $1,000. The liquidation process, which was automated, glitched and was on a continuous loop, ballooning the figure into “the trillions,” SBF said.
This effectively meant Alameda, a backstop liquidity provider, was getting pushed to its limit. It could have resulted in socialized clawbacks on the exchange, meaning all FTX customers would have to split the bill to cover the liability, a process Bankman-Fried said the exchange wanted to avoid.
This spiraling situation, which Bankman-Fried called “ridiculous” and “catastrophic,” was the ultimate reason for the infamous “allow negative” feature being added to Alameda’s trading account, although Bankman-Fried testified that he only learned of this feature later.
The discussion then turned to late 2021, when FTX was rapidly growing, something Bankman-Fried said he didn’t expect. $80 million in revenue and a few hundred employees.
Employees were hired to a laundry list of different teams; marketing, KYC, legal, compliance, settlements, operations and more. A risk management team was excluded from the list, prompting Cohen to ask about the existence of one. SBF confirmed FTX did not have a risk management team.
The defense then moved on to Alameda to cover Bankman-Fried’s responsibilities at the trading firm. He made it clear that he handed off the dual chief executive position to Caroline Ellison and Sam Trabucco in 2021.
By mid-2022, when Trabucco formally stepped down, Bankman-Fried testified that he asked Ellison if she’d like him to appoint Ben Xie, head of trading at that time, as her other CEO.
Ellison, Bankman-Fried claimed, rejected that idea “and that was that.”
Ellison previously testified she didn’t even feel qualified to be Alameda’s co-CEO. The defense is perhaps trying to poke a hole in her statements.
It’s unclear how much longer Cohen will spend on direct examination with his client, though the expectation is for Bankman-Fried’s testimony to take a few days based on previous conversations between the judge, prosecution and the defense.
10:30 am ET: The show will go on
Judge Kaplan will allow the defense to introduce the document retention policy as part of SBF’s advice of counsel argument.
The policy itself isn’t a “surprise to anybody,” Kaplan said. He added that companies often have policies similar to this and CEOs, in his experience, don’t draft them. Lawyers do.
However, Kaplan won’t allow everything that the defense had tried to include in their case — scoring a minor win for the government.
The defense had been hoping to have Kaplan sign off on introducing the idea that SBF sought legal advice on the topics of how to structure promissory notes and when to use the auto-delete feature for company messaging. While the defense’s planned argument does rest on when SBF listened to the advice of lawyers, SBF’s team made it very clear that this was not a formal advice of counsel defense.
In Kaplan’s view, however, the problem with this defense is that it “can be a very misleading argument” depending on the facts.
The show will go on as long as these stipulations are met, meaning that SBF is taking the stand today.
Live from the courtroom: Sassoon had another run-in with a juror this morning where they tried to say good morning to her. She said she declined to answer the juror and asked the judge to issue a reminder that counsel cannot speak to the jury.
(Fun fact: Sassoon was also the prosecutor who accidentally walked into the jury’s room last week.)
Sassoon also asked Kaplan to issue a reminder to the gallery to quiet down because she heard “noises” and “giggling.” Oops.
Kaplan threatened to remove people if it continues. Quiet in the court!
10 am ET: Sam Bankman-Fried is supposed to retake the stand Friday
Unless Bankman-Fried made a last-minute decision while sitting in his cell at the Metropolitan Detention Center late Thursday, the former CEO of FTX will once again testify in front of the court.
However, things will look a little different today. For example, the jury is expected to be present. They’ll also cover more than they did in the late afternoon hours — SBF’s testimony in front of the gallery went from 2 pm to roughly 5 pm. And just in case you’re busy today, have no fear: SBF’s testimony is expected to go for longer than just one day so tune back in next week.
What we know: The defense is trying to establish that SBF was listening to his legal team when he — and others at FTX — set Signal and Slack group chats to auto-delete, and that lawyers were also involved in the Payment Agent Agreement established between Alameda and FTX. The government is not a fan, and wants to cut this part of the testimony.
Oh, and as a side note, when pushed to give a name, any name, of one of the lawyers he allegedly spoke with on these issues, SBF named Ramnik Arora — FTX’s ex-head of product. But Arora is not a lawyer at all — a point that SBF then had to clarify in front of the court after being pushed by the prosecution.
Judge Lewis Kaplan told the court yesterday that the prosecution, defense and Kaplan himself agreed to move forward with the jury-less testimony because he did not have enough information to rule either way “despite a great deal of effort on the part of everybody concerned.”
Presumably, Kaplan is not only alluding to the sheer volume of letter motions filed by both sides but also the “deforestation” taking place due to the number of papers the court had to print for this case. A comment, in case you missed it, that he snarkily made to lawyers on a phone conference earlier this week.
Now, before we move on, let’s cover another point: SBF’s testimony mentioned former FTX chief regulatory officer Dan Friedberg a number of times. Back in June, FTX, Alameda and West Realm Shires debtors filed a complaint alleging that Friedberg acted as a “fixer” for SBF.
The June complaint alleged that Friedberg “knowingly” failed to ensure that there was prosper risk mitigation or compliance and “in some instances he arranged for the FTX Group to retain […] whistleblowers’ attorneys post-settlement, thereby buying or otherwise ensuring their silence.”
Alright, back to Bankman-Fried. SBF claims that there was a document retention policy created by both Friedberg and his former employer, Fenwick and West, which SBF followed — hence the auto-deletion of group chats.
But, well, while SBF is explaining the apparent ins and outs document from his “knowledge,” the actual document is nowhere to be found.
“We have been unable to serve the subpoenas asking for it,” SBF told prosecutor Danielle Sassoon when asked.
Outside of the topics, the hearing hit some rough patches.
At one point, as Sassoon was asking SBF questions, his lawyer, Mark Cohen, objected.
“The issue for this hearing is the scope of counsel relationship. This is a deposition now,” Cohen told Kaplan towards the end of the day Thursday.
After saying he was going to allow the prosecution to continue the line of questioning, Kaplan added that “part of the problem is that the witness has what I’ll simply call an interesting way of responding to questions for the moment.”
Cohen shot back that the problem was “the nature of this kind of hearing.” In return, Kaplan shut him down by saying, “if you want to push ahead with the evidence you’re seeking to introduce, it’s through this hearing if at all.”
Right after this back-and-forth, SBF had an exchange with Sassoon that seemingly proved Kaplan’s point.
“I’m giving you my best guess at answering the question,” he told the prosecutor after she asked if he knew that Alameda “could have an overall negative value.”
Sassoon responded, “I’m not asking for a guess. I’m asking what you understood at the time.”
And that’s not the only instance like that. There were a number of times when SBF was wordy and seemed to avoid giving a straight answer — to the point where Kaplan had to remind the ex-CEO that he had to answer only the questions asked of him.
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