Gary Wang, a former top executive at failed cryptocurrency exchange FTX, testified that Sam Bankman-Fried, the company’s founder, was the company’s final decision-maker and directed a closely linked hedge fund to misuse billions of dollars in FTX’s funds at will. Customers.
In more than six hours of testimony on Thursday and Friday in federal court in Manhattan, Mr. Wang said that Mr. Bankman-Fried was fully aware that a sister cryptocurrency trading firm, Alameda Research, was taking $8 billion in customer funds from FTX have skimmed off. He said Mr. Bankman-Fried lied in his public statements in November about FTX customer assets being safe.
Mr. Bankman-Fried has the say on important issues at FTX, Mr. Wang told the jury of nine women and three men. “In the end it was Sam’s decision,” he said.
Mr. Wang, 30, who was also the founder of FTX and programmed its codebase, is a key witness in the high-profile fraud trial of Mr. Bankman-Fried. Mr. Wang is one of three close advisers to Mr. Bankman-Fried who have pleaded guilty and agreed to cooperate against the entrepreneur, who is accused of orchestrating a conspiracy to steal up to $10 billion in FTX shares. Using client funds for all sorts of personal projects.
The saga of FTX’s rise and fall has captivated the public for months with its mix of corporate hubris and personal intrigue. Since the exchange’s collapse in November, Mr. Bankman-Fried has become a symbol of the crypto industry’s excesses, and his trial is seen by some as a test of credibility for the digital currency industry.
A run on deposits last year uncovered an $8 billion hole in FTX’s accounts, which prosecutors say was due in large part to “special privileges” that allowed Alameda to access FTX shares. Access customer funds. FTX filed for bankruptcy and a month later, Mr. Bankman-Fried was indicted on wire fraud, securities fraud, money laundering and related conspiracy charges. He pleaded not guilty and faces life in prison if convicted.
A few weeks after FTX’s implosion, Mr. Wang, a friend of Mr. Bankman-Fried’s from high school math camp, pleaded guilty to aiding him in the conspiracy. Nishad Singh and Caroline Ellison, two other top executives in Mr. Bankman-Fried’s business empire, have also pleaded guilty and are cooperating with prosecutors.
Mr. Wang and Mr. Singh, who also programmed the code underlying FTX’s business, have admitted to creating a secret backdoor that allowed Alameda to borrow virtually unlimited money from the exchange. Prosecutors have argued that this backdoor was one of the main drivers of the plan to steal customer accounts.
Mr. Bankman-Fried’s legal team has argued that FTX and Alameda had a reasonable business relationship and “were not formed with the purpose of perpetrating a grand fraudulent scheme.”
On Thursday and Friday, Mr. Wang walked the jury in court through FTX’s early days in 2019 to its stunning collapse last year.
Mr. Wang said that he and Mr. Singh wrote FTX’s computer code to grant Alameda special privileges starting in 2019 at Mr. Bankman-Fried’s direction. “He asked us to do it and we told him we did it,” Mr Wang said. Wang said.
This effectively allowed the trading platform to make unlimited withdrawals from the exchange, he said. None of this was disclosed to the companies’ customers, investors or lenders, he added.
“We have given Alameda Research special privileges for FTX,” said Mr. Wang. “And we lied to the public about it.”
Alameda was initially only allowed to withdraw the amount of FTX’s revenue from trading fees, which was about $300 million at the time, Mr. Wang said. But that line of credit has grown over time to tens of billions of dollars, he said. Mr. Bankman-Fried said he had no problems with it, Mr. Wang said.
Since FTX imploded, Mr. Bankman-Fried has repeatedly said he only vaguely knew how much Alameda had borrowed from the exchange. But Mr. Wang testified that Mr. Bankman-Fried saw Alameda’s account balance on one of his office computer screens. Mr. Wang said that he, Mr. Bankman-Fried, Mr. Singh and Ms. Ellison discussed the money Alameda owed at a meeting in June 2022.
At the end of the meeting at FTX’s Bahamas office, Mr. Wang said Mr. Bankman-Fried reached out to Ms. Ellison and told her she could use more customer funds to repay Alameda’s creditors.
Under cross-examination, Mr. Wang said that some special privileges that Alameda had were part of its role as a trading partner to allow FTX customers to freely buy and sell cryptocurrencies. He is expected to answer further questions from defense attorneys when the trial resumes on Tuesday.
Mr. Wang and Mr. Bankman-Fried were classmates at the Massachusetts Institute of Technology before co-founding FTX in 2019.
Like Mr. Bankman-Fried, Mr. Wang became enormously rich, with an estimated net worth of nearly $5 billion. Within FTX, he and Mr. Bankman-Fried were considered opposites. While Mr. Bankman-Fried was the garrulous pitcher, Mr. Wang was the shy programmer who showed up for work in the middle of the afternoon and toiled all night.
They were also close friends who lived with eight other roommates in a luxury penthouse in the Bahamas, where FTX was based. That relationship ended in December when Mr. Wang pleaded guilty to federal fraud charges, saying he knew “what I did was wrong.”
Before Mr. Wang took the stand, lawyers questioned a witness, one of Mr. Bankman-Fried’s MIT classmates, Adam Yedidia. Mr. Yedidia, who worked as a developer at FTX, recounted a conversation he had with Mr. Bankman-Fried in mid-2022, months before FTX failed, in which the founder admitted that his company was on shaky ground.
“Sam said something like, ‘We were bulletproof last year, but we’re not bulletproof this year,'” Mr. Yedidia said. He said Mr. Bankman-Fried explained that it could take six months to three years for the company to be “bulletproof again.”
Mr. Yedidia was followed on the witness stand by Matt Huang, a founder of Paradigm, a venture capital firm that was one of FTX’s largest backers. Mr. Huang said he would have had concerns about approving investments in FTX had he known the full extent of the exchange’s relationship with Alameda.