SBF Testifies on FTX Origins, Errors, and ‘Freakoutness’

On Monday, FTX co-founder Sam Bankman-Fried is expected to endure a challenging cross-examination following his previous testimony on Friday, where he admitted to making errors but denied any involvement in fraudulent activities that caused the downfall of the cryptocurrency exchange.

Bankman-Fried was questioned Friday by her own attorney, and she used her time on the stand to offer alternative explanations for the actions prosecutors have called evil. The lawsuit against Bankman-Fried centers on alleged fraudulent transfers of billions in FTX client funds to a hedge fund affiliated with Alameda Research, in which he held a 90 percent stake.

The former crypto mogul also sought to rebut the prosecution testimony of three former close associates — FTX founder Gary Wang, chief engineering officer Nishad Singh and Alameda CEO Caroline Ellison, who is also Bankman-Fried’s ex-girlfriend. All three have pleaded guilty to a scheme to defraud, which they said was masterminded by Bankman-Fried.

Bankman-Fried appeared confident as she gave her testimony, which largely matched accounts she gave in several media interviews after FTX’s November 2022 bankruptcy. He claimed that he was unable to supervise the other managers, especially Ellison, and that he did not know until very late that Alameda had borrowed an unsustainable amount from FTX.

Unlike Friday or during those media interviews, Bankman-Fried is expected Monday to face federal prosecutors eager to tear up her account. Assistant District Attorney Danielle Sassoon made an impact on Thursday during what was essentially a dress rehearsal outside the jury with her aggressive questioning. Sassoon promised “significant cross-examination” starting Monday.

Here are the key takeaways from Bankman-Fried’s testimony Friday:

• “I did not commit fraud”: Bankman-Fried immediately testified that he did not cheat anyone. He acknowledged that “a lot of people were hurt” by the cryptocurrency exchange crash, but blamed it on mistakes. Bankman-Fried said her “biggest mistake” was not hiring a VC.
• Jane Street for FTX: Bankman-Fried described how he learned the concept of arbitrage while working at trading firm Jane Street Group and how he started thinking about applying it to cryptocurrency. “It looked like there were places” where you could buy Bitcoin for $10,000 and others where you could sell it for $11,000, he said. Ultimately, he launched Alameda to try to seize these opportunities. Shortly after starting the fund, Bankman-Fried said she started thinking about starting a crypto exchange.
• “Not a programmer”: Bankman-Fried emphasized that he had no background in computer programming and did not read or write FTX’s code. He said he trusted Wang and Singh in that part of the business and that they had the right to make decisions without his input. Bankman-Fried clearly attempted to undermine the testimony of these witnesses that he instructed them to change FTX’s code so that Alameda could borrow essentially unlimited amounts of money and avoid automatic settlement procedures.
• Market Underwriter: While she claimed she didn’t know exactly what Wang and Singh were doing, Bankman-Fried said she asked them to implement measures that would prevent automatic liquidation of Alameda’s accounts if they went underwater due to a “catastrophic error.” FTX’s automated risk algorithm. He said that would have been disastrous because Alameda was a key market maker for FTX early on. He also noted that he had learned how market makers operated with lines of credit on Jane Street and felt it was important that Alameda had the ability to lend.
• ‘Very surprised’: Bankman-Fried said he believed Alameda owed no more than $2 billion to FTX and that he was “very surprised” to learn in the summer of 2022 that the actual number was around $10 billion. He said he had been telling Ellison to protect Alameda’s investments for months, but he seemed “less enthusiastic” about it. Since late last year, Bankman-Fried has suggested that Alameda’s borrowing was Ellison’s fault and that he simply failed to oversee it. By August 2022, he testified that he was concerned about the collapse of Alameda. When asked if she was “messing around” at the time, Bankman-Fried said: “I don’t tend to show a lot of craziness, but by my standards, yes.”
• Bad Romance: Bankman-Fried only briefly addressed her personal relationship with Ellison, saying they dated “on and off” before breaking up in the spring of 2022. “I didn’t have the time or energy to put what I think he wanted out of our relationship,” she said. . “It wasn’t the first time I had this problem.” He said they had “philosophical” discussions, which he usually started by presenting an opposing position to the discussion. When he testified, Ellison said Bankman-Fried’s utilitarian beliefs were such that he thought lying and stealing could be justified in pursuit of the greater good.