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When Sam Bankman-Fried’s FTX crypto exchange collapsed, customers lost billions of dollars. A New York court will decide whether it was fraud.
Welcome to our live coverage of the trial of FTX founder Sam-Bankman-Fried, or SBF for short. Check out our explainer for everything you need to know about the trial. And follow along here each day as we report on the drama inside and outside the courtroom.
That's it for our live coverage of the trial of Sam Bankman-Fried for today. The trial continues tomorrow, with the rest of Ellison's testimony likely taking up much of the day. My colleague Angela Chen will be there once again to bring you all the details. Thanks for reading.
When not explaining her spreadsheets line by line, Ellison shared quotes that added a bit of character color.
Bankman-Fried once allegedly told her that he thought he had a 5 percent chance of becoming president of the United States, and that he was the type of person who’d be willing to flip a coin if tails meant the world would be destroyed but heads meant it would be twice as good.
While drilling Ellison on the details of her various spreadsheets, the prosecution repeatedly asked her whether her calculations already included the FTX customer deposits.
Yes, she said. Why? Because they had always been available and used before; in effect, both Bankman-Fried and Ellison took for granted that customer deposits from FTX would be used to help Alameda.
This afternoon, the prosecution used Caroline Ellison’s memos and spreadsheets to show just how much risk Bankman-Fried was apparently willing to take.
Assistant US attorney Danielle Sassoon spent much of her time going through documents Ellison had supplied, in particular one from the fall of 2021 in which SBF had asked her to game out the consequences of a “10th percentile scenario.”
At the time, Bankman-Fried apparently wanted to spend $3 billion on venture investments, but, he asked, what would happen if he did that and the crypto market went down, existing venture investments and stocks all went down, cryptocurrency company Genesis stopped letting Alameda use its own FTT tokens as collateral, and there was bad FTX news that made it harder for them to raise equity?
According to Ellison’s analysis, investing the $3 billion would put Alameda at extreme risk and make it essentially impossible for the company to pay up if lenders recalled loans.
In response, Ellison said Bankman-Fried suggested changing the these loans from open-term (meaning they could be recalled at any time) to fixed-term—but went ahead and created a $2 billion venture fund anyway.
It was widely anticipated that Caroline Ellison would provide the standout moments of the trial so far, and her brief time on the stand before the lunch break showed why.
Asked by the prosecution if she committed any crimes while working at Alameda, Ellison responded “yes, we did.” Asked who directed her to commit these crimes, she said it was Bankman-Fried.
Ellison's testimony is continuing in court right now and we'll have more updates soon.
After Wang’s testimony, Caroline Ellison, wearing a gray blazer and light red crepe dress, was called to the stand. She seemed to have trouble finding and identifying SBF in court (to be fair, his suit getup is quite different from his normal attire)—after doing so, she got as far as admitting to committing financial crimes under SBF’s direction before we broke for lunch.
The morning session, which focused on the cross-examination of Gary Wang, saw the defense continuing its “SBF made reasonable business decisions” tactic. They emphasized that Bankman-Fried did want to pay back Alameda lenders, that Alameda had a positive net asset value (though Wang pointed out that these assets weren’t easily available) and tried again to say that the problem was that FTX didn’t have access to liquid assets, not that FTX didn’t have the assets at all.
Both sides discussed the loans that Wang took from Alameda to make investments in other companies, which he claims he signed because he trusted Bankman-Fried, but didn’t know what they were used for. A final part of Wang’s testimony focused on he and SBF turning over FTX assets to Bahamian regulators.
The defense tried to argue that they did this because they were ordered to, at the risk of going to jail if they disobeyed, but the prosecution showed that said order came via email after SBF had already started meeting with authorities.
Caroline Ellison, the former CEO of Alameda Research, is expected to take the stand today after lunch. She arrived at court in Manhattan earlier this morning.
You can read more about Ellison, and the other key witnesses in the trial, in our in-depth explainer.
People in the crypto community tend to recoil from the idea that it’s crypto, not just Sam Bankman-Fried, that is on trial in New York. And maybe crypto has suffered enough.
In the months leading up to the collapse of Bankman-Fried’s FTX exchange crypto markets tumbled, investment companies fell apart and fortunes were lost. The depths of the so-called “crypto winter” that followed can be seen in new data from Pitchbook, which shows that venture capital investment in crypto companies in September 2023 totalled $508 million, less than a third of what it was in November 2022, the month FTX collapsed.
Even a $1 billion fund put together by Binance founder Changpeng Zhao in the aftermath of the meltdown has failed to find companies to invest in, with less than $30 million committed to crypto startups, according to Bloomberg.
Like a lot of observers in the cybersecurity community, I’ve been watching news of SBF’s trial for any new information about another, very specific crime carried out in the midst of FTX’s meltdown: On November 11, the same day the exchange declared bankruptcy, unidentified thieves stole more than $400 million of its remaining crypto funds.
The culprit remains a mystery. In the meantime, I’ve reported the blow-by-blow story of FTX’s all-night crisis response to that heist, in which the exchange’s staff and bankruptcy consultants scrambled to try to save another $1 billion from being stolen.
Ellison’s position at the top of Alameda Research, and her personal relationship with Bankman-Fried, means her testimony will likely be central to the trial.
The alleged fraud at the heart of the Department of Justice’s case against Bankman-Fried hinges on the close links between crypto trading company Alameda and crypto exchange FTX. Bankman-Fried cofounded both companies, and the DoJ alleges that FTX used customer deposits to fund Alameda’s bets on the crypto markets. Ellison has already pleaded guilty to fraud and conspiracy charges, and is cooperating with the DoJ.
In August, Bankman-Fried had his bail revoked after he allegedly shared Ellison’s private writings with the New York Times, which published a controversial story about her state of mind as her company was spiraling towards bankruptcy.
As much as her testimony will be critical for the prosecution, which is trying to prove that the FTX CEO knowingly deceived investors about the state of the business, the courtroom is likely to be packed with reporters hoping that Ellison will reciprocate, and reveal intimate details of Bankman-Fried’s lifestyle and relationships.
Welcome back to our live coverage of the trial of FTX founder Sam Bankman-Fried. Caroline Ellison—onetime Alameda CEO, onetime SBF girlfriend—is set to testify today and it shows. There were over 10 people in line at the courthouse before 6am, including some very dedicated members of the public.
The current plan is to finish cross-examination of FTX CTO Gary Wang in the morning and then move on to the star witness, who has already pleaded guilty to fraud and is cooperating with the government. The prosecution previously indicated that it intends to bring in Ellison’s personal documents as part of her testimony, including a note called “Things Sam is Freaking Out About.”
The first week of the trial of Sam Bankman-Fried has come to a close. The court is closed Monday for Indigenous Peoples' Day. The trial resumes on Tuesday morning. The next witness? Caroline Ellison.
Wang’s testimony made clear that Alameda was treated differently in many ways: other companies with a line of credit couldn’t withdraw off the platform and the credit had to be used for collateral but this was not true for FTX. Over time, the line of credit extended to Alameda grew from $1 million to $1 billion to, finally, $65 billion. Other companies who received a line of credit were allowed amounts in the double-digit millions only.
The prosecution also pulled up tweets claiming that FTX had a $100 million insurance fund. This, Wang said, was untrue and not a real number. When an account exploited a loophole to post only a little collateral but hold large positions, SBF ordered that Alameda take on that account because FTX’s balance sheets were more public than Alameda’s.
By September 2022, Wang said a forthcoming Bloomberg article about the close relationship between FTX and Alameda had SBF sending him and Singh (but not Ellison) a Google Doc with arguments for shutting down Alameda. Wang claimed he pointed out that Alameda actually could not shut down because there was no way of repaying its debt.
In November, after the company filed for bankruptcy, Wang accompanied SBF to turn over remaining assets to the Bahamian authorities. SBF had told Wang to ignore legal instructions to not hand over the assets to the Bahamian authorities, Wang claims. Bankman-Fried thought that the authorities in the Bahamas seemed more friendly and were more likely to let him stay in control of the company, Wang added.
Today’s session was all Gary Wang and, fitting for a CTO, it was the most technical testimony yet.
Wang had already testified yesterday about the special privileges Alameda allegedly enjoyed, such as trading faster, the ability to have a negative account balance, and the $65 billion line of credit. The prosecution showed bits of code and spreadsheets to drive home how exactly this was apparently done.
Perhaps most damning was the revelation that director of engineering Nishad Singh had built the “allow negative balance” feature and enabled it for Alameda and Alameda only on July 31, 2019, the exact day that Bankman-Fried was tweeting that Alameda’s “account is just like everyone else’s.”
Wang then recounted overhearing a 2019 conversation in which an Alameda trader asked SBF about the borrowing privileges. Bankman-Fried allegedly said it was fine, as long as the amount that Alameda withdrew was less than FTX’s total revenue, which at the time was about $50 to $100 million. Soon, Alameda’s borrowing exceeded FTX’s revenue. Near the end of the year, Wang brought up these concerns to Bankman-Fried, who then asked if he was including the fact that Alameda owned a lot of FTT, FTX’s own tokens.
The trial of Bankman-Fried is one of the few crypto stories that has broken through to the mainstream. But crypto folks would rather it hadn’t. They see the FTX saga as a “galactic embarrassment” and the end of the trial as a chance to begin a new chapter.
“It’s the stuff of a very juicy story, that’s why it has held everyone’s attention for so long. It’s the gossip we all pretend not to be interested in,” says Noelle Acheson, an independent crypto analyst. “But closure will allow the industry to move on.”
Bankman-Fried faces a daunting list of thirteen charges, seven of which will be heard at this, the first of two trials.
Of the seven, most relate to the ways FTX and Alameda allegedly lied to customers, lenders and investors about the nature of the relationship between the two companies and the use of customer funds:
In building its charge sheet, says Daniel Richman, professor of law at Columbia University, the government has adopted a “thin to win” approach—including only the minimum amount of information necessary to secure a conviction. The goal, he explains, is to tell a “rich and textured story” that conveys the extent of the fraud, but without overwhelming the jury with technical details. “If you can’t explain in a couple of sentences why all this basically amounts to ripping people off, you’re not going to have an easy trial,” he says.
The defense, as we saw in opening statements, will try to undermine this approach by painting a more complex picture. It will spin a yarn about the “liquidity crisis” at FTX, the complexities of Alameda’s “market making” business and the perils of improperly collateralized loans. These nuances are essential to understanding whether Bankman-Fried has engaged in fraud, the defense will argue.
A major challenge for both the prosecution and the defense during this trial will be to make very complex and technical ideas understandable. Yesterday, jurors got an explanation of futures trading from FTX CTO Gary Wang:
“It’s a—it’s a contract where you can either be—you can either buy it or if you buy—or you can short or sell it, short and at some future—at some particular future date, depending upon what future it is, based on what—so for example, for a Bitcoin future, you would have a—it would be a future on Bitcoin and it would settle at some particular date in the future, and at that future time, whoever shorts the future pays whoever is long on the future, whatever the price of Bitcoin is on that date.”
In the first week, witnesses have been asked about a handful of topics whose relevance to the charges against Bankman-Fried might not immediately be apparent. It’s about establishing the character and motivations of Bankman-Fried.
Signal and message auto-deletion: The prosecution has emphasized that Bankman-Fried instructed staff to communicate over Signal, an encrypted messaging app that allows messages to be deleted automatically after a certain period. The implication, presumably, is that he knew he had something to hide. But the defense says that the approach was “reasonable.”
In traditional finance, practically all internal and external communications must be logged as a legal requirement. But crypto is largely unregulated and the same record-keeping requirements do not yet apply. While a crypto firm like FTX might have the trappings of a regular financial organization, and deal in similar kinds of assets, it’s not a straight comparison.
Crypto exchanges and geofencing: In its cross-examination of ex-FTX employee Adam Yedidia, the defense pointed to steps taken by Bankman-Fried to ensure US-based customers couldn’t access the FTX.com platform, which offered riskier types of trading that requires a special license in the US.
In doing so, it positioned Bankman-Fried as a responsible steward of FTX, concerned with remaining within the bounds of the law. But it also served to contrast Bankman-Fried with other crypto figures that have found themselves in legal trouble, like Changpeng Zhao, Binance CEO, whose exchange has been accused by US regulators of secretly helping US customers to bypass geo-restrictions.
After Yedidia, the prosecution brought Matt Huang to the stand. Huang is the founder of Paradigm, a crypto investment firm that took a stake in FTX.
Huang spoke to the ways prospective investors were allegedly misled by Bankman-Fried about the relationship between FTX and Alameda, which was also a customer of the FTX exchange. When FTX was pitching for investment Paradigm was “told that there was no preferential treatment for Alameda,” said Huang.
But in practice, the prosecution claims, Alameda was exempted from various protections designed to prevent customers from racking up large amounts of debt, increasing the risk of financial trouble at FTX. The implication is that Bankman-Fried defrauded investors by failing to inform them of certain arrangements that might have raised concern.
Next up was FTX co-founder and CTO Gary Wang, pictured in the sketch below, right, whose testimony continues today. Wang didn’t have long on the stand before the end of play and the standout exchange came early on:
Prosecution: “Did you commit financial crimes while working at FTX?” Wang: “Yes.” Prosecution: “What types of crimes did you commit?” Wang: “Wire fraud, securities fraud, and commodities fraud.” Prosecution: “Did you commit these crimes by yourself or with other people? Wang: “With other people.” Prosecution: “Who were the main people you committed these crimes with?” Wang: “Sam Bankman-Fried, Nishad Singh, and Caroline Ellison.”