FTX’s founder stuck to his guns on who to blame for Alameda’s spending and use of customer funds during the third day of his testimony in United States v Sam Bankman-Fried.
Day 15 and Sam Bankman-Fried’s third day on the stand displayed numerous questions from assistant United States attorneys. Simultaneously, the FTX founder’s lawyers’ direct examination elicited answers that all but blamed Caroline Ellison for Alameda Research’s unchecked use of FTX customer crypto and assets.
Bankman-Fried said Ellison, ex-CEO of Alameda, admitted to subpar hedging at the crypto trading firm and tendered her resignation. Eventually, the pair moved forward with running FTX and its sister firm Alameda with the intention of repairing the businesses.
In September, I asked her again about hedging. I asked what the scale was. She gave me some numbers. I told her I was glad but that it should be a bigger number, at least twice as much. She also sent me some spreadsheets.Sam Bankman-Fried, FTX founder
Previously Ellison testified to preparing some seven to eight misleading spreadsheets for Bankman-Fried as executives haggled with crypto lenders and tried to hide gaping holes in Alameda and FTX’s balance sheet.
Between Nov. 2 when Alameda’s financial records leaked and Nov. 7, after Ellison offered to buy Binance’s $2 billion FTT trove at $22, net withdrawals increased from $1 billion to $4 billion according to the defendant as noted by InnerCityPress.
Bankman-Fried said FTX was solvent to his knowledge and hadn’t taken customer crypto, explaining his reasoning for the “assets are fine” tweets on what at that time was Twitter. After observing Ellison’s hedges at Alameda fall and Binance’s takeover of FTX collapse, Bankman-Fried said he deleted his posts.
The FTX founder recounted speaking with private equity firm Apollo regarding a multi-billion dollar rescue package but the firm balked at investing following due diligence on Bankman-Fried’s crypto exchange.
“I was trying to help in any way I could,” said Bankman-Fried in response to the final questions from his defense attorneys during the direct.
Prosecutors probe Bankman-Fried’s credibility
The opening questions from prosecutors during cross-examination quickly established that Bankman-Fried was heavily involved in trading decisions at Alameda as he owned 90 percent of the trading firm while Caroline Ellison and Sam Trabucco were listed as co-CEOs.
Bankman-Fried was asked about a Twitter Spaces with Mario Nawfal in December 2022, a few weeks after FTX imploded. The audio recording of the interaction played in a New York federal court featured Bankman-Fried explaining his strategies to appear uninvolved in Alameda’s operations due to conflicts of interest.
“Sounds like me,” replied the defendant. Prosecutors also referenced an interview with the Financial Times prior to Bankman-Fried’s arrest where he claimed to be “walled off” from Alameda. Federal attorneys pointed out differences in statements made after FTX filed for bankruptcy and his testimony under oath.
Prosecutors called up evidence of Bankman-Fried promoting FTX as a safe exchange where users truly owned their assets, a fundamental philosophy underpinning blockchain and cryptocurrencies.
The defendant countered, claiming lapses in his memory as tweets and interviews challenging his testimony were entered into court records.
Bankman-Fried admitted that Alameda held special privileges enshrined in the code powering FTX’s trading engine despite marketing the exchange as a “neutral piece of infrastructure”. Prosecutors contested Bankman-Fried’s credibility, arguing that the defendant had knowledge of Alameda’s operations while presenting the firm as a separate entity on par with any user at FTX.
FTX’s former CEO directed a basket of investments into real estate, Genesis’ crypto mining arm, Michael Kives’ K5 Global, Modulo Capital and Robinhood to name a few. Bankman-Fried refrained from confirming or denying an apartment purchased for Mike McCaffrey, ex-CEO of crypto news site The Block.
Regarding repayment of Alameda’s loans to lenders like BlockFi and Genesis, Bankman-Fried said he was aware tapping customers’ assets on FTX might weaken the exchange but thought the odds of that happening were not significant.
Bankman-Fried’s testimony will likely conclude on Oct. 31 followed by two rebuttal witnesses for the government and a direct from his defense attorneys led by Mark Cohen, a former federal prosecutor.