FTX founder Sam Bankman-Fried told jurors in his criminal trial on Friday that he didn’t commit fraud, and that he thought the crypto exchange’s outside expenditures, like paying for the naming rights at a sports arena, came out of company profits.
On Friday morning, defense attorney Mark Cohen asked Bankman-Fried if he defrauded anyone.
“No, I did not,” Bankman-Fried responded.
Cohen followed by asking if he took customer funds, to which Bankman-Fried said “no.”
Bankman-Fried, 31, faces seven criminal counts, including wire fraud, securities fraud and money laundering, that could land him in prison for life if he’s convicted. Bankman-Fried, the son of two Stanford legal scholars, has pleaded not guilty in the case.
Prior to the defendant’s appearance on the stand, the four-week trial was highlighted by the testimony of multiple members of FTX’s top leadership team as well as the people who ran sister hedge fund Alameda Research. They all singled out Bankman-Fried as the mastermind of a scheme to use FTX customer money to fund everything from venture investments and a high-priced condo in the Bahamas to covering Alameda’s crypto losses.
Prosecutors walked former leaders of Bankman-Fried’s businesses through specific actions taken by their boss that resulted in clients losing billions of dollars last year. Several of the witnesses, including Bankman-Fried’s ex-girlfriend Caroline Ellison, who ran Alameda, have pleaded guilty to multiple charges and are cooperating with the government.
‘Significant oversights’
On Friday, Bankman-Fried acknowledged that one of his biggest mistakes was not having a risk management team. That led to “significant oversights,” he said.
At the start of his testimony, Cohen walked Bankman-Fried through his background and how he got into crypto. The defendant said he studied physics at the Massachusetts Institute of Technology and graduated in 2014. He then worked as a trader on the international desk at Jane Street for over three years, managing tens of billions of dollars a day in trading. That’s where he learned the fundamentals of things like arbitrage trading.
In the fall of 2017, Bankman-Fried founded Alameda Research.
“This was when crypto was starting to become publicly visible for the first time,” Bankman-Fried testified.
He said people were excited about it, watching bitcoin, which had jumped from $1,000 to $10,000 in a two-month period. Banks and brokers weren’t involved yet and it seemed like there would probably be big demand for an arbitrage provider, he said.
“I had absolutely no idea” how cryptocurrencies worked, Bankman-Fried said. “I just knew they were things you could trade.”
The first Alameda office was in an Airbnb in Berkeley, California, he said. It was listed as a two bedroom but they used the couch in the living room as a third bed and also repurposed the attic as a fourth bedroom.
He started FTX in 2019. Trading volume grew substantially on FTX from a few million dollars a day to tens of millions of dollars that year to hundreds of millions of dollars in 2020. By 2022, that number was up to $10 billion to $15 billion per day in trading volume, he said.
Bankman-Fried said Alameda was permitted to borrow from FTX, but his understanding was that the money was coming from margin trades, collateral from other margin trades or assets earning interest on the platform.
At FTX, there were no general restrictions on what could be done with funds that were borrowed as long as the company believed assets were greater than liabilities, Bankman-Fried testified
In 2020, a routine liquidation gone wrong led to some of the special borrowing permissions at Alameda, he said. The risk engine was sagging under the weight of growth. A liquidation that should have been in the thousands of dollars was in the trillions of dollars. Alameda was suddenly underwater because of closing the position.
The incident exposed a larger concern, that the potential of an erroneous liquidation of Alameda could be disastrous for users.
Bankman-Fried said he talked to FTX’s engineering director Nishad Singh and co-founder Gary Wang, both of whom testified earlier on behalf of the prosecution. He suggested creating an alert, which would prompt the user to deposit more collateral, or a delay, Bankman-Fried said. In response to this feedback, Singh and Wang told Bankman-Fried they had implemented a feature like that, he said, adding that he later learned it was the “allow negative” feature.
Bankman-Fried testified that he wasn’t aware of the amount Alameda was borrowing or its theoretical max. As long as Alameda’s net asset value was positive and the scale of borrowing was reasonable, increasing its line of credit from so that Alameda could keep filling orders was fine, he said. Earlier testimony from Singh and Wang suggested the line of credit was raised to $65 billion, a number Bankman-Fried said he was not aware of.
Tough sell
Convincing the jury will be a tall order for Bankman-Fried after a mountain of damning evidence was presented by the government.
Prosecutors entered corroborating materials, including encrypted Signal messages and other internal documents that appear to show Bankman-Fried orchestrating the spending of FTX customer money.
The defense’s case, which consists of Bankman-Fried’s testimony along with that of two witnesses who took the stand Thursday morning, hinges largely on whether the jury believes the defendant didn’t intend to commit fraud.
In Friday afternoon testimony, Bankman-Fried was asked about FTX’s marketing and promotions.
He said there were 15 people on the marketing team, and noted that he got more involved with it as time progressed. In particular, he discussed the naming rights in 2021 for the basketball arena in Miami, which was to be a 19-year deal for $135 million.
Bankman-Fried said the sponsorship of FTX Arena would deliver returns for the company and create wide brand awareness because even he, as an “average level sports fan,” could name dozens of stadiums. He said the investment would be about $10 million a year, or 1% of revenue. The company had been deciding among a few different stadiums, including the homes to the NFL’s New Orleans Saints and Kansas City Chiefs, Bankman-Fried said.
A crucial part of his testimony came when Bankman-Fried said he thought the stadium deal funding was coming from revenue from the exchange and returns from venture investments, as opposed to customer money.
Similarly, Bankman-Fried testified that he believed the lavish Bahamas properties were being paid for with FTX operating cash that came from revenue and venture investments. He said having available property to rent was a necessary incentive if the company wanted to poach developers from Facebook and Google.
As for the venture investments, Bankman-Fried said he thought that money was coming from Alameda’s operating profits and third-party lending desks. Alameda’s venture arm was renamed Clifton Bay Investments, which Bankman-Fried said was a first step in building a dedicated venture brand.
When asked about loans he took from the business, Bankman-Fried said they were to pay for venture investments and political donations. He said that, as the primary owner of Alameda, he thought he had a few billion dollars in arbitrage profit from the past few years and there was no reason he couldn’t borrow from it. He said the loans, except for the most recent one prior to the firm’s bankruptcy filing, were all documented through promissory notes.
Bankman-Fried said he never directed Singh or former FTX executive Ryan Salame to make political donations. Salame pleaded guilty in September to federal campaign finance and money-transmitting crimes, admitting that from fall 2021 to November 2022, he steered tens of millions of dollars of political contributions to both Democrats and Republicans in his own name when the money actually came from Alameda.
Bankman-Fried, who allegedly used FTX customer funds to help finance over $100 million in political giving during the 2022 midterms, testified that he talked to politicians about pandemic prevention and crypto regulation. He said he had a vested interested in crypto policy even though FTX’s U.S. operation was relatively small, because the company was seeking to offer crypto futures products in the U.S.
Bankman-Fried then discussed his public persona. He said he hadn’t intended to be the public face of the company because he’s “naturally introverted.” But a few interviews went well, and it snowballed from there. He said he was the only person at the company that the press sought.
He wore T-shirts and shorts because they were comfortable and said he let his hair grow out because he was busy and lazy.
Bankman-Fried was photographed at the 2022 Super Bowl in Los Angeles with Katy Perry. He told the jury, which was previously presented with the photo by the prosecution, that he thought it was natural to go to the game because he was in town for meetings and the company had a commercial running.
“I thought maybe it would be interesting,” he said.
Shifting blame to his ex-girlfriend
The afternoon testimony largely focused on Bankman-Fried’s repeated and unsuccessful request to Ellison that she hedge Alameda’s risk. Bankman-Fried said in late 2021, he had talked to Ellison about putting on trades to protect against the risk of market moves since Alameda had been leveraged long, meaning they would lose money if the market went down.
Ellison said she would look into it, which Bankman-Fried said he “interpreted” as her being “far less enthusiastic about it.” Over the course of 2022, Bankman-Fried said every two months he would check in to see if Alameda had hedged, and each time he was told not yet, but Ellison would say she was planning to do so in the near future.
Specifically, Bankman-Fried said he had talked with Ellison and Ramnik Arora, who had been the head of product at FTX, about putting a $2 billion hedge on the company’s investment in Genesis Digital Assets, a bitcoin miner. He told the jury that the hedge was never made.
There was also more detail on how Bankman-Fried was told about FTX’s $8 billion liability. According to the defendant, in October 2022, developers built a Google database that included financial data. That’s where Bankman-Fried noticed the negative $8 billion balance, which he said he was “very surprised” to see.
Cohen then brought the jury through the summer months of 2022, a time when Alameda’s lenders, specifically Genesis, BlockFi, Celsius and Voyager, all had direct conversations with Bankman-Fried about the need for emergency capital. In the end, only BlockFi and Voyager received funds from Alameda and Bankman-Fried.
In late 2021 and early 2022, Bankman-Fried said he wanted FTX revenue to be above $1 billion because it was a round number. He asked company executives if there were ways to reach that mark. Singh said he’d dealt with it by staking the company’s investment in crypto token Serum, a way of putting the coins to work. That had added another $50 million in revenue. Bankman-Fried testified that he was “a little surprised” they found that additional money, but it got him to $1 billion.
