The multi-count fraud trial of former FTX CEO Sam Bankman-Fried began with jury selection in Manhattan district court Tuesday.
The 31-year-old former king of crypto was arrested 10 months ago in the Bahamas following the collapse of FTX, his once highly-trusted, multi-billion-dollar crypto exchange.
“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” Securities and Exchange Commission Chair Gary Gensler said in a statement at the time, when the SEC also charged Bankman-Fried with orchestrating a scheme to defraud equity investors of more than $1.8 billion.
In the 11 months since the exchange’s November collapse, multiple former high-level executives from FTX and its sister companies have pleaded guilty to crimes of their own in the scheme, leaving Bankman-Fried as the only charged executive to plead not guilty.
Former FTX Chief Technology Officer Gary Wang, former hedge fund and sister company Alameda Research CEO Caroline Ellison, and former FTX Director of Engineering Nishad Singh are slated to testify against Bankman-Fried over the six-week trial.
He is charged with seven counts, including wire and securities fraud. Five other charges were cut from the list in June following challenges from attorneys, but a trial to address those charges is slated for March 11.
The witnesses
The first witness to testify against Bankman-Fried was London-based cocoa trader Marc-Antoine Julliard, who lost $100,000 with the fall of FTX after initially being swayed by FTX’s celebrity connections and its savvy marketing, NBC reported.
In FTX’s last days, when he found himself unable to withdraw his money, he became “extremely anxious” because that was a “huge” amount of money for him — money he, to this day, hasn’t been able to get back.
Three former Bankman-Fried allies have taken the stand, as of Friday morning. Former FTX employee Adam Yedidia, who received immunity for his testimony, told the courts that he was “concerned that as a developer at FTX I may have unwittingly written code that contributed to the commission of a crime,” according to the Wall Street Journal.
Whether Yedidia’s code “contributed” to crime or not, FTX co-founder and former technology chief Gary Wang told the court that he himself helped write the code that granted Alameda Research carte blanche to borrow up to $65 billion unchecked from FTX customers, The New York Post reported.
Notably, $65 billion is more than twice as much as FTX was ever worth. The exchange was valued at $32 billion in January 2022, not long after Bankman-Fried and other crypto industry captains testified before Congress on appropriate crypto regulation.
As FTX’s co-founder and the ultimate insider, Wang’s testimony is particularly damning to Bankman-Fried. He had the following exchange with the prosecution, as published by Wired:
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.”
Retaking the stand Friday morning, Wang testified that Alameda’s $65 billion line of credit was far greater than any other customer’s line of credit, according to Inner City Press. “Maybe a dozen” customers had lines of credit from FTX over $1 million, but no one else had lines of credit over $1 billion, he said.
Wang pleaded guilty in December to four counts of wire fraud and wire fraud conspiracy, as well as conspiracy to commit commodities and securities fraud. He could receive up to 50 years in prison, but agreed to cooperate with the Justice Department in the case against Bankman-Fried.
Prior to Wang on Thursday, Matt Huang, co-founder and managing partner of crypto firm Paradigm, took the stand, sharing with prosecutor Thane Rehn that the $278 million his firm invested in FTX in 2021 and 2022 has been “marked ... to zero,” TechCrunch reported.
Huang said he’d had eyes on FTX for potential investment since 2019, and that he’d been told FTX wallets acted as a custodian for customer deposits and that customers could withdraw their money as they wished. What he wasn’t told, he said, was that FTX could also withdraw said deposits, and that Alameda could, too.
“Customer deposits are sort of sacred,” he said, according to TechCrunch. He would not have invested if he’d known about Alameda’s access to the funds, he said.
He recalled Bankman-Fried’s resistence to typical corporate governance and investors’ calls for board seats during Paradigm’s first investment into FTX in 2021, according to Pitchbook.
"He told us he didn't think investors had much to add," Huang said to Bankman-Fried’s defense counsel.
Accommodations for a juror will lead to an early wrap up on Friday at 2 p.m., various media have reported. Next up to testify are bankrupt crypto lender BlockFi founder and CEO Zac Prince or Elan Dekel, vice president of product at AI firm Pinecone, according to Wired.
