The government ended its cross-examination of Sam Bankman-Fried Tuesday, concluding a contentious clash in the trial’s final days as the FTX co-founder tried to convince a jury he didn’t steal billions of customer funds from his own cryptocurrency exchange.
The 31-year-old faces decades in prison on seven criminal fraud charges. Prosecutors say he lied to customers about how their funds on deposit with the exchange would be used and shifted billions to his cryptocurrency trading firm Alameda Research so the money could be spent on investments, political donations, and real estate.
Taking the stand was a risky gamble for the fallen crypto star. During three days of testimony, Bankman-Fried tried to argue that management screwups he and others made — and not fraud — were to blame for the undoing of the cryptocurrency exchange. FTX filed for bankruptcy in November 2022.
He also distanced himself from certain decisions and actions, arguing that he didn’t know FTX customer funds were being used to pay off Alameda loans and trading debts until October 2022, roughly one month before the exchange collapsed.
Many times he responded to questions from prosecutors with "not sure," "I don’t recall," or "I don’t remember." At one point Judge Lewis Kaplan reprimanded him: "Just answer the question."
Assistant US Attorney Danielle Sassoon, who did the questioning of Bankman-Fried Monday and Tuesday during a cross-examination, repeatedly attempted to use the words of the defendant in public and private settings to undermine his credibility on a number of subjects.
The statements she cited ranged from how well-protected FTX was against risks and how closely involved he was in decision making at Alameda to the special privileges Alameda had to borrow billions of dollars, without collateral, from FTX.
Sassoon stayed on those same subjects Tuesday, pressing Bankman-Fried to explain what he knew about how FTX customer deposits were spent at Alameda and what he did when he became aware that Alameda had a sizable debt of $8 billion owed to FTX.
In June 2022, for example, Bankman-Fried said his team discovered and fixed a flaw in FTX's computer code that ultimately revealed a $8 billion deficit.
"In June, didn't you ask who spent $8 billion?" Sassoon asked. Bankman-Fried said he eventually talked with Alameda CEO Caroline Ellison.
"I asked her how it had happened to the best of her understanding," he said, explaining that his impression was that Alameda was permitted to spend customer funds that were part of FTX's margin lending program and that Alameda's liabilities were "folded into" Alameda's risk management.
"Did you fire anyone for spending $8 billion of customer deposits?" Sassoon asked.
"No," Bankman-Fried said.
Sassoon also asked if Bankman-Fried ever disclosed that FTX customer deposits were wired to an Alameda bank account instead of FTX. Bankman-Fried said he knew of the deposit arrangement by 2020 and did not disclose the relationship to FTX customers.
'I don't believe that's true'
Sassoon, at one point during her questioning on Tuesday, returned to a now-infamous tweet by Bankman-Fried shown multiple times to the jury.
On Nov. 7, 2022, he said in the tweet: "FTX is fine. Assets are fine" and "FTX has enough to cover all client holdings."
Bankman-Fried testified that he believed at the time of the tweet that Alameda and FTX together had assets exceeding liabilities.
"But you were factoring in Alameda's holdings," Sassoon said, pointing out that FTX alone didn't have enough funds to repay customers.
"I don't believe that's true," Bankman-Fried said.
Sassoon showed an internal chat message where Bankman-Fried admitted that the company's holdings of a digital coin known as FTT were not liquid enough to sell at their present value.
He acknowledged Tuesday, in response to Sassoon's questioning, that there was a "potential liability gap" even if he had sold the FTT holdings and shares in online brokerage Robinhood while also retrieving funds from another investment that Alameda had made.
'I was somewhat frustrated'
After Sassoon had concluded her cross-examination, Bankman-Fried’s defense team tried to add more context to some evidence she had highlighted, including Bankman-Fried’s own statements to journalists.
One came in a private message that he sent on Twitter in October 2022, several weeks before FTX collapsed, when Bankman-Fried wrote "f*** regulators" to a reporter.
Bankman-Fried on Tuesday added more context to the comment, saying "I was somewhat frustrated" at the time.
"I felt like all the work I had done to work with regulators may have wound up encouraging bad regulation instead of good regulation."
He also tried to explain, with help from his attorney Mark Cohen, what he did after discovering the $8 billion hole.
"That was a risk that had to be managed. It meant that if Alameda were to go underwater it would potentially have serious implications for FTX as well."
"Did you try to manage that risk?" Cohen asked.
"I did," Bankman-Fried said.
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