Original author: Protos
Original compilation: GaryMa Wu Shuo Blockchain
Summary
According to a plea agreement, FTX co-founder Gary Wang told the jury that he participated in financial crimes at the direction of Sam Bankman-Fried (hereinafter referred to as SBF) and detailed some of the crimes.
Witness testimony proved to the jury that SBF knew about FTX’s financial woes but lied to the public and investors.
Judge Lewis Kaplan chastised Mark Cohens team for wasting time and repeating questions that appeared to accomplish little. The defenses main goal appeared to be to disparage the prosecutions witnesses, but it was poorly executed.
During defense cross-examination, SBF appeared distressed, balling his hands into fists and rubbing his eyes. The difficulty of defense may be apparent even to the SBFs closest allies.
On Thursday, October 5, FTX and Alameda Research co-founder Gary Wang took the stand against his former business partner SBF, marking the first full day of witness testimony in the criminal trial of the fallen crypto wizard.
In perhaps his most damning testimony, Wang said he agreed to take huge personal loans from the company under pressure. He also said he never actually saw the money, illustrating a broader pattern of financial fraud at the two companies.
In their final conversation of the day, prosecutors asked Wang: Did the money from this loan go into your bank account?
Gary Wang, SBF’s formerly mysterious co-founder, responded: “No.”
Gary Wangs testimony concluded a busy day. The testimony of former FTX developer Adam Yedidia concluded, with Yedidia recounting a June 2022 conversation in which SBF became clear about FTX’s financial problems. Coupled with SBF’s numerous tweets trying to convince the public that everything was fine with FTX, this seemed to provide a factual basis for his charges of wire fraud.
SBF himself has been taciturn throughout the trial, appearing engrossed in documents on his laptop. But when Wangs testimony began, the SBF paid close attention to the witness for the first time.
Wang remained silent, giving short, focused answers. He detailed his role in creating special perks for Alameda Research on the FTX platform that allowed the company to unlimited withdrawals from the exchange and place orders faster than other market makers. This means that Alameda can not only jump competitors, but also jump FTX customers, essentially stealing from them at every turn using cheat codes.
Wang said Alameda’s credit line on FTX is $65 billion. This is orders of magnitude higher than the tens to millions of dollars that Wang described as normal for FTX market makers. This is also several times higher than the $8 billion in customer deposits that disappeared.
Wang also described how SBF guided him in implementing these features.
SBF: We are not invulnerable
Earlier in the day, former FTX engineer Adam Yedidia concluded his testimony with a timeline detailing FTXs financial health. Dressed in an ill-fitting suit and baggy tie, Yedidiya has the perfect image of a socially awkward computer developer.
Yedidiya recalled that he was assigned to automate the customer deposit process and in the process learned that Alameda Research had borrowed $8 billion in FTX customer funds. Yedidia expressed these concerns to the SBF in June 2022 following a paddle tennis match at the Albany resort where FTX and Alameda are based.
SBF responded that while FTX is “invulnerable” in 2021, “we are not invulnerable this year (2022).”
Yedidia reiterated Sams estimate that FTX will be vulnerable again in 6 months to 3 years.
What is obvious is that as early as June 2022, SBF was aware that FTX had serious financial problems. Early evidence includes SBF still taking to Twitter to assure clients that FTX is “fine” as of November 2022. These two sets of facts appear to clearly constitute evidence of fraud.
In short, the defenses efforts to undermine Yedidiyas testimony were feeble.
Defense attorneys asked Yedidiya: Would you say that no crypto company is bulletproof right now?
This appears to reflect a larger defensive strategy of conflating the details of FTX’s operations with “the crypto industry as a whole.”
But prosecutors objected to the nature of the issue and excluded it from the proceedings. The defense faces dozens of such objections when asking witnesses to comment on issues beyond the scope of their testimony. Time and time again, Judge Kaplan sided with the prosecution, leaving the defense visibly overwhelmed.
Eventually, Kaplan also called an out-of-court conference and appeared to harshly criticize the repetitive nature of defense attorneys questions. In every cross-examination to date, defense attorneys have spent much of their time asking witnesses to repeat facts already established in prosecutorial questioning.
The defense also appeared to be trying to belittle Yedidiyas testimony by repeatedly asking about his immunity agreement for testifying. But unlike Gary Wang, Yedidia resigned from FTX after learning that Alameda had spent customer deposits and was not charged with a crime, so this method of attack is not convincing.
SBF parents show stress
There was a dramatic moment in court during defense lawyers cross-examination of Yedidiya. On multiple occasions during the deposition, SBF could be seen taking off his glasses, lowering his head, and rubbing his fists into his eyes for several minutes, possibly to cover up or suppress tears. SBFs father, Joseph Bankman, also appeared frustrated.
But the true depth of the defenses failings did not emerge until prosecutors conducted their reentry examination, the third round of questioning against Yedidiya. Defense attorneys had asked Yedidia about SBFs personal spending habits, seemingly suggesting that not buying expensive clothes or luxury cars meant he was an honest man.
But prosecutors only asked Yedidiya a simple follow-up question about the money spent: Have you heard of FTX Arena?
The question set off a wave of laughter in the courtroom as Yedidia detailed the extravagant spending of $100 million to purchase the naming rights to the former Miami Heat arena.
Yedidiyas testimony ended with a personal question. After leaving FTX, he went from living in a $35 million penthouse in the Bahamas to becoming a high school math teacher. While this is a moral boost, it highlights how much of an impact being associated with FTX can have on people even who are not accused of involvement in SBFs alleged crimes.
investor fraud
Between Yedidiya and Wang, we also heard testimony from Matt Huang, co-founder of crypto industry-focused venture capital fund Paradigm. Like the prosecutions other witnesses, Huang appeared calm and seemed credible, choosing his words carefully and giving answers that were specific and concise.
Huang determined that facts that appear to have been hidden from Paradigm may have affected their decision to invest nearly $300 million in the platform. Specifically, Huang confirmed that Paradigm would have been less likely to invest if it had known that Alameda Research received a special exemption from FTXs liquidation engine and that Alameda was using client funds as investment capital.
Our general understanding was that the exchange would accept customer deposits and hold them in safe custody, Huang testified.
Regarding the crypto industry as a whole, he later said: “There is a general belief that customer deposits are sacred.”
Huangs testimony is the first to address securities fraud charges against SBF based on misleading capital investors about FTXs business.
When asked about the current value of Paradigm’s $278 million investment in FTX, Huang didn’t mince words:
“We booked it as zero.”
Follow-up agenda
Fridays court session will end early to accommodate one jurors travel plans, at 2 p.m. ET. This will probably be used primarily to complete Wangs testimony (which is currently closed).
ps: According to BitMEXResearch, Wang’s testimony claimed that the amount of insurance funds released by the FTX exchange was false, and that this number was generated by a random number generator. The calculation process was similar to obtaining the total trading volume on FTX in the past 24 hours. Multiply this by a random number of approximately 7500 and divide the result by a billion.
Prosecutors said their next witness is Zac Prince, CEO of now-bankrupt crypto lending platform BlockFi.
