After months of legal battles and three weeks of testimony, Sam Bankman-Fried finally got his chance to tell a jury how his cryptocurrency exchange collapsed and why he should not be held criminally responsible.
The FTX founder was given a do-over on Friday after a disastrous performance under cross-examination by Justice Department prosecutors in an unusual hearing Thursday without jurors in attendance. .
His decision to testify was atypical; most defendants choose not to testify for fear of self-incrimination. Still, prosecutors’ relentless accusations — including three star witnesses, all members of Bankman-Fried’s inner circle who testified they committed the fraud at his direction — forced his team to Some charges were withdrawn. describe As a legitimate “Hail Mary.”
Bankman-Fried’s attorneys raised themes that the judge presiding over the case, Lewis Kaplan, said may not be admissible in front of a jury. Chief among them was Bankman-Fried’s defense that many of the exchange’s missteps stemmed from poor advice from previous lawyers.
After the defense and prosecutors conducted a walkthrough without the jury present on Thursday, Kaplan ruled on Friday that jurors should not hear much of the testimony, including whether FTX lawyers signed the financial promissory note and its terms. Serve.
Despite the setback, Bankman-Fried returned to court.
“Small mistake…big mistake”
As Bankman-Fried charged that early lawyers were severely limited in their abilities, he began looking for other targets. His attorneys and personal writings indicate that he will transfer responsibility to his ex-girlfriend, Caroline Ellison, the former CEO of FTX-affiliated trading firm Alameda Research.
Bankman-Fried began his testimony, witnessed by defense attorney Mark Cohen, with some contrition.
“I made some little mistakes and some big mistakes,” he said, wearing a boxy suit that looked too big for his slight frame.
Bankman-Fried said the problems stemmed from FTX’s lack of risk management. Although he admitted to some mistakes, his responses made it clear that others had made mistakes, too, despite his loose management style.
In one incident in 2020, Bankman-Fried recalled how FTX’s lagging risk engine and Alameda’s role as a liquidity backup provider (in other words, its responsibility to absorb the losses of other users) led to tens of thousands of losses at the trading firm. billion in negative balance dollars, causing the entire operation to shut down.
Alameda plays an important role in FTX as a market maker – facilitating transactions between users – and at one point accounted for 50% of the exchange’s total trading volume in its early days. Bankman-Fried said that to ensure Alameda could continue to power its engines and serve as a liquidity backstop, his two key deputies — chief technology officer Gary Wang and engineering chief Nishad · Nishad Singh – Several fixes were instituted without his knowledge.
These ultimately included the two features that led to Alameda’s downfall, one that allowed it to address negative balances and another that allowed its credit line to FTX to exceed $60 billion. Bankman-Fried suggested in his testimony that he was vaguely aware of the solution but allowed Wang and Singer to operate on their own. Both testified they made the changes at Bankman-Fried’s direction.
‘Better understanding’
Bankman-Fried kept repeating the same excuse: Although he was nominally in charge of FTX, he was being pulled in too many directions and had no idea what was going on.
“I wish I had a better understanding than I did before,” he replied to Cohen when asked about tracking exchange assets.
He said he worked anywhere from 12 to 22 hours a day. Even though he was Alameda’s founder, majority owner and one-time CEO, he put Ellison and Sam Trabucco in charge in mid-2021. Their skills complement each other, with Trabuco better at hedging strategies and Allison better at managing people. Bankman-Fried said Trabuco quickly “moved” toward early retirement and put all the blame on Allison. Bankman-Fried said he was not involved in “day-to-day matters.”
His criminal trial centered around accusations that Alameda stole billions of dollars in client assets, a charge that Bankman-Fried denied at the start of his testimony. His lawyers said direct examination of him will continue until Monday, when prosecutors will have a chance to find holes in his story in front of a jury.
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