At a glance
- Under a plea deal, FTX co-founder Gary Wang told the jury he was a participant in financial crimes at the direction of Bankman-Fried, and detailed some of those crimes.
- Witness testimony established for the jury that Bankman-Fried knew of FTX’s financial woes while lying about them to the public and investors.
- Judge Lewis Kaplan excoriated Mark Cohen’s team for time-wasting and repetitive questioning, which seemed to accomplish little. The defense’s main goal seems to be to discredit the prosecution’s witnesses, but it’s doing that poorly.
- During the defense’s cross-examination, Barbara Fried appeared distressed, grinding her balled fists into her eyes. The rough state of the defense may be obvious to even Bankman-Fried’s closest allies.
Gary Wang, co-founder of FTX and Alameda Research, took the stand against his former business partner Sam Bankman-Fried on Thursday, October 5 — the first full day of witness testimony in the criminal trial of the fallen crypto wonder boy.
In perhaps his most damning testimony, Wang said that he agreed to receive huge personal loans from the company under pressure. He also said he never actually saw the money, driving home a broader pattern of financial chicanery at the two companies.
“Did it ever go in your bank account?” prosecutors asked Wang of the loaned money, in the final exchange of the day.
“No,” answered Bankman-Fried’s formerly enigmatic co-founder.
Gary Wang’s testimony capped off a packed day. Former FTX developer Adam Yedidia’s testimony concluded, with Yedidia recounting a June 2022 conversation in which Bankman-Fried showed clear knowledge of FTX’s financial problems. Coupled with a number of tweets from Bankman-Fried that sought to reassure the public that everything was fine at FTX, this appeared to establish the facts for the charge of wire fraud against him.
Bankman-Fried himself has been gnomic during the trial, seemingly preoccupied with documents on his laptop. But as Wang’s testimony began, Bankman-Fried appeared for the first time to be paying close attention to a witness.
Wang was subdued and gave short, focused answers. He detailed his role in creating “special privileges” for Alameda Research on the FTX platform, which allowed the firm to “withdraw unlimited funds” from the exchange, and to place orders faster than other market-makers. That meant Alameda could easily “front-run” not just competitors, but FTX customers, effectively using a cheat code to steal from them on a moment-by-moment basis.
Alameda’s line of credit on FTX, Wang said, was $65 billion dollars. That’s several orders of magnitude higher than the “single to double-digit millions” that Wang described as normal for market makers on FTX. It’s also several times higher than the $8 billion in customer deposits that went missing.
Wang also described Bankman-Fried directing him to implement these features.
Bankman-Fried: “We’re Not Bulletproof”
Earlier in the day, former FTX engineer Adam Yedidia finished his testimony by detailing the timeline of concerns about FTX’s financial condition. Yedidia wore an ill-fitting suit with a loose tie and crooked collar, the very image of a socially awkward computer developer.
Yedidia recounted being assigned to automate the process for customers depositing funds, and in the process became aware that Alameda Research had borrowed $8 billion dollars of FTX customer funds. Yedidia described expressing those concerns to Bankman-Fried after a June 2022 paddle tennis game at the Albany resort where FTX and Alameda were based.
Bankman-Fried replied that while FTX had been “bulletproof” in 2021, “we’re not bulletproof this year .” Yedidia recounted Sam’s estimate that FTX would be “bulletproof” again in “six months to three years.”
The clear takeaway was that Bankman-Fried was aware of serious financial problems at FTX as early as June of 2022. Earlier evidence had included tweets in which Bankman-Fried was still reassuring customers that FTX was “fine” as late as November of 2022. These two sets of facts seem to clearly establish evidence of fraud.
The defense’s attempts to undermine Yedidia’s testimony were, in a word, feeble.
“Would you say no crypto company was bulletproof at this time?,” the defense counsel asked Yedidia. This seemingly reflects a larger defense strategy to confuse the details of FTX’s operation with “crypto” writ large.
But prosecutors objected to the nature of the question, which was stricken from proceedings. The defense faced dozens of these objections as it asked witnesses to comment on matters beyond the scope of their testimony. Judge Kaplan sided with the prosecution again and again, leaving the defense visibly flummoxed.
Eventually, Kaplan also called a sidebar and seemed to sharply reprimand the defense for the repetitive nature of some of its questioning. In each of its cross-examinations so far, the defense has spent the majority of its time simply asking witnesses to repeat facts already established in questioning by the prosecution.
The defense also seemed to attempt to discredit Yedidia’s testimony by asking multiple questions about the immunity agreement under which he was testifying. But Yedidia, unlike Gary Wang, resigned from FTX after he became aware of Alameda spending customer deposits, and has not been charged with a crime, leaving the line of attack unconvincing.
Bankman-Fried’s parents show the strain
The cross-examination of Yedidia by the defense also saw one of the first moments of courtroom melodrama. On multiple occasions during the testimony, Barbara Fried could be seen removing her glasses, bowing her head, and grinding her fists into her eyes for minutes on end — possibly to conceal or suppress tears. Joseph Bankman, Sam’s father, also slumped in seeming frustration.
But the true depth of the defense’s missteps wasn’t clear until prosecutors returned for “redirect,” a third round of questioning for Yedidia. The defense had asked Yedidia about Bankman-Fried’s personal spending habits, seeming to imply that not buying nice clothes or a flashy car indicated he was an honest actor.
But prosecutors asked Yedidia one simple follow-up question about spending: “Have you heard of FTX Arena?”
The question triggered waves of laughter in the courtroom, and Yedidia detailed the profligate $100 million spent to acquire naming rights to the former Miami Heat arena.
Yedidia’s testimony concluded with a personal question. From living in a $35 million penthouse in the Bahamas, Yedidia since leaving FTX has been working as a high school math teacher. While it’s a moral upgrade, that highlights just how dramatically involvement in FTX impacted even those players not charged with complicity in Bankman-Fried’s alleged crimes.
Between Yedidia and Wang, we also heard testimony from Matt Huang, co-founder of the crypto-focused venture capital fund Paradigm. Like the rest of the prosecution’s witnesses, Huang was subdued and seemed credible, taking a measured tone and giving specific and concise answers.
Huang established that facts seemingly concealed from Paradigm would have impacted their decision to invest nearly $300 million in the platform. Specifically, Huang testified that Paradigm would have been less likely to invest had it known that Alameda Research had a special exemption from FTX’s “liquidation engine,” and that Alameda was using customer funds as investment capital.
“Our general understanding was that the exchange would take customer deposits and hold on to them,” Huang testified. Of the crypto industry more generally, he later said, “It’s generally understood that customer deposits are sacred.”
Huang’s testimony was the first to speak to charges of securities fraud against Bankman-Fried, based on the misrepresentation of FTX’s business to capital investors.
Asked about the current value of Paradigm’s $278 million investment in FTX, Huang was blunt:
“We marked it to zero.”
Friday’s court session will conclude early, at 2pm Eastern, to accommodate a juror’s travel plans. That may be largely taken up with concluding Wang’s testimony.
Prosecutors indicated that their next witness is Zac Prince, CEO of now-bankrupt crypto lender BlockFi.