- Sam Bankman-Fried began to testify in front of jurors on Friday in his criminal fraud and conspiracy trial.
- Under questioning from his defense lawyer, SBF sought to deflect blame to his deputies.
- The former FTX CEO conceded to making mistakes at the crypto exchange – the biggest being not having a risk manager – and said "a lot of people got hurt."
NEW YORK – Sam Bankman-Fried doubled down Friday on the narrative that the FTX crypto exchange failed due to mistakes rather than malfeasance and that his underlings made the major bungles in his first day testifying before jurors.
For example, he told the court he had asked Alameda Research, the hedge fund he founded with close ties to FTX that was run by his on-and-off girlfriend Caroline Ellison, to hedge its risks.
However, when asked by his defense lawyer in the criminal case whether Ellison heeded his advice that Alameda should “get shorter” to mitigate its risks and shrink its multi-billion-dollar hole, Bankman-Fried replied tersely, “no.”
The fallen crypto mogul, who stands accused of fraud and conspiracy, began his testimony in front of jurors Friday by saying he made mistakes at his now-fallen crypto behemoth FTX – the biggest being not employing a risk manager – and "a lot of people got hurt."
Mark Cohen, Bankman-Fried’s lawyer, spent the bulk of Friday morning walking his client through the early days of the FTX exchange and Alameda Research, Bankman-Fried's trading firm. The focus was on spinning prosecutors' narrative about the companies' collapse into a story more favorable to the defendant – portraying the firms as legitimate and well-intentioned businesses, and providing context to explain the motivations behind controversial business decisions.
In the FTX founder's telling, a much-scrutinized feature of the exchange's software, which let Alameda avoid having its positions liquidated and let it have a negative balance, was implemented to patch a bug in the exchange’s risk-management system.
Prosecutors previously said Alameda's ability to "go negative" was key to its ability to withdraw limitless amounts of FTX users' money. At the core of prosecutors' case against the FTX founder is that he used his trading shop to steal from customers.
As he explained the "allow-negative" feature, Bankman-Fried punted blame to his former colleagues: prosecution witnesses Gary Wang and Nishad Singh, who he says implemented the infamous system in response to Bankman-Fried's unspecific guidance to fix the error.
A core element of Bankman-Fried's strategy thus far has involved casting blame on former colleagues. In general, Bankman-Fried said he "supervised" Wang, FTX’s head of technology, and Singh, its chief technology officer, but alleged they were empowered to make their own decisions, with Bankman-Fried serving more as an adviser.
Read all of CoinDesk's SBF trial coverage here.
Bankman-Fried's early testimony also sought to cast other goings-on at Alameda and FTX in a more benign light than the one shone by prosecutors. Whereas prosecutors, for example, suggested Bankman-Fried and his colleagues customarily deleted communications to avoid legal trouble, Bankman-Fried testified that he was merely following a rule he picked up during his days as a young quantitative trader at Jane Street.
That was the "New York Times test," which, according to Bankman-Fried, was a frequent point of reference at the elite quant shop. "Anything that you write down," he recalled, "there's some chance it could end up on the front page of The New York Times." He added: "A lot of innocuous things can seem pretty bad" without context.
Much of Bankman-Fried's testimony zeroed in on the propriety of the massive borrowing Alameda did from FTX (Alameda, he said, could borrow money like anyone else) and the exchange's ability to "claw back" funds from users to cover losses (covered in a portion of the FTX terms of service – albeit one specific to a margin trading feature used by relatively few users).
Bankman-Fried appeared composed and confident on the witness stand. The former billionaire was clearly eager to deliver his story to the jury, and the months he's had to prepare showed through the clear, deliberate wording of his testimony, and his easy recollections of his early days as a crypto founder. Bankman-Fried's answers frequently veered into breathless monologues, however, which invited objections from prosecutors and scoldings from Judge Lewis Kaplan, who advised the defendent to answer questions directly.
Bankman-Fried also contradicted his former inner circle members’ testimony about the purpose of his trademark schlubby look.
In her testimony earlier this month, Ellison had told the court that her former boss and love interest purposely wore affordable clothes and drove a non-flashy car to help FTX’s image. On Friday, Bankman-Fried testified that his choice to wear shorts and a t-shirt was out of “comfort” and that he kept his hair long because he too “busy and lazy" to get it cut.
For a while after the lunch break, Cohen questioned Bankman-Fried about FTX’s marketing budget, specifically the purchase of the naming rights to the basketball team Miami Heat’s arena, for which FTX spent $10 million a year and signed a 19-year contract. When asked if he thought that was a reasonable purchase, Bankman-Fried said $10 million a year at the time equaled 1% of FTX’s revenue, and given that he understood sponsorships of arenas to be “above and beyond” in name recognition value, he thought the purchase was warranted.
When asked why Bankman-Fried wanted to be the public face of FTX, he said he hadn’t intended to be. “I’m naturally somewhat introverted,” he said. He recalled early on giving a few interviews nevertheless as the CEO of FTX and that he “did well” in those which led to more requests. After a while, it was too late to find a new face to represent FTX, he said.
The judge narrows SBF's defense
Before Bankman-Fried started testifying Friday, the judge ruled that his defense can include testimony about the role FTX lawyers played in deleting internal communications. But Kaplan prohibited the defense from bringing before the jury wider-ranging testimony about FTX's lawyers.
This line of questioning was previewed Thursday, after Kaplan sent jurors home for the day. The former FTX CEO, when queried by his defense team Thursday, made it clear he wanted to direct blame toward former FTX General Counsel Dan Friedberg and outside law firm Fenwick & West.
Bankman-Fried argued Thursday he felt comfortable with how FTX was operating because his attorneys had a role in everything from the company's terms of service to the setting up of North Dimension, a subsidiary of Alameda Research – Bankman-Fried's trading firm – intended to secure bank accounts and process payments.
But the judge didn't grant an advice-of-counsel defense across all the topics sought by the lawyers defending him now at the former FTX CEO's trial. When it comes to talking about lawyers, the judge will only let jurors hear about FTX's document-retention policy.
That policy is relevant because Bankman-Fried said it let the company and its employees automatically delete mountains of internal chats on messaging apps like Signal. But it is also contentious.
With the judge's decision out of the way, Bankman-Fried began testifying in front of the jurors who will be asked to decide his fate on fraud and conspiracy charges.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.