Oct 9, 2023

The trial for FTX founder Sam Bankman-Fried is entering its second week.

Video transcript

Sam Backman free trial has entered its second week. Uh joining us now to discuss is Coin Desk, uh global, global policy and regulation managing editor Nick Day, who was also the editor of Coin Desk's state of crypto newsletter. Hi, Nick. Hey, good morning. So a bit of a reprieve for you today. The court is not in session after a very busy week last week. But of course, the trial will resume tomorrow with a star witness for the defense expected to take the stand. What can we expect from that? Yeah. So former Alameda research, Ceo Carolyn Ellison is expected to take the stand sometime tomorrow. Prosecutors made the announcement uh after the end of the trial day on Friday saying that once Gary Wang, the former Chief Technology Officer and FTX co-founder uh completes his testimony, uh she's next. So, you know, we've already heard quite a bit from uh Gary Wang about uh number of issues that, you know, we've either heard about or suspected or have otherwise been discussing around FTX and uh its relationship with Alameda. But as the former CEO of Alameda and as the individual who uh the defense is trying to lay the blame for Alameda collapse on Ellison, I think is going to be a, uh, you know, she'll be able to provide a lot more context about the uh specific actions that she took about the specific finances that are at question here and, and, and to be sure this is, this is she's a witness for the prosecution, correct? And, uh, I, I would assume the diaries, the famous diaries that came out in public uh will those factor in into this questioning at all? I do, do we have any sense of, of what will happen there? I think in so far as the defense might try to, you know, raise questions about whether or not she was, you know, basically doing her job, right? Uh that might come up. So, you know what we've heard from the defense so far, including in this opening statement is they're trying to present this image of Sam Bateman Fried as someone who was meeting well, trying to do well and got in over his head and which, you know, led to the collapse of FTX. But during your opening statement, they did point to Ellison as a figure who uh you know, in their words, did not do her role, did not hedge FDX or Alameda, uh you know, actions uh even at the direction of Bank and Fried. So, you know, insofar as if there's anything in the diary that specifically points to her feeling, uh you know, incapable of doing, you know, executing her role. Um, we've also seen from past filings that the defense might try to, for example, bring up concerns about, you know, whether or not she was sober at the time she was running the company. Um, you know, they, they said they intend to try and ask questions about recreational drug use. Uh, yeah, I think we'll see a lot of questions that are really basically going to be designed to try and discredit her as a witness for the prosecution. So uh last week we had FDX co-founder, Gary Wang testify on Friday and he said that uh Alam research had special privileges at F at FDX that allowed the crypto hedge fund to spend $8 billion of exchange customers money. It seemed like a pretty uh significant revelation. Can you talk us through what those privileges amounted to and why it was important? Yeah, so the basic, you know, premise here is something we've actually, we, you know, we have heard about this a little bit. Alameda had the ability to draw funds from FEX uh through, you know, uh what Gary Wang decide or described as a, you know, a very large line of credit up to $65 billion worth at some point uh without having to worry about, you know, what funds it actually had in FTX. Um This basically allowed it to, you know, as you mentioned, draw up to $8 billion of FTX customer funds without necessarily having the collateral or any kind of way to pay it back uh in the course of its activity. And, you know, one thing that it's, you know, probably worth mentioning here. Uh This figure was something like 100 million or 500 million at the end of 2019. So all of this, the $8 billion functionally or at least 7.5 billion of it. Uh, it happened over the course of like two years, uh which is, or three years rather, which is, you know, relatively, it's not a long period of time for a single company. So n after a week in the courtroom, uh last week, um, what are your major takeaways? Any sort of nuances that you've picked up on and the way that, uh the defense of prosecution or the judge has handled this? Yeah, I mean, I think from kind of just like a neutral observer perspective, I kind of appreciate what the Department of Justice is doing here, right? This is a case about, you know, this is obviously the biggest case in crypto and it's about some pretty important companies in crypto and the actual, you know, technicals are, I think to some extent, a little complicated. But the DOJ has really tried to go out of its way to ease the jury into it, you know, the jury, it's a group of lay people, they're not steeped in crypto or for that matter, steeped in finance or the law. And so you, you've seen the DOJ kind of pull threads from witnesses just kind of building on, you know, what is Cryptocurrency, what are crypto exchanges? Uh We didn't really get into anything super technical until Friday when they finally started pulling up code from, you know, FTXS process or servers and systems and asked Wong to describe them. And so it, it makes a lot of sense, I think to, or this approach writer makes a lot of sense to me because uh again, you want to, you don't want to confuse the jury with, oh, you know, here's all the weird crypto stuff happening. Their basic allegation, this is fraud and fraud looks exactly like fraud anywhere else. So here we go. Similarly, we haven't seen a lot of the law yet, which I think we'll probably get to. But I mean, is it ultimately they're painting it as a, the crypto is, is almost irrelevant in this case, right? Because it's ultimately a fraud case. So you, you don't have to know, you know, they could be selling lemons or, or, or, you know, poultry futures or something, but this, this has to do. It just happens to be crypto. Is that coming across to the jury? Do you get any sense that they're like the technicals aren't the issue here. It's the fraud. That's hard to say. Um the jury, you know, it's been three days for them. Uh, we've seen some of them, you know, alert taking notes, paying attention during the course of the trial. Others have had a little bit more difficulty. Um, you know, staying awake, something I can absolutely relate to at that hour. So I, I think again, the trial is still just getting started. We've only had really three days or 2.5 days really of the actual, you know, witness testimony argument so far. So I think we'll see what happens this week. Um And whether or not the jury is starting to really get more into this as we proceed. Alright. Well, thank you, Nick. That was Coin desk, Global Policy and Regulation, managing editor Nick Day. Don't forget to sign up for the SPF trial newsletter special edition that takes you inside the courtroom.

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