FTX Founder Sam Bankman-Fried Testifies in New York Court
Sam Bankman-Fried, the founder of FTX, testified in a New York federal court and claimed that some decisions made by his team were against his instructions. Judge Kaplan ruled to allow FTX’s data retention policy during cross-examination. The policy, drafted by FTX’s general counsel Daniel Friedberg, addresses the Signal auto-delete feature used for internal communications.
Ellison Accused of Not Hedging
Bankman-Fried stated that he did not commit fraud at FTX or Alameda Research. He revealed that he earned $200,000 after starting Alameda in 2017. Bankman-Fried admitted to hiding certain shortfalls from Caroline Ellison, who joined Alameda from Jane Street. FTX and Alameda moved to Hong Kong and then to the Bahamas due to more flexible regulations. The exchange employed aggressive marketing tactics funded by loans from FTX customer balances.
Absence of Risk Management Protocols
Bankman-Fried testified that he was unaware of a special code written by FTX co-founder Wang called “Allow Negative,” which served as Alameda’s liquidation cushion. He attributed the unraveling of FTX to the actions of his team and the absence of risk management protocols. Political donations made by Alameda funded by loans were used to lobby policymakers on crypto regulations and support humanitarian initiatives.
Shrinking Liquidity and Doubts About Solvency
In June 2022, Alameda’s liquidity decreased from $40 billion to $10 billion. Former chief developer Nishad Singh raised concerns about an $8 billion bug, while ex-Alameda CEO Caroline Ellison voiced doubts about the firm’s solvency. Bankman-Fried revealed that Alameda did not hedge its bets despite his advice to position a $2 billion safety net.
Upcoming Proceedings
Bankman-Fried’s testimony will continue on October 30 with a lengthy cross-examination and a rebuttal case by prosecutors. A charge conference, where final objections and jury instructions are discussed, may take place before November 3.
Hot Take: Bankman-Fried’s Defense Strategy
FTX founder Sam Bankman-Fried is relying on an advice-of-counsel defense, shifting blame to his legal representatives at the time. While it remains uncertain if this strategy will lead to a not guilty verdict, Bankman-Fried’s testimony has shed light on the internal workings of FTX and Alameda Research, as well as the challenges they faced in terms of risk management and liquidity. The court proceedings will play a crucial role in determining the outcome of this high-profile case that has attracted significant attention within the crypto community.
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