Bankman-Fried concedes that Alameda enjoyed ‘special privileges’ with FTX

Testifying on his own behalf at his criminal trial on Monday, Sam Bankman-Fried conceded that his crypto investment fund enjoyed special access to FTX funding that no other trader at the exchange enjoyed.

Bankman-Fried’s testimony came at a pivotal moment in his trial: the day federal prosecutors began their cross examination of the 31-year-old disgraced entrepreneur.

They didn’t waste the opportunity.

“Do you deny that Alameda could withdraw billion of dollars from the FTX exchange using a line of credit without being subject to the typical auto liquidation protocol?” asked Assistant US Attorney Danielle Sassoon.

“That might be right,” Bankman-Fried replied.

“You don’t deny it?”

”I don’t deny it, no.”

Hours of questioning

Sassoon said FTX enjoyed “special privileges” with Alameda. Establishing what the government alleges was a fraudulent relationship between FTX and Alameda lies at the heart of its case, which is now entering the fifth week of trial in US District Court in Manhattan.

Over several hours of questioning, Sassoon asked Bankman-Fried to answer for years of statements hailing his crypto exchange, FTX, as a uniquely safe place to trade despite secretly giving his hedge fund special privileges that would ultimately sink both companies.

‘Depends on how you define ‘trading.’’

—  Sam Bankman-Fried

She sought to show that Bankman-Fried called the shots at both FTX, which at its peak was the second biggest crypto exchange in the world, and Alameda Research, the hedge fund he and his close associates ran at the same time.

And the prosecutors’ message to the jury was clear: Bankman-Fried lied to customers and investors.

In a largely disciplined performance, Bankman-Fried’s answers were short and clear, rather than the discursive and rambling performance he gave on Thursday, when the jury was not in the courtroom.

Yet Bankman-Fried was also evasive. He repeatedly insisted he could not recall statements made to social media followers, reporters, and Congress even though he relished playing the role of crypto’s poster boy.

At one point, Sassoon asked him to comment on the influence he wielded at Alameda Research after ceding the title of CEO to his deputies, Caroline Ellison and Sam Trabucco.

Risky play

“You would not say that you were not at all involved in Alameda trading?” Sassoon asked early in the cross-examination, referring to his hedge fund.

“Depends on how you define ‘trading,’” Bankman-Fried replied.

Bankman-Fried’s testimony Monday was a risky play: By testifying, he hoped to show jurors he was simply a young man who made honest mistakes after his crypto companies went from zero to managing billions of dollars in a couple of years.

One attorney who previously spoke to DL News called this the “dumb defendant” defence.

But a procession of former colleagues, including Ellison and FTX co-founder Gary Wang, gave what some observers called “devastating” testimony earlier this month.

They painted him as a manipulative entrepreneur who executed a widespread fraud to conceal about $10 billion in losses at Alameda Research last year.

It’s clear that Bankman-Fried felt he had to take a chance he sway the jury. That meant prosecutors might catch him contradicting past statements, which could damage his credibility, or worse, expose him as a liar.

Under oath

Bankman-Fried has pleaded innocent to the seven charges levelled against him, including conspiracy to commit fraud and money laundering. If convicted on all counts, he could face decades in prison.

The jurors will decide his guilt or innocence, and Monday was the first time they saw him answer prosecutors’ questions under oath.

Sassoon asked Bankman-Fried whether Anthony Scaramucci, a hedge fund manager and President Donald Trump’s onetime communications director, was one of his investors.

“I believe so,” he answered. The pair travelled to the Middle East together in an attempt to raise billions from wealthy investment funds just weeks before FTX’s collapse. Scaramucci used his clout to open doors for Bankman-Fried with influential rainmakers in the Persian Gulf states.

Loss of memory

After Bankman-Fried repeatedly said he could not recall his past statements, Sassoon produced a copy of “Number Go Up,” a 2023 book by Bloomberg News reporter Zeke Faux.

“Does that refresh your memory about whether you told Zeke Faux that Alameda did not follow the same margin rules as other traders on FTX and that it had more leeway on the exchange?” Sassoon asked.

“No it doesn’t,” Bankman-Fried said.

His evasions prompted several rebukes from Judge Lewis Kaplan.

Collateral question

Prosecutors tried to pin down Bankman-Fried on the cozy relationship between FTX and Alameda, which lies at the heart of the case.

When Alameda borrowed from FTX to make leveraged trades, it did not have to post its collateral to the exchange, an exemption granted to only one other entity, Bankman-Fried admitted.

Moreover, Alameda, like other market makers, was given a line of credit. But Alameda’s was $65 billion, far larger than that granted any of its competitors. The second largest was $150 million.

One of the sharpest moments came toward the end of Monday’s cross-examination, when he was presented with a spreadsheet that featured prominently in testimony from Ellison, his onetime girlfriend and Alameda’s former CEO.

According to Ellison, who testified earlier in the trial, the spreadsheet showed several doctored balance sheets prepared in June 2022 at Bankman-Fried’s request.

Those balance sheets were then sent to prospective lenders, one of whom testified that his company had loaned Alameda money shortly before its collapse.

Bankman-Fried repeatedly denied any recollection of having reviewed the spreadsheet in question at the time it was allegedly sent to him.

Rebuttal witnesses

Sassoon then reminded him the government had acquired data that showed he had accessed the document in June 2022.

Prosecutors expect to complete their cross-examination and rebuttal Tuesday. During the rebuttal, they expect to call only two witnesses: an FBI data analyst and an employee of Apollo Global Management, an asset manager that considered a multibillion dollar investment in FTX days before the exchange collapsed in November 2022.

Both sides are expected to give their closing arguments Wednesday.

Have a tip about the crypto markets? Contact the author at aleks@dlnews.com.