On Friday, Sam Bankman-Fried appeared in a New York courtroom to address the jury in his own defense against the criminal fraud charges he is facing. Should he be found guilty, Bankman-Fried would be facing life in prison. A number of his former associates have testified against him. When asked if he had committed fraud against anyone, Bankman-Fried emphatically replied, "No, I did not."
On Friday, Sam Bankman-Fried, founder of FTX, denied committing fraud at the crypto exchange that crumbled last year during his criminal trial in New York. Mark Cohen, Bankman-Fried's attorney, asked if he had defrauded anyone or taken customer funds, which the defendant replied to with a 'no'. Bankman-Fried faces seven counts including wire fraud, securities fraud and money laundering, which could potentially lead to a life sentence if convicted. He has maintained innocence throughout the four-week trial, where testimonies from FTX and Alameda Research leadership discussed Bankman-Fried's alleged use of customer funds for venture investments, a Bahamas condo, and covering Alameda's crypto losses.
Prosecutors took former bosses of Bankman-Fried's corporations through precise steps implemented by their leader that caused customers to drop billions of dollars in 2020. A few of the witnesses, counting Bankman-Fried's ex-girlfriend Caroline Ellison, who ran Alameda, have been found guilty of multiple counts and are providing assistance to the authorities. Judge Kaplan requested the jury to leave on Thursday, which permitted Bankman-Fried and his legal team to present their best arguments in front of the judge.
Bankman-Fried admitted that one of his greatest blunders was lacking a risk management group or regulatory chief. He noted this had caused significant oversights. Cohen had Bankman-Fried go over his background and how he'd become interested in crypto. Bankman-Fried shared that he graduated from MIT with a degree in physics and then worked as a trader at Jane Street, supervising billions of dollars in trading daily. He learned arbitrage trading in this position. Later, in 2017, he established Alameda Research as the visibility of crypto rose and he thought there was a good opportunity for an arbitrage provider. He explained that while he had no knowledge of how cryptocurrency operated, he knew they were tradeable. The first Alameda office was in an Airbnb in Berkeley, California. Bankman-Fried began FTX two years later and its trading volume substantially increased to a few hundred million dollars in 2020 and then to $10-15 billion in 2022. Additionally, he noted that Alameda was allowed to borrow from FTX, the money presumably coming from margin trades, collateral from other margin trades, or assets acquiring interest on the platform. FTX had no general rules on how to use borrowed funds as long as the assets surpassed liabilities.
In 2020, a liquidation gone awry caused issues with the special borrowing permissions at Alameda, according to Bankman-Fried's testimony. The risk engine was unable to handle the large influx of growth, which resulted in a liquidation that was supposed to be in the thousands transformed into trillions. This led to Alameda being deep in debt from closing out their position.The incident illuminated a much larger issue: erroneous liquidation of Alameda could potentially be catastrophic for users.Bankman-Fried spoke to FTX's engineering director Nishad Singh and co-founder Gary Wang, both of whom showed up in court, and they proposed implementing an alert or delay. They eventually put in place something similar-the "allow negative" feature.Bankman-Fried declared he was not aware of the sum Alameda was taking out or its maximum capacity. As long as the net asset value was positive on the exchange and the extent of borrowing was appropriate, allowing a higher line of credit for Alameda to keep taking orders was justified, he said. In addition, Bankman-Fried now believes that Singh and Wang increased the line of credit.
The jury faces a difficult task in assessing Bankman-Fried's innocence after the government provided a wealth of evidence to the court.Prosecutors additionally submitted corroborating material, like encrypted Signal messages and other internal files that seem to demonstrate Bankman-Fried's control over FTX customer funds.The defense's argument--resting mostly on whether the jury believes Bankman-Fried had no intention to commit fraud--consists of the defendant's confession and the testimonies of two witnesses who appeared Thursday morning.Cohen's questioning of Bankman-Fried revealed the latter's effort to shift culpability to FTX's Chief Regulatory Officer, Dan Friedberg, and outside legal counsel Fenwick & West who gave guidance to the crypto exchange. Bankman-Fried related Friedberg's active involvement in the setting up of a North Dimension account, an auto-deletion policy, and the promissory notes on his and other FTX founders' personal loans. He also mentioned how his in-house legal team and general counsel acquainted him with those and that he accepted that assurance. – CNBC's Dawn Giel contributed to this reportWATCH: Sam Bankman-Fried testifying in his criminal case
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