Sam Bankman-Fried on the stand is even worse than we expected

At a glance

  • Sam Bankman-Fried gave testimony on Thursday, October 26 in an evidentiary hearing, with no jury present.
  • Bankman-Fried seemed flustered under cross-examination, and prosecutors walked him into many seemingly troubling admissions.
  • Judge Lewis Kaplan seems unlikely to allow defense lawyers to question Bankman-Fried in open court about advice he received from lawyers about matters such as deleting Signal chats and FTX-Alameda payment arrangements.

As with almost every aspect of the defense effort so far, Sam Bankman-Fried’s first testimony in his own criminal trial went worse than even harsh critics likely expected. 

Bankman-Fried crumbled under determined cross-examination from prosecutors, repeatedly stumbling, mumbling, avoiding questions, taking awkward pauses, contradicting himself, frequently saying he “did not recall” seemingly key details, and receiving multiple harsh reprimands from Judge Lewis Kaplan for prevaricating or dodging questions.

The sole saving grace for the former FTX CEO was that the jury wasn’t present, as his first testimony came in a subordinate evidentiary hearing that closed out proceedings on Thursday, October 26. Michael Lewis, famed author of the controversial FTX book Going Infinite, was present to see Bankman-Fried flounder.

The hearing came after the prosecution closed out its case on Thursday morning with a forensic witness from the FBI. The defense then called its first two witnesses, lawyer Krystal Rolle and forensic acountant Joseph Pimblay, to little discernible impact. 

Bankman-Fried will be the final witness in his own defense, but the defense first had to try one last time to convince Judge Kaplan to let it pursue a seemingly key element of its defense strategy: blaming FTX’s lawyers. More specifically, blaming former FTX Group top lawyer Dan Friedberg.

Kaplan had already ruled that a so-called ‘advice of counsel’ defense was unacceptable during the defense’s opening statement. But he granted the defense one last hearing to decide if it could pursue lawyer-related questions during the defendant’s testimony. Without the jury present, the hearing was effectively a condensed preview of Bankman-Fried’s testimony.

Bankman-Fried performed ably under direct questioning from his own team’s Mark Cohen, calmly discussing Friedberg and the firm Fenwick & West’s approval of things like FTX’s document retention policies, personal loans to executives, terms of service, and receipt of customer deposits via Alameda Research. Bankman-Fried would later explicitly state that he believed such lawyer-approved arrangements meant Alameda had the right to freely borrow and use FTX customer funds.

Read more: Sam Bankman-Fried lied to FTX lawyers about using customer funds

SBF was savaged by a pitbull

Cross-examination from assistant US attorney Danielle Sassoon was, unfortunately for Bankman-Fried, a very different story. Sassoon is a proverbial pitbull who methodically disassembled Bankman-Fried’s various appeals to legal authority. Sassoon, a knife-sharp questioner has emerged as one of the stars of the trial and kept up a relentless pace, repeatedly leaving Bankman-Fried flustered. More than once, Sassoon seemed to maneuver him into uncomfortable admissions.

Sassoon frequently toyed with and goaded Bankman-Fried — albeit with the bone-dry manner of a cold-blooded professional. At one point, she invited him to read through Alameda Research’s Payment Agent agreement with FTX and identify specific lines that authorized Alameda’s use of customer funds. After a lengthy search, he pointed to a clause allowing Alameda to ‘hold and transfer’ FTX assets until the exchange demanded their return. But Bankman-Fried also admitted that no lawyer had told him that this clause granted Alameda those rights.

In a lengthy exchange about Alameda Research’s notorious ‘allow negative’ designation and exemption from liquidation on FTX, Bankman-Fried seemed extremely evasive about his own knowledge and involvement. He said he had spoken to Gary Wang and Nishad Singh about implementing ‘speed bumps’ that would ‘address the risk of improper erroneous liquidations’ of Alameda accounts, but claimed not to know that Wang and Singh had responded to this request by simply making Alameda immune from liquidation.

In easily the most disastrous exchange of the day, Bankman-Fried repeatedly dodged a key but very straightforward question: whether he knew that Alameda accounts were allowed to run negative balances on FTX. Instead, he repeatedly alluded to Alameda having ‘a positive overall Net Asset Value‘ on FTX. That is, rather than answering to the negative capacity of individual Alameda accounts, Sam tried to imply that the sum of all Alameda accounts on FTX remained positive.

After Sassoon attempted again to get a clear answer on the matter, Bankman-Fried said he was “going to respond to the question I think you’re asking.” That echoed statements recounted by Michael Lewis in which Bankman-Fried outlined a communication strategy of answering the question he wished an interviewer had asked, rather than the one actually presented.

But it seems that doesn’t get you as far in the Federal court system as it does with the credulous US business media. After several attempts by Sassoon, Judge Kaplan intervened, clearly irked: “Not once did the [prosecution’s] question include the phrase ‘net asset value,’” he scolded Bankman-Fried.

“In that case,” the defendant replied, “I don’t know what you mean by negative balance.” 

Bankman-Fried further said that he “did not recall” discussing with lawyers the use of the North Dimension entity to receive FTX customer deposits via Alameda Research bank accounts. When asked whose decision it was to receive deposits through this convoluted mechanism in the first place, Bankman-Fried answered that, “I’m actually not entirely sure … I don’t recall being a part of it.”

Bankman-Fried likes ‘reasonable risk’

Sassoon also extracted from Bankman-Fried the clarification that, while his legal counsel had helped draft a general document retention policy, they had not specifically signed off on the deletion of various Signal group chats — including those where the FTX ‘inner circle’ seemed to have coordinated fraud.

Bankman-Fried also admitted to contemporary knowledge of chief lawyer Dan Friedberg’s connection to prior frauds, and admitted that Friedberg’s tolerance of taking ‘reasonable risk’ had been a factor in his hiring. Sassoon also asked Bankman-Fried about Friedberg’s apparent use of ‘illegal narcotics’ with other FTX Group employees, but Judge Kaplan struck down that question.

Sassoon seemed to test just how far Kaplan would let her go as Bankman-Fried’s first appearance wound down. The prosecutor questioned Bankman-Fried about his commitment to safeguarding customer assets.

Read more: Sam Bankman-Fried’s lawyers can’t stop making mistakes

Was this only a matter of physical and cybersecurity, she asked, or “does that also include not embezzling customer funds?”

The in-your-face question was rightly struck down by Judge Kaplan. But while her lawyerly demeanor never cracked, one could sense Sassoon’s enjoyment of the moment — almost as if she were spiking the football and doing an end-zone dance in the defense’s face.

In closing remarks, it seemed almost certain that Judge Kaplan would prohibit questioning that implied responsibility by FTX’s legal counsel. In what he called a hypothetical, Kaplan compared the argument to a bank robber who got bad legal advice on how to hide the loot.

Kaplan’s final decision will come in court on Friday, to be followed by Bankman-Fried’s first appearance to testify before a jury. The defense’s direct questioning will likely take up the bulk of the time, with more fiery cross-examination to come in the first days of next week. 

After that, perhaps on Tuesday or Wednesday, the legal teams will present closing statements. Both sides are likely to rest by the end of the week, and send the case to the jury for its decision.

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