Former FTX Chief Government Sam Bankman-Fried, who faces fraud expenses 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 prison 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 area, got here out of firm earnings.
Bankman-Fried addressed the New York courtroom a day after U.S. District Choose Lewis Kaplan despatched jurors residence early to think about whether or not some facets of the defendant’s deliberate testimony, associated to authorized recommendation he received whereas working 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 prison 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 high 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 every part from enterprise investments and a high-priced apartment within the Bahamas to protecting 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 means of particular actions taken by their boss that resulted in purchasers dropping billions of {dollars} final 12 months. 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 expenses and are cooperating with the federal government.
The decide’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.
‘Vital oversights’
On Friday, Bankman-Fried acknowledged that certainly one of his greatest errors was not having a danger administration staff or chief regulatory officer. That led to “vital oversights,” he mentioned.
Cohen walked Bankman-Fried by means of his background and the way he received 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 Avenue for over three years, managing tens of billions of {dollars} a day in buying and selling. That is the place he realized 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 turn 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 huge demand for an arbitrage supplier, he mentioned.
“I had completely no concept” how cryptocurrencies labored, Bankman-Fried mentioned. “I simply knew they had been issues you possibly can 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 likewise used the attic.
He began FTX in 2019. Buying and selling quantity grew considerably on FTX from just a few million {dollars} a day to tens of thousands and thousands of {dollars} that 12 months to a whole bunch 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 common restrictions on what might be executed 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 mistaken led to a number of the particular borrowing permissions at Alameda, he mentioned. The chance engine was sagging beneath the burden of progress. A liquidation that ought to have been within the hundreds of {dollars} was within the trillions of {dollars}. Alameda was instantly underwater due to closing the place.
The incident uncovered a bigger concern, that the potential of an inaccurate liquidation of Alameda might 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 person to deposit extra collateral, or a delay, Bankman-Fried mentioned. They later applied a function like that, he mentioned, including that he realized it was the “enable damaging” function.
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 optimistic on the trade and the dimensions of borrowing was affordable, rising the road of credit score so Alameda may preserve filling orders was effective, he mentioned. Bankman-Fried added that he now believes what Singh and Wang did was enhance the road of credit score.
Powerful promote
Convincing the jury will probably be a tall order for Bankman-Fried after a mountain of damning proof was introduced by the federal government.
Prosecutors entered corroborating supplies, together with encrypted Sign messages and different inner 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, beneath questioning led by Cohen, Bankman-Fried appeared to put a lot of the prison 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 every part 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 a whole bunch of thousands and thousands of {dollars} in private loans to himself and different founders of the platform had been structured by means of promissory notes drafted by his in-house authorized staff and mentioned in live performance along with his common 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 marketing and promotions.
He mentioned there have been 15 individuals on the advertising and marketing staff, and famous that he received extra concerned with it as time progressed. Particularly, he mentioned the naming rights in 2021 for the basketball area 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 huge model consciousness as a result of even he, as an “common degree sports activities fan,” may identify dozens of stadiums. He mentioned the funding can be about $10 million a 12 months, or 1% of income. The corporate had been deciding amongst just a few completely different stadiums, together with the houses 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 out there property to hire was a essential 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 earnings 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 just a few billion {dollars} in arbitrage revenue from the previous few years and there was no purpose he could not borrow from it. He mentioned the loans, aside from the latest one previous to the agency’s chapter submitting, had been all documented by means of promissory notes.
Bankman-Fried mentioned he by no means directed Singh or former FTX govt 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 really got here from Alameda.
Bankman-Fried, who allegedly used FTX buyer funds to assist finance over $100 million in political giving through the 2022 midterms, testified that he talked to politicians about pandemic prevention and crypto regulation. He mentioned he had a vested concerned about crypto coverage regardless 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 just a few interviews went effectively, 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 snug 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 introduced with the picture 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 industrial working.
“I believed perhaps it will be attention-grabbing,” he mentioned.
— CNBC’s Daybreak Giel contributed to this report
WATCH: Sam Bankman-Fried testifying in his prison case
