Lawyers in the USA often advise their clients not to testify against them in criminal proceedings. It’s a risky maneuver that can backfire. However, FTX founder Sam Bankman-Fried’s situation in the New York trial against him is so desperate that he has decided to risk it. After a kind of strange trial without a jury the day before, he testified this Thursday to defend himself. At his appearance, dressed in a gray suit and purple tie, he admitted mistakes but denied committing intentional fraud and sought to compensate for the evidence and testimony collected against him.
Bankman-Fried, 31, has had a precipitous fall from his heyday as a benefactor and billionaire young king of cryptocurrencies with his FTX platform to his arrest in the Bahamas and extradition to the United States last December. He is charged with seven crimes of fraud, conspiracy and money laundering for which he could be sentenced to decades in prison if found guilty in what prosecutors called “one of the largest financial fraud cases in United States history.” The defendant pleads not guilty.
In the trial that began at the beginning of the month, Bankman-Fried presented himself this Friday as a tireless worker who slept in an armchair in his office, who received thousands of emails a day, used six screens at the same time and also did not know cryptocurrencies, before starting his company with two other partners. “We thought we could build the best product on the market” and “evolve the cryptocurrency system,” he said on the stand, according to AP and Bloomberg statements. “It turned out basically the opposite,” and many customers and others were injured, Bankman-Fried said. When asked by her lawyer, Mark Cohen, whether she had defrauded anyone or kept client funds, Bankman-Fried replied, “No, I didn’t.” “Did you make a mistake?” Cohen asked. “I made several small mistakes and several big mistakes,” the defendant replied.
Among those mistakes, he acknowledged, was the lack of a risk management team. “We definitely should have had it. But no, we didn’t have it,” he admitted. Prosecutors and regulators say FTX was a fraud from the start and diverted customer funds to Alameda Research, an investment fund owned by Sam Bankman-Fried, known by his initials as SBF.
In addition to Bankman-Fried, Caroline Ellison, Bankman-Fried’s ex-partner and former head of Alameda Research, and Zixiao Wang, co-founder of the platform and its chief technology officer, are also charged. Both pleaded guilty and cooperated with justice. Ellison is the prosecution’s key witness and testified two weeks ago that Alameda took billions of dollars of money from FTX customers and used it for its own investments and to pay off its debts. When asked by his own lawyer, SBF answered evasively: “I wasn’t entirely sure what was going on,” says Bankman-Fried.
Before Bankman-Fried began testifying, the judge presiding over the case, Lewis A. Kaplan, criticized her attorneys’ attempts to convey to the jury that Bankman-Fried made many decisions about her companies after consulting with lawyers had advised, largely blocked. In her final deposition Thursday, Bankman-Fried testified before the judge about her communications with attorneys. “This evidence would, in my opinion, be confusing and highly prejudicial if, in light of yesterday’s testimony, one were to give the false impression that the lawyers had full knowledge of the facts, all the facts, of what the defendant allegedly did. And I didn’t hear that at all yesterday,” Kaplan explained.
With this line of defense largely closed, the defendant is trying to emphasize that he had no intentions to commit fraud, that he acted in good faith, and that FTX’s crash was due to management errors. This Friday he answered questions from his own lawyer. The complicated part will come when he has to respond to the charges, probably next week, and then it will become clear whether taking the stand was the right decision. In Friday’s non-jury statement, he was already having trouble when prosecutors questioned him, and he failed to answer several times, claiming he didn’t understand the questions. The process has now reached its final phase.
Prosecutors believe he siphoned billions of dollars from his clients and investors to make high-risk investments, buy luxury real estate, hire stars for his advertising campaigns and make large political and charitable donations. He presented himself as an honest, supportive visionary concerned with humanity’s problems. He boasted of good relations with regulators. In his PR campaign, he signed celebrities such as American football quarterback Tom Brady, supermodel Gisele Bundchen and basketball player Stephen Curry. It sponsored the Miami Heat and was promoted at the Super Bowl as “the safest, easiest way to buy and sell cryptocurrencies.”
As Alameda’s investments suffered losses, customers’ money disappeared. According to regulators and the indictment, FTX’s founder told investors that his exchange had sophisticated automated measures to protect customers’ assets, that those portfolios were secure, that his company was transparent, and that Alameda, the group’s nucleus, just another customer of the platform without any special privileges, but it was all a lie. Customer funds were transferred to Alameda-controlled accounts without transparency or appropriate controls. In addition, Alameda had a virtually unlimited credit line from FTX, which was funded with other customers’ money and in return provided the company’s own crypto assets with no real value as collateral.
Although he was initially granted bail of $250 million and given permission to live with his parents in Palo Alto, California, the bail was revoked in August and he was jailed as Kaplan concluded that he had tried to influence potential witnesses in his trial. His parents, law professors at Stanford University, were present in the courtroom this Friday for their son’s testimony.
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