NEW YORK – FTX’s Sam Bankman-Fried committed financial crimes, co-founder Gary Wang said after taking the stand late Thursday.
Wang, the fourth witness called by the U.S. Department of Justice in Bankman-Fried’s trial, said he committed wire fraud, securities fraud and commodities fraud alongside Bankman-Fried and Caroline Ellison, who ran Bankman-Fried’s Alameda Research hedge fund, and former FTX executive Nishad Singh. (Wang, Ellison and Singh all pleaded guilty to charges shortly after Bankman-Fried was arrested.)
“We gave special privileges to Alameda Research to allow it to withdraw unlimited funds from FTX and lied about it,” Wang said.
Bankman-Fried faces fraud and conspiracy charges stemming from the collapse of his crypto empire, which prosecutors said was a “house of cards” during opening arguments on Tuesday.
Alameda had the authorization to withdraw large amounts of funds as well as a large line of credit that was “essentially without any limit,” and could place orders slightly faster than other market makers, Wang said.
Wang followed Paradigm co-founder Matt Huang, who testified about his company’s past investments in FTX. The company invested around $278 million or so across different rounds in FTX and FTX U.S., he said. Asked how Paradigm currently values the FTX equity it holds, he said: “we marked it to zero dollars.”
Software bug
A software bug that resulted from the unusual way FTX handled customer deposits overstated how much its sister company Alameda owed the exchange’s customers by $8 billion, another witness said earlier Wednesday.
A key piece of the relationship was banking. In FTX’s early days, customers deposited fiat by wiring money to Alameda rather than FTX directly, former FTX developer Adam Yedidia told the court. This unusual relationship complicated how the companies tracked debts owed to customers. Yedidia said there was a bug in the accounting software that by June 2022 showed Alameda owed far more money than it actually did.
Prosecutors zoomed in on a conversation Yedidia and Bankman-Fried had on a tennis court. Yedidia had just patched the accounting bug in mid-June, he said, which incorrectly said Alameda owed FTX customers $16 billion. In doing so, he discovered there was still an $8 billion debt, and “was concerned.” Bankman-Fried told him, “we were bulletproof last year, but we’re not bulletproof this year.”
The bug fix occurred shortly after Bankman-Fried met with Singh, Wang and Ellison to discuss getting a full accounting of FTX and Alameda, said Yedidia, who was testifying under a grant of immunity.
Yedidia told the jury he resigned from FTX after learning Alameda was using customer funds to repay creditors.
“I learned that Alameda Research had used customer … FTX customer deposits to pay back its loan to creditors,” he said. Asked what he did then, Yedidia responded: “I resigned.”
The defense began cross-examining Yedidia in the late morning before breaking for lunch. The judge admonished defense attorney Christian Everdell for repeating the same questions too many times.
Inside the Courtroom
Bankman-Fried walked in just before 9:30 a.m. nodding at people in the gallery, seemingly greeting them with a shy smile before searching for his parents, who were seated on the right side in the second row.
He fidgeted during the testimony, though he worked on his laptop for much of the trial as he has in previous days.
Joseph Bankman, Bankman-Fried’s father, took notes the entire time, passing them to Bankman-Fried’s mother, Barbara Fried. Fried held a pen in her hand but seemed more focused on listening to the testimony.
One juror fell asleep while Yedidia explained how deposits at FTX worked.
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UPDATE (Oct. 5, 20:45 UTC): Adds new details throughout.