A key witness for prosecutors in the trial of Sam Bankman-Fried testified that he and Bankman-Fried committed several financial crimes related to their supervision. The now bankrupt crypto exchange FTX.
Gary Wang, who co-founded FTX with Bankman-Fried, told jurors that — pursuant to a previous plea deal — he was guilty of wire fraud, securities fraud and commodities fraud, and that he committed those crimes at the bank’s direction. fried
Wang’s testimony, along with that of two other close business associates, is a key component of the government’s case against Bankman-Fried, 31, who prosecutors say orchestrated a massive, yearlong scheme to steal from clients and defraud investors.
Bankman-Fried, known as SBF, pleaded not guilty to seven counts of fraud and conspiracy.
As his testimony continued Friday morning, Wang offered an account that closely dealt with the government’s claims and corroborated media reports about various special benefits that FTX created and later concealed for its sister crypto firm, Alameda Research.
A central issue in the case is FTX’s unusually close financial ties to Alameda. Advocates argue that FTX Paying customer accounts directly into a bank account controlled by Alameda, It is, on paper, not connected to FTX except by having a common founder. By doing so, the government claims FTX misled customers about where their funds were and how they were being used.
Defense attorneys have not yet had a chance to cross-examine Wang or call their own witnesses. In an opening statement, lead attorney Mark Cohen previewed a story that tries to diffuse blame for ultimately bad business decisions rather than fraud.
Unlike FTX’s regular clients — a platform for individual investors and institutions to trade crypto — Alameda was allowed to run negative balances and “unlimited withdrawals” from FTX clients, Wang said.
Alameda had $65 billion in loans to use as collateral when placing bets — orders of magnitude larger than the credit FTX offers other major investors.
Asked by Assistant U.S. Attorney Nicholas Rouse if those benefits were ever disclosed to clients or investors, Wang replied: “No.”
Wang said he personally wrote the computer code for some features and did so at Bankman-Fried’s direction.
The defense has not yet had an opportunity to cross-examine Wang.
Although Wang’s guilty plea was unexpected, Tuesday’s empaneled jury was the first to hear directly from a high-ranking member of Bankman-Fried’s inner circle.
Earlier in the day, jurors heard from another former FTX employee and friend of Bankman-Fried, Adam Yedidia.
Yedidia described a conversation with Bankman-Fried in which Yedidia alerted SBF to the $8 billion liability hanging on Alameda’s balance sheet.
After playing a round of paddle tennis at the luxury Bahamian apartment complex where they both lived, Yedidia asked SBF about the red flag.
“Are things alright?” Yedidia, who was a senior software developer at the company, recalls hearing SBF.
In response, “Sam said something like, ‘We were bulletproof last year; we’re not bulletproof this year,'” Yedidia told the jury.
The $8 billion represents the money FTX customers would have to pay if they decide to withdraw their deposits, Yedidia said. It seemed like an “enormous debt,” and Yedidia wanted to know if Alameda could repay it.
But he didn’t press the issue, saying, “I trusted Sam.”
Yedidia said he stood by his friend until he learned that Alameda, which was supposed to be a separate company from FTX, had used FTX customers’ deposits to pay off Alameda’s creditors since they were MIT undergraduates.
He told the court it was a “blatant misdemeanour”.