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Key Moments Inside the SBF Trial: Days 1-12

Crypto | Oct 20, 2023

SBF bail revoked - Key Moments Inside the SBF Trial:  Days 1-12

The high-profile trial of FTX founder Sam Bankman-Fried is happening now.  Days 1-12 unveils startling revelations and financial discrepancies in the cryptocurrency industry.

The cryptocurrency world has been rocked by the high-profile trial of Sam Bankman-Fried (SBF), the founder of FTX. As the courtroom drama unfolds, revelations from key witnesses, financial discrepancies, and the intricate web of relationships between FTX, Alameda Research, and other entities have captivated audiences globally.

There is a plethora of coverage on the web from media and industry who are providing full covering of SBFs trial from Blockworks, Wired, CryptoSlate, Crypto.News, CoinDesk, Coinpedia, and many more that we've drawn upon to produce the daily summaries below highlighting the pivotal moments and testimonies from the first 12 days of the trial, thus far, shedding light on the complexities and implications of the case.

Day 1: Sam Bankman-Fried Trial

  1. The trial commenced at the Daniel Patrick Moynihan United States Courthouse, with a significant turnout of potential jurors, media personnel, crypto influencers, skeptics, and more. The atmosphere was likened to the "first day of school," with many notable figures in the crypto industry present.
  2. The primary focus of the day was jury selection. Judge Lewis B. Kaplan read out the charges against SBF and provided an overview of the case. He emphasized the importance of impartiality and instructed potential jurors not to engage in any research or read press coverage related to the trial.
  3. Several potential jurors shared their experiences and knowledge about the case. Notably, one juror mentioned having learned about SBF's situation from "The Joe Rogan Experience," another worked at Insight Partners and claimed the company had invested in both Alameda and FTX, and another questioned the government's approach to presenting its case without evidence.
  4. An assistant U.S. attorney listed potential witnesses for the prosecution, including Caroline Ellison, Gary Wang, Nishad Singh, Ryan Salame, and others. Institutions like Jane Street Capital, Sequoia Capital, BlockFi, and Genesis were also mentioned.
  5. By the end of the day, the jury had not been finalized, but Judge Kaplan was optimistic about completing the selection process by the following morning. Once the jury is finalized, opening statements from both the defense and prosecution are expected.

"Sam Bankman-Fried made for trading digital coins, like stocks on an exchange." - Judge Lewis B. Kaplan

Day 2: Sam Bankman-Fried Trial

  1. Sam Bankman-Fried is accused of seven counts of fraud and conspiracy, including wire fraud and conspiracy to commit money laundering.
  2. Prosecutor Thane Rehn claimed that from 2019 to early 2022, Bankman-Fried knowingly stole FTX customer money, which was used for real estate in the Bahamas, political donations, and to pay off loans to creditors of Alameda Research.
  3. The defense, led by Mark Cohen, portrayed Bankman-Fried as a "math nerd" who acted in "good faith" and made sound business decisions, denying any fraudulent activities.
  4. Former FTX developer Adam Yedidia, a close friend of Bankman-Fried, testified that he quit FTX after learning that customer funds were used to repay Alameda creditors.
  5. The prosecution alleges that Bankman-Fried secretly gave Alameda "special access" to FTX accounts, allowing them "unlimited withdrawals" without customer consent.

"Prosecutor Thane Rehn told the jury that while Bankman-Fried was living his best life, all of it was built on lies, and he was actively stealing FTX customer money."

Day 3: Sam Bankman-Fried Trial

  1. FTX co-founder Sam Bankman-Fried is accused of misappropriating billions of dollars of customer funds for various purposes, including real estate and political contributions.
  2. Adam Yedidia, a former FTX engineer and college roommate of SBF, testified that SBF encouraged employees to use Signal and set messages to auto-delete.
  3. Yedidia revealed that he quit FTX after learning that customer funds from FTX were being used to pay Alameda creditors.
  4. Paradigm co-founder Matt Huang testified that Paradigm invested roughly $278 million in FTX and FTX.US. He expressed concerns about the lack of a traditional corporate governance model at FTX.
  5. Gary Wang, co-founder and former CTO of FTX, admitted to committing wire fraud and conspiring to commit commodities fraud alongside Bankman-Fried and others.

"Former FTX CTO Gary Wang admitted, “We gave special privileges to Alameda Research” to withdraw unlimited funds from FTX, and he also confessed to lying to the public."

See:  How Will FTX’s Collapse Impact North Korea? The Answer Will Surprise You!

Day 4: Sam Bankman-Fried Trial

  1. Gary Wang continued his testimony, revealing that Alameda Research had an $11 billion fiat liability to FTX and could withdraw unlimited funds.
  2. Bankman-Fried sought to shut down Alameda ahead of a revealing Bloomberg article, but Alameda couldn't be shut down as it had borrowed $14 billion from FTX.
  3. In November 2022, Bankman-Fried tweeted that "FTX is fine. Assets are fine," but Wang testified that the assets were not fine, and FTX sought protection from the courts shortly after.
  4. Wang and Bankman-Fried traveled to the Bahamas Securities Commission, where Bankman-Fried asked Wang to transfer FTX assets to Bahamian liquidators, believing they would be more deferential than American regulators.
  5. Wang revealed that the backstop or insurance fund that FTX advertised had "fake" numbers, and the actual amounts in those accounts were lower than advertised.

"Wang testified that after the $11 billion hole was uncovered in June 2022, Bankman-Fried wanted Alameda to return the borrowed money to lenders, and the funds to pay back would come from FTX customer assets."

Day 5: Sam Bankman-Fried Trial

  1. Caroline Ellison, Alameda Research CEO, testified that under SBF's direction, she was instructed to divert billions of dollars from FTX customer funds. Alameda then used these funds for failed investments and to pay off its debt.
  2. Ellison revealed that SBF had aspirations of becoming the U.S. President. She met SBF at Jane Street, a renowned New York-based trading firm, and dated him for several years before becoming Alameda's CEO.
  3. Ellison's testimony highlighted that Alameda had been granted direct deposits ranging between $10-$20 billion from FTX in 2020 and 2022. From these funds, $2 billion was designated for repaying loans, investing, and converting capital to USDC.
  4. She also mentioned that Alameda had a significant amount of Solana, referred to as “Sam coins”. SBF donated $10 billion to Biden’s administration, while Ryan Salame, CEO of FTX Digital Markets, borrowed $35 million from the exchange for contributions to the Republicans.
  5. Gary Wang, FTX’s CTO and Co-founder, took the stand, detailing his surprise when SBF asked him to compute interest charges on Alameda’s borrowings. He also explained FTX’s operations, pointing out significant customer withdrawals and how Alameda transactions affected FTX’s balance.

"According to Ellison, SBF had instructed her to divert billions of dollars from FTX customer funds, which Alameda used for failed investments, to pay off its debt."

See:  Claw-back Risk: 1 in 3 Members of Congress Received ‘Cash Donation’ from FTX/SBF

Day 6: Sam Bankman-Fried Trial

  1. Caroline Ellison, former CEO of Alameda Research, testified about the diversion of billions of dollars from FTX customer funds under SBF's direction. These funds were used by Alameda for failed investments and debt repayment.
  2. Ellison revealed that Alameda had open-ended loans and faced challenges when lenders recalled loans as the market declined in 2022. Genesis, in particular, wanted back $400 million from their open-term loan, which Ellison had to source from FTX customer funds.
  3. SBF directed Ellison to continue repaying Alameda's loans using FTX's line of credit. He also instructed Gary Wang and Nishad Singh to facilitate this process.
  4. Ellison highlighted that there was a discrepancy in FTX's finances: while there were $13 billion worth of Customer Deposits on FTX, only $3 billion was available for withdrawals. The remaining $10 billion had been loaned out to Alameda.
  5. The trial also touched upon bribery allegations, with Ellison stating that FTX/Alameda had $1 billion stuck in China and resorted to bribing Chinese officials with $100 million in crypto to resolve the issue.

“Keep paying loans, don’t worry, withdraw from FTX balances,” Ellison quoted Bankman-Fried. She also mentioned that Alameda forged seven different balance sheets, with SBF deciding which ones to disclose to lenders.

Unsplash Tingey Injury Law Firm Gavel - Key Moments Inside the SBF Trial:  Days 1-12

Day 7: Sam Bankman-Fried Trial

  1. Caroline Ellison, a former top deputy to FTX founder Sam Bankman-Fried (SBF), concluded her testimony. The day was marked by emotional revelations, critical audio recordings, and frequent judicial interventions. Ellison's account detailed her intricate relationship with SBF, from personal breakups to professional disagreements.
  2. Ellison's testimony touched upon key moments, such as the end of her personal relationship with SBF in April 2022 and a dramatic FBI search at her family home on Nov. 16, 2022. These events had profound impacts on her personal and professional life.
  3. Christian Drappi, a former software engineer at Alameda, testified about his astonishment upon discovering the illicit activities and misuse of FTX customer funds. Audio clips from an all-hands meeting held by Ellison on Nov. 9 were presented, where Ellison disclosed to Alameda Research employees that the crypto hedge fund had misused billions in FTX customer funds for high-risk venture investments and to repay Alameda’s loans.
  4. The meeting took place just days before Alameda’s implosion and the subsequent bankruptcy filings for FTX and related companies. Drappi was so shocked by the revelations that he resigned within a day.
  5. BlockFi founder Zac Prince testified about the extensive dealings between BlockFi and Alameda. BlockFi had made significant loans to Alameda, amounting to hundreds of millions of dollars. BlockFi also held considerable amounts of cryptocurrency on the FTX platform due to its relationship with Alameda.

"In the meeting, Ellison disclosed to Alameda Research employees that the crypto hedge fund had misused billions in FTX customer funds to make high-risk venture investments and to repay Alameda’s various loans."

See:  Prime Trust’s Financial Failure and Shift Towards ‘No-Custody Solutions’

Day 8: Sam Bankman-Fried Trial

  1. Former BlockFi CEO Zac Prince testified, emphasizing the impact of FTX and Alameda's collapse on BlockFi, which was forced into bankruptcy due to their lending to Alameda and exposure to the FTX platform.
  2. Prince confirmed that BlockFi began lending to Alameda at the end of 2021. However, had they known Alameda was borrowing from FTX, they might not have engaged in such dealings.
  3. The risk management team at BlockFi had warned Prince of potential risks related to Alameda loans, including concerns about the illiquidity of FTT as collateral.
  4. Despite these warnings, by the time Alameda declared bankruptcy, it owed BlockFi a staggering $650 million.
  5. The day concluded with the end of Zac Prince's testimony, who was particularly engaging to the jury, discussing the relationship between BlockFi, FTX, and Alameda.

"As a result of FTX and Alameda’s bankruptcy, because of our lending to Alameda but also some exposure we had to the FTX platform, BlockFi was forced into…bankruptcy," stated Zac Prince.

Day 9: Sam Bankman-Fried Trial

  1. Nishad Singh, FTX’s former head of engineering, took the stand and admitted guilt to crimes, including defrauding FTX customers and investors, money laundering, and violating campaign finance laws.
  2. Singh confronted Bankman-Fried about a $13 billion discrepancy in the FTX balance sheet, to which SBF allegedly responded, “Right, that. We are a little short on deliverables.”
  3. Singh revealed that political donations were made in his name to various Democratic party candidates and political action committees. The money for these donations came from FTX customers and was done for "advantageous optics."
  4. A document titled “We came, we saw, we researched” was discussed, which outlined reasons to shut Alameda down on FTX. Singh suggested shutting Alameda down specifically on FTX, which would have required changes to the over-the-counter (OTC) system and account closures.
  5. Singh described Bankman-Fried as a "formidable character" whose respect eroded over time. Singh portrayed SBF as deeply involved in the architecture of FTX, including designing the margin trading system and the auto-liquidation engine.

“Sam’s a formidable character,” Singh said. “Over time,” Singh’s respect for SBF “eroded” and he claimed he grew to be “distrustful.”

Day 10: Sam Bankman-Fried Trial

  1. FBI Agent Richard Busick presented cell phone records of Sam Bankman-Fried, which were analyzed to determine SBF's location during specific events. The records were obtained from an email exchange between SBF and the Prime Minister of the Bahamas.
  2. The prosecution used the cell phone data to correlate the dates and times of emails sent to Bankman-Fried with his location in Manhattan. Notably, on March 3, 2022, SBF was near a restaurant where he dined with New York Mayor Eric Adams. He also had meetings with New York Governor Kathy Hochul and "President Clinton" in September 2022.
  3. Skybridge’s Anthony Scaramucci invited SBF to a Pittsburgh Steelers game in November 2022. There was also mention of a potential meetup between Bankman-Fried and the Saudi Minister of Investment.
  4. During cross-examination, SBF's attorney Christian Everdell highlighted that the cell site analysis doesn't reveal who was using the phone or its exact location, only an estimate. Busick agreed with this assessment.
  5. Nishad Singh's cross-examination continued, with discussions about his purchase of a $3.7 million house on Orcas Island, his interactions with SBF, and the auto-deleveraging events on FTX.

"Singh, during the redirect from prosecutor Nicolas Roos, admitted that he was OK with putting himself before customers in September 2022."

Day 11: Sam Bankman-Fried Trial

  1. Professor Peter Easton testified, revealing that from January 2021 until FTX's collapse on Nov. 11, 2022, all of Alameda's "allow negative"-enabled accounts on the exchange were significantly in the red. Despite this, Alameda continued to pay out billions to meet its obligations, with the source of these funds being FTX customers.
  2. The government's analysis showed that 68% of Alameda's third-party loans, worth around $4.5 billion, were paid with FTX customer money. Alameda repaid roughly $3.5 billion to Genesis in loans, with $1.7 billion of that taken from FTX customers.
  3. FBI Agent Paige Owens analyzed thousands of pages of Alameda and FTX bank statements to trace the source of political donations made by Bankman-Fried, Nishad Singh, and Ryan Salame. For SBF, Alameda's Prime Trust account sent seven wires totaling $47 million to his personal Prime Trust account, with much of that money ending up in various political action committees.
  4. Google records custodian Cory Gaddis testified about metadata in a Google Sheets document tied to SBF's account. However, the testimony faced challenges as Gaddis admitted he was not a metadata expert, leading to Judge Kaplan's criticism of both the prosecution and defense.
  5. The day also highlighted the extent of the commingling of funds between dozens of Alameda and FTX bank accounts and Sam Bankman-Fried's Paper Bird. The prosecution presented evidence of FTX's investment in Modulo Capital and Genesis Digital Assets, both of which involved significant amounts of customer funds.

"In June 2022, the customer fiat liability hit $11.3 billion, while Alameda and FTX had roughly $2.3 billion for customers to withdraw. This meant there was a $9 billion gap in what Alameda and FTX could cover if every customer chose to withdraw their funds."

Day 12: Sam Bankman-Fried Trial

  1. Former FTX attorney Can Sun testified, revealing that he was "shocked" to discover FTX was "$7 billion short" on its goal of meeting customer withdrawals. Sun had shared a concerning balance sheet with private equity firm Apollo Global, which ultimately declined to invest.
  2. Sun worked on updating FTX Digital Markets' terms of service in May 2022, which emphasized the safeguarding of customer assets. However, when FTX's collapse began in early November 2022, Sun was involved in discussions with Apollo Global to secure an investment to address increased customer withdrawals.
  3. The defense's cross-examination of Sun focused on FTX's terms of service, particularly the margin trading section. The defense aimed to determine the percentage of users engaged in margin trading and how many of those who lost money in the FTX collapse were involved in riskier trading strategies.
  4. Sun also discussed his interactions with Bankman-Fried in the Bahamas regarding a potential Apollo investment, a $7 billion shortfall, and potential legal explanations for the shortfall. Sun mentioned that none of the "theoretical justifications" for the missing funds were supported by facts.
  5. Robert Boroujerdi, a managing director at asset manager Third Point, testified that Third Point invested $60 million in FTX International, which is now valued at "zero." Boroujerdi stated that Third Point would not have invested if they had known about Alameda's special privileges or that Alameda could withdraw from customer funds on FTX.

"After Sun relayed this story to the jury, the government showed Bankman-Fried’s Dec. 1, 2022, interview with George Stephanopolous. In the interview, Stephanopolous points out that FTX's terms say customer assets are not to be loaned out. Bankman-Fried sidesteps the question, pointing to the 'borrow-lending facility,' also known as trading on margin."

What's Next?

With the trial's progression, both the U.S. Department of Justice and Bankman-Fried's defense team have recently submitted their proposed jury instructions, marking a pivotal phase in the ongoing trial. These instructions are crucial as they will guide the jury's decision-making process regarding Bankman-Fried's fate. While the prosecution emphasizes the gravity of the accusations, aiming to build a robust case against Bankman-Fried, the defense seeks to present alternative interpretations of the statutes, pinpointing potential issues with the prosecution's arguments.

Judge Kaplan now faces the challenging task of evaluating both proposals and determining the most appropriate jury instructions. The court proceedings were suspended and are set to resume on October 26.

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