Sam “SBF” Bankman-Fried took the stand this week to testify in his ongoing felony trial within the Southern District of New York, denying any wrongdoing between FTX and Alameda Analysis, whereas acknowledging making “huge errors” through the firms’ fast-paced development.
His official testimony began on Oct. 27, after a listening to on the day gone by with out the jurors current. Throughout the listening to, Bankman-Fried struggled to reply questions raised by authorities attorneys, whereas he appeared significantly better ready the next day to face the jury.
Just a few highlights of Bankman-Fried’s testimony this week embody denying directing his inside circle to make millionaire political donations in 2021, in addition to claims that FTX’s Time period of Makes use of coated transactions between Alameda and the crypto trade. Furthermore, the previous CEO acknowledged that he had requested extra hedging methods for Alameda all through 2021 and 2022, however they had been by no means carried out.
The protection is predicted to conclude Bankman-Fried’s examination on Oct. 30, adopted by the prosecution’s cross-examinations and shutting arguments from either side. Prosecutors additionally hinted a couple of doable rebuttal witness subsequent week — somebody who is named to show that the testimony of one other witness is fake or inaccurate.
Bankman-Fried might be jailed for 115 years if discovered responsible of all fraud and conspiracy counts. Cointelegraph’s on-the-ground protection of his testimony is summarized beneath.
SBF refutes claims over political donations
Bankman-Fried denied in courtroom having directing Ryan Salame, former co-CEO of FTX Digital Markets, and Nishad Singh, former director of engineering, to funnel hundreds of thousands of {dollars} in contributions to political campaigns.
In accordance with knowledge out there on OpenSecret, Singh gave $8 million to federal campaigns within the 2022 election cycle. Salame additionally donated $10 million to politicians by way of loans from Alameda Analysis.
Though Bankman-Fried denied instructing each to make political contributions, he acknowledged that lobbying in Washington, D.C. performed a key function in his efforts to push a regulatory framework for crypto companies in america throughout 2021.
“I got here to consider that I may affect the world.”
In accordance with prosecutors, Bankman-Fried used funds from clients’ deposits on FTX to make greater than $100 million in political marketing campaign contributions forward of the 2022 midterm elections.
Bankman-Fried denied any wrongdoing throughout his testimony, asserting that FTX had greater than $1 billion in income in 2021 and that political donations had been created from the trade’s personal funds.
Maxine Waters is chairing the investigation into FTX https://t.co/oFMctH4rRh pic.twitter.com/Ox6O5w4nOl
— Jordan Schachtel @ file.right this moment (@JordanSchachtel) November 17, 2022
The New York Occasions take a look at
Bankman-Fried had a tenet for workers’ communication at FTX and Alameda Analysis: The New York Occasions take a look at.
Primarily based on the casual take a look at, staff mustn’t write something they would not be snug seeing on the entrance web page of the newspaper. In accordance with Bankman-Fried, even innocent issues may “look fairly dangerous out of context,” so staff ought to remember to all the time present ample context in written messages.
Bankman-Fried described the take a look at as a part of his clarification of why greater than 200 channels on Sign had an autodelete coverage that completely deleted messages after per week.
Prosecutors used proof of the autodelete function within the earlier days to counsel that any wrongdoing between the businesses was being coated up. In accordance with Bankman-Fried, official communications and regulatory paperwork had been dealt with by way of different channels, similar to Slack or e mail, however Sign was the selection for day by day communication inside the firms.
Alameda’s distinctive function on FTX
Bankman-Fried supplied particulars about Alameda’s billionaire line of credit score with FTX. In accordance with his testimony, Alameda served as FTX’s cost supplier for wire transactions whereas the trade was unable to have its personal account.
Apart from being a cost processor, Alameda was additionally the first liquidity supplier, market maker and a consumer of FTX.
As liquidity supplier and market maker, Alameda must step in and canopy buyer losses if FTX’s danger engine failed. Throughout his testimony, Bankman-Fried supplied an instance of a failure of the danger engine that resulted in Alameda protecting hundreds of thousands of {dollars} in losses in 2021.
The character of Alameda’s function within the trade’s operations prompted customized options in FTX’s code, similar to the flexibility to go damaging by way of a line of credit score with out activating the danger engine. In accordance with Bankman-Fried, the exemption was essential to forestall Alameda’s potential liquidation, which might negatively affect the crypto markets.
As a consumer of FTX, Alameda was additionally capable of borrow funds by depositing collateral within the trade. The phrases of use of FTX permit debtors to make use of funds for any function, which implies Alameda may commerce with the borrowed funds.
Alameda’s line of credit score with FTX grew together with the crypto business through the bull market.
Alameda fails to hedge
Bankman-Fried mentioned hedging methods with Caroline Ellison, former CEO of Alameda Analysis, in 2021 and 2022 whereas looking for to defend the buying and selling platform from a doable market downturn.
In accordance with his testimony, Bankman-Fried requested Ellison to hedge $2 billion in Bitcoin (BTC) in opposition to a doable worth decline in 2021. The technique was by no means carried out, he informed jurors.
Notes of Ellison shared as proof by prosecutors reveal that Bankman-Fried was “freaking out” about hedging in early 2022. The protection used the proof as an instance that hedging was one in every of Bankman-Fried’s highest issues and mentioned with Ellison incessantly.
With out acceptable hedging in place, Alameda was considerably harmed by the Terra ecosystem collapse and decline in crypto costs. In September 2022, Bankman-Fried realized the legal responsibility between the businesses had grown from $2 billion a 12 months earlier than to over $8 billion.
“I used to be very stunned,” he claimed in courtroom, stating that he believed Alameda’s belongings outweighed its liabilities by practically $10 billion.
Clawback provision in Phrases of Use
In accordance with Bankman-Fried, FTX’s phrases of use embody a clawback provision that may socialize losses amongst clients utilizing margin commerce and futures contracts within the occasion that the trade’s danger engine fails.
The doc introduced in courtroom states that:
“[…] your account stability could also be topic to clawback attributable to losses suffered by different customers.”
If FTX couldn’t cowl losses associated to identify margins and futures, damages could be shared amongst all clients. Protection legal professionals used the availability to argue that clients buying and selling on FTX had been conscious of the dangers concerned.
