Sam Bankman-Fried, who pleaded not guilty to criminal fraud charges tied to the collapse of his crypto empire, has one last chance to get a Manhattan jury to believe him.
After two days on the witness stand, Bankman-Fried is set to wrap up his testimony on Tuesday. All that’s left is a couple more hours of cross-examination by prosecutors, followed by a redirect examination by Bankman-Fried’s team. After that, the defense plans to rest its case.
The roughly four-week trial has largely consisted of government-supported testimony from Bankman-Fried’s former close friends, confidants and top executives at crypto exchange FTX and sister hedge fund Alameda Research. They all singled out Bankman-Fried as the mastermind of a scheme to use FTX customer money to fund everything from venture investments and a high-priced condo in the Bahamas to covering Alameda’s crypto losses after the market crashed last year.
Bankman-Fried’s defense failed to land any significant blows in cross-examining the prosecution’s key witnesses, including Caroline Ellison, the defendant’s ex-girlfriend and the former head of Alameda. When it was defense attorney Mark Cohen’s chance to take the lead, he only called three witnesses, with the bulk of his case riding on Bankman-Fried’s ability to convince the jury of his story.
The 31-year-old former billionaire, whose crypto businesses spiraled into bankruptcy over the course of a few days last November, told jurors in his first day on the stand on Friday that he didn’t commit fraud and that he thought FTX’s outside expenditures, like paying for the naming rights at a sports arena, came out of company profits.
When asked by Cohen on Friday morning if he defrauded anyone, Bankman-Fried said, “No, I did not.” His lawyer then asked if he took customer money, to which Bankman-Fried said, “No.”
Bankman-Fried, the son of two Stanford University legal scholars, faces seven criminal counts, including wire fraud, securities fraud and money laundering, that could land him in prison for life if he’s convicted. His argument to the jury is that he made mistakes, like not having a risk management team in place, which led to “significant oversights.” But when it comes to the central question — what happened to billions of dollars in customer money — Bankman-Fried doesn’t offer any clear explanations and claims to not really know.
Ellison, who was one of several witnesses cooperating with the government on a plea deal, had a more precise answer, in her Oct. 10 appearance on the stand.
“We ultimately took around $14 billion, some of which we were able to pay back,” she said. “I sent balance sheets to lenders at the direction of Sam that incorrectly stated Alameda’s assets and liabilities.”
Ellison said Alameda siphoned several billion dollars from FTX customers and that Bankman-Fried had not only set up a system to steal the funds but also directed Ellison and others to use customer funds to repay loans in the ballpark of $10 billion.
Bankman-Fried testified that he wasn’t aware of the amount Alameda was borrowing from FTX, or its theoretical max. As long as Alameda’s net asset value was positive and the scale of borrowing was reasonable, increasing its line of credit so that Alameda could keep filling orders was fine, he said. Earlier testimony from former engineering director Nishad Singh and co-founder Gary Wang suggested the line of credit was raised to $65 billion, a number Bankman-Fried said he wasn’t aware of.
Prosecutors entered corroborating materials, including encrypted Signal messages and other internal documents that appear to show Bankman-Fried orchestrating the spending of FTX customer money.
‘Average level sports fan’
Bankman-Fried tried to explain away some of those expenses. For example, the naming rights to Miami’s basketball arena would cost $10 million a year, or roughly 1% of revenue, and deliver returns well in excess of that because of the brand awareness it would create for even an “average level sports fan,” he said. He added that he thought the money was coming from revenue from the exchange and returns from venture investments, as opposed to customer funds.
Similarly, Bankman-Fried testified that he believed the lavish Bahamas properties were being paid for with FTX operating cash that came from revenue and venture investments. He said having available property to rent was a necessary incentive if the company wanted to poach developers from Facebook and Google.
On Monday, Bankman-Fried’s strategy shifted to one of blaming many of his former top lieutenants, who’d previously testified against him.
When it came to Ellison, Bankman-Fried said that he repeatedly tried to make sure she was implementing sufficient hedging strategies at Alameda to ensure the fund didn’t collapse under the weight of tumbling crypto prices.
Bankman-Fried testified about several conversations on the matter he’d had with Ellison between June and September 2022, and said he was notably concerned about the decline in Alameda’s net asset value from $40 billion the prior year to $10 billion.
The market had already dropped 70% and if it fell another 50%, he was afraid the firm would be insolvent, Bankman-Fried told the jury.
“She started crying,” Bankman-Fried said, regarding Ellison’s reaction when he told her that. “She agreed.”
Bankman-Fried said Ellison offered to resign over the matter, but the defendant testified he wasn’t focused on blame or past failures but rather making sure that Alameda remained solvent.
In September, he checked in again with Ellison about the hedging activity, Bankman-Fried testified. Ellison told him Alameda had hedged. He asked about the scale of the trades and said his instinct was that they could have been twice the size. After Ellison sent him spreadsheets about the trades, she agreed there was more room to hedge and she did so, Bankman-Fried said.
In walking through FTX’s failure, Bankman-Fried discussed the role played by Singh, who was also called as a government witness. Bankman-Fried highlighted Singh’s personal financial problems, and said he was suicidal with a therapist on call 24/7 to watch over him. Bankman-Fried said he was trying to comfort Singh about his loans and expenses in part to prevent him from hurting himself.
In describing the swift downfall of FTX, Bankman-Fried said that customer withdrawals had quickly increased from $50 million a day to $1 billion a day. He said it was like a run on the bank and he was very concerned since the only way to withdraw all customer funds was to liquidate every open margin trade.
Bankman-Fried defended his tweets from early November that he said were designed to ease customer concerns.
Regarding the “assets are fine” tweet he wrote during the panic, he said he thought Alameda’s net asset value was roughly $10 billion and that FTX didn’t have a hole in its balance sheet.
“My view was the exchange was OK and there was no hole in the assets,” he told the court.
In testimony later on Monday, Bankman-Fried was faced with cross-examination as the government had its turn with the defendant. Far from the more descriptive answers Bankman-Fried provided in response to Cohen’s questions, the prosecutors inquiries were met with a lot of quick replies like “Yep” and “I don’t recall.”
In some instances, his answers were directly followed with a government exhibit, such as a tweet, interview transcript, congressional testimony or email, intended to dispute his answer.
For example, Assistant U.S. Attorney Danielle Sassoon asked Bankman-Fried if he assured people that Alameda played by the same rules as others on the FTX exchange. Bankman-Fried said he wasn’t sure. The government followed by showing a tweet from him directly addressing the topic along with an email in which he wrote that Alameda’s account is like everyone else’s.
After the government wraps its questioning on Tuesday and the defense gets its shot at redirect, all that’s left on the docket is two witness rebuttals from the prosecution. One will come from an FBI data analyst and the other from an employee at investment firm Apollo, which had been in talks to help finance an FTX rescue.
At that point, Bankman-Fried’s fate will lie in the hands of the 12 jurors who have spent the past four weeks sitting a few feet away from the defendant in a lower Manhattan courtroom.
If you are having suicidal thoughts or are in distress, contact the Suicide & Crisis Lifeline at 988 for support and assistance from a trained counselor.
— CNBC’s Dawn Giel contributed to this report