Cointelegraph reporters are on the bottom in New York for the trial of former FTX CEO Sam “SBF” Bankman-Fried. As the saga unfolds, test under for the newest updates.
Oct. 13: BlockFi wouldn’t have filed for chapter with out the FTX debacle
The BlockFi workforce warned its management concerning the crypto lender’s over-exposure to FTX Token (FTT) in August 2021, in line with proof offered in courtroom on Oct. 13 throughout Sam Bankman-Fried’s trial.
A credit score memo ready by BlockFi’s workforce in August 2021 really helpful in opposition to a mortgage of 10,000 Bitcoin (BTC) to Alameda Research, value almost $470 million on the time.
Zac Prince, founder and former CEO of BlockFi, stated the mortgage was denied, however Alameda elevated its borrowings with BlockFi within the following months, reaching $1 billion within the second quarter of 2022. Prince testified that Alameda had at all times paid its loans on time till the collapse of FTX in November 2022, and that the loans had at all times been overcollateralized. He was unfamiliar with the truth that Alameda was paying the loans utilizing funds from FTX prospects.
One of the stress eventualities offered by BlockFi’s workforce in 2021 noticed that if Alameda entered into default, with all lenders calling for compensation on the identical time, the worth of FTT would drop 60% to 75% in a day (or extra).
Another stress analysis throughout the identical interval famous that even in a state of affairs by which all collaterals decline 100%, FTX would nonetheless have a optimistic stability of $638 million in property. The projections have been made primarily based on consolidated stability sheets offered by Alameda.
The connection between Alameda and BlockFi began on the finish of 2021, when the primary $15 million was lent to Alameda. Prince famous that Alameda went via due diligence processes throughout many departments on BlockFi, however the monetary paperwork offered have been unaudited.
Alameda was lent capital below open-term loans, which allowed debtors similar to BlockFi to name for compensation of funds at any time. In June 2022, following the collapse of the Terra ecosystem, BlockFi referred to as again tens of millions in loans owned by Alameda.
According to Prince, the loans have been paid, and the businesses deepened their relationship amid the bear market.
Seeking capital from buyers throughout the identical interval, BlockFi entered into an settlement with FTX US that included $400 million in credit score and a possible acquisition of BlockFi in July 2023, which by no means occurred since each corporations went bankrupt because of final November’s occasions.
Alameda supplied FTT, SOL (SOL) and SRM as collateral for loans. According to Prince’s testimony, these tokens have been held on BlockFi’s account on FTX. BlockFi additionally used FTX as a buying and selling platform for its purchasers’ orders. At the time of FTX chapter, the crypto lending platform had $650 million lent to Alameda and $350 million in funds accessible for buying and selling.
Once it grew to become clear that funds have been impaired and loans wouldn’t be repaid, BlockFi filed for chapter. Prince famous that regardless of the challenges of the bear market, BlockFi wouldn’t have filed for chapter with out the FTX debacle.
Oct. 12: Ellison’s testimony continues, with additional give attention to relationship with Sam Bankman-Fried
Caroline Ellison alleges #SBF utilized Thai intercourse employee IDs in a bid to unfreeze $1B in Alameda funds earlier than resorting to bribery. pic.twitter.com/COPHbaECz6
— Cointelegraph (@Cointelegraph) October 12, 2023
The cross-examination of Caroline Ellison began within the Southern District Court of New York on Oct. 12, with the previous CEO of Alameda Research discussing the decision-making course of between Alameda and FTX, in addition to how her romantic relationship with Bankman-Fried performed a task within the occasions main as much as the change’s collapse.
The protection counsel first explored the capital lent to Alameda by crypto lenders Genesis and Voyager. According to Ellison’s testimony, funds borrowed by Alameda might be legally used for a variety of functions, together with buying and selling actions and masking the corporate’s working bills. The protection used her remarks to indicate that Alameda’s lenders knew the capital was getting used for undefined functions.
She additionally reported that communication with Bankman-Fried deteriorated after their final breakup in April 2022, along with her avoiding assembly with the previous accomplice one-on-one and preferring to speak by way of Signal or group conferences as a substitute. The communication challenges a her issues about FTX enterprise investments made Ellison think about resigning as CEO of Alameda in early 2022.
In response to questions from Bankman-Fried’s protection legal professional, Ellison acknowledged having held no less than 20 conferences with prosecutors since December 2022 as a part of her cooperation settlement, together with a overview of her solutions on Oct. 9, in the future previous to her testifying as a witness within the case. In December, earlier than an settlement was in place with the U.S. authorities, she acknowledged the Federal Bureau of Investigation searched her home.
During the bear market, Ellison additionally created monetary forecasts of how a lot cash can be wanted to hedge Alameda in opposition to market downturns, in line with her testimony. She found that Alameda must promote billions of {dollars} in property to have an acceptable hedge.
Additionally, Ellison mentioned Alameda’s Northern Dimension checking account, which FTX used whereas it had problem opening its personal. Later on, across the finish of 2021 and the start of 2022, FTX was capable of get its account and commenced redirecting customers’ funds. However, legacy prospects nonetheless despatched funds to Northern Dimension’s account. As proof, the protection pointed to considered one of her conferences with prosecutors in December 2022, by which she instructed that Bankman-Fried was unaware that FTX prospects’ funds have been nonetheless being despatched to Alameda.
Oct. 11: Caroline Ellison particulars the ultimate months of FTX
On her second day of testimony on the trial of Sam “SBF” Bankman-Fried trial on Oct. 11, Caroline Ellison offered extra details about the months main as much as the FTX debacle in November 2022. Lenders required Alameda Research to repay tens of millions in loans in mid-June following the market downturn in May, in line with Ellison. “I was very stressed out,” she stated.
Genesis Capital was considered one of these lenders, recalling $500 million in loans, in line with screenshots taken from conversations between Ellison, Bankman-Fried and Genesis staff by way of Telegram.
At the time, Alameda had over $13 billion of debt on its credit score line with FTX, whereas its open-term loans exceeded $1.3 billion. As per Ellison’s testimony, Bankman-Fried instructed her to plan “alternative ways” to reveal Alameda’s monetary data to lenders, particularly Genesis.
According to Ellison, Genesis might recall all loans to Alameda if it have been conscious of Alameda’s true monetary standing, in addition to harm its status. “I didn’t want Genesis to know that,” she acknowledged about Alameda’s multibillion-dollar legal responsibility towards FTX.
As per prosecutors’ proof, Ellison labored on no less than seven various spreadsheets for Genesis. A spreadsheet despatched by Alameda to Genesis in June listed $10.3 billion in complete liabilities, whereas the precise quantity was roughly $15 billion on the time.
Bankman-Fried’s plans to outlive the storm included raising capital from Mohammed bin Salman, the crown prince of Saudi Arabia. According to proof offered in courtroom, Ellison made a listing of “things Sam is freaking out about” months earlier than the change collapsed.
The record featured elevating capital from “the MBS,” borrowing extra capital from BlockFi, which had already lent Alameda over $660 million, in addition to “getting regulators to crack down on Binance,” in an effort by Bankman-Fried to develop FTX’s market share, Ellison stated.
She additionally talked about a $150 million bribe that FTX allegedly paid to a Chinese official in 2021 to launch funds frozen there as a part of an investigation into cash laundering. The alleged bribe is just not included within the trial.
Oct. 10: Gary Wang is cross-examined, star witness Ellison enters
The fourth day of the trial started with Gary Wang concluding his testimony. He was cross-examined by considered one of SBF’s attorneys, Christian Everdell.
During the cross-examination, Wang was requested about Bankman-Fried’s intention to close down Alameda, to which Wang responded that SBF thought there was a “30% chance” it ought to be shut down. He additionally stated he wasn’t positive whether or not the tweet by Binance CEO Changpeng Zhao or leaked financials prompted the FTX financial institution run.
After Wang was dismissed by Judge Lewis Kaplan, Ellison, the former CEO of Alameda and an ex-girlfriend of Bankman-Fried, was referred to as to the witness stand.
In the opening questions, Ellison was requested why she was responsible of the crimes for which she was accused and responded that “Alameda took several billions of dollars from FTX customers and used it for investments.”
She reportedly placed the entire blame for the misuse of FTX consumer funds on Bankman-Fried. Ellison claimed he “set up the systems” that allowed Alameda to take $14 billion from the change.
Ellison additionally revealed private details about her relationship with the defendant, together with his aspirations to be U.S. president and that he thought-about paying former U.S. President Donald Trump to not run for reelection.
Additionally, she testified on the agency buying back FTX Tokens (FTT) from Binance or else “Binance would cause trouble,” together with utilizing loans from Genesis in 2021 as a funding supply.
“Alameda took several billions of dollars from FTX customers and used it for investments,” stated Ellison, in line with reviews. “I sent balance sheets that made Alameda look less risky than it was.”
Ellison admitted to not feeling certified for the CEO function at Alameda, although she was inspired by SBF, and stated she took a $3.5 million mortgage from the agency “for a gambling company people at FTX wanted to put in my name” and for political contributions.
Oct. 6 Gary Wang’s testimony continues admits to “special privileges” given to FTX on Alameda
The trial continued for the fourth day on Friday, Oct. 6, with a shorter session ending at 2:00 pm Eastern Time as a result of jurors opted to not take a lunch break.
Wang, the previous chief expertise officer of FTX, continued to testify after a quick stint the earlier afternoon. On at the present time, Wang testified that the back-end code and the database for FTX.com saved observe of many cash a consumer had and the supply of a function referred to as “allow negative.”
According to Inner City Press, the prosecutor requested Wang what would occur if that function was checked to which Wang stated, “Then you are allowed to go beyond. “
He then said that Alameda’s account was allowed this special privilege and could, therefore, “trade more than it had in its account. They had a large line of credit. And it could trade faster than others.”
“It withdrew more than it had in its account, like $8 billion in fiat and crypto,” Wang stated. When requested the place the cash got here from, he stated, “from FTX customers.”
According to Wang’s testimony, he overheard Bankman-Fried saying Alameda might withdraw as much as $50–$100 million from FTX. He stated that after a 2020 database question, he noticed Alameda’s stability was unfavorable to an quantity better than the income of FTX itself.
Wang pleaded guilty to four charges in December 2022, considered one of which was wire fraud. Like Ellison, Wang has agreed to cooperate with officers by way of a plea deal that would see him keep away from as much as 50 years in jail.
Oct. 5: Wang particulars relationship between FTX and Alameda Research
In over 4 hours of testimony, Wang offered in-depth particulars concerning the relationship between the businesses and the way the crypto empire ended up with an $8 billion gap in buyer property.
According to Wang, a number of months after FTX’s inception, in 2019, Alameda obtained particular privileges from FTX. Prosecutors used screenshots of FTX’s database and code accessible on GitHub to indicate that Alameda was allowed to have a vast unfavorable stability at FTX, a particular line of credit score of $65 billion in 2022 and an exemption from the liquidation engine.
The commingling of funds and issues between corporations developed over time. In 2020, Bankman-Fried instructed Wang that Alameda’s unfavorable stability mustn’t exceed FTX’s income — a rule that modified through the years, in line with Wang’s testimony. In late 2021, for instance, Alameda’s legal responsibility to FTX stood at $3 billion, up from $300 million in 2020.
“I trusted his judgment,” Wang stated when requested why he agreed to Alameda’s privileges.
However, these alleged privileges have been a part of Alameda’s function as a main market maker for FTX, the protection argued later throughout Wang’s testimony. The protection counsel additionally famous that different market makers had related privileges at FTX, and with the ability to go unfavorable was a key function of any market maker.
Another level emphasised by prosecutors was the MobileCoin exploit in 2021. Bankman-Fried allegedly informed Wang and Ellison so as to add the multimillion-dollar deficit to Alameda’s stability sheet as a substitute of protecting it on FTX to cover the loss from FTX buyers.
Months earlier than FTX’s collapse, Bankman-Fried, Wang and former engineering director Nishad Singh mentioned shutting down Alameda and changing its function with different market makers. The firm’s liabilities, nevertheless, have been too excessive on the time, sitting at $14 billion. Alameda remained in operation till November 2022.
Wang’s testimony will proceed on Oct. 10, the identical day Ellison’s will probably be heard.
Oct. 5: Yedidia cross-examination, witness testimonies in focus
Day 3 of the #SBF trial, we’re right here vibrant and early! ☀️ pic.twitter.com/PQ1rQV38Px
— Cointelegraph (@Cointelegraph) October 5, 2023
A legal responsibility of $8 billion from Alameda to FTX was on the heart of prosecutors’ cross-examination of Adam Yedidia on Oct. 5. Yedidia is a detailed pal of Bankman-Fried and was a developer at FTX. He was additionally considered one of ten folks to stay in Bankman-Fried’s $35 million luxurious resort within the Bahamas.
According to Yedidia’s testimony, since early 2021, FTX used an Alameda account labeled North Dimension to deposit customers’ funds whereas going through difficulties opening its personal checking account. Funds can be thought-about Alameda’s legal responsibility towards FTX, which reached $8 billion in June 2022.
While Yedidia was conscious of the funds despatched to Alameda’s account, he didn’t see it as a priority when he first heard about it in 2021. However, after studying concerning the legal responsibility quantity in 2022, he voiced his issues to Bankman-Fried throughout a tennis recreation. According to Yedidia, Bankman-Fried stated the debt ought to be settled between the businesses inside six months to 3 years.
“I trusted Sam, Caroline, and others in Alameda to handle the situation,” he stated, answering questions from prosecutors. Upon studying that Alameda was not solely holding the funds however utilizing them to pay its debtors, Yedidia resigned in November 2022.
While prosecutors used the case for example how the businesses have been commingling funds, Bankman-Fried’s protection counsel sought to share a broader image of FTX and Alameda’s relationship with the jury.
The protection highlighted that FTX was rising quick, with its management working over 10 hours a day throughout the 2021 bull market, together with Bankman-Fried, who oversaw a number of components of the corporate on the time.
The protection counsel additionally identified that Yedidia had been below a number of inquiries from prosecutors below an immunity order, that means cooperation with prosecutors would shield him from going through any expenses concerning his function at FTX.
Also, in line with Bankman-Fried’s protection, FTX’s difficulties opening a checking account and its reliance on Alameda’s North Dimension to deposit funds have been well-known. Yedidia’s cross-examination will resume this afternoon within the federal courtroom in decrease Manhattan.
Two witnesses testified throughout the second a part of the Bankman-Fried trial on Oct. 5: Matthew Huang, co-founder of Paradigm and Wang, co-founder of FTX and Alameda Research.
Paradigm invested a complete of $278 million in FTX in two funding rounds between 2021 and 2022. According to Huang, the enterprise capital agency was not conscious of the commingling of funds between FTX and Alameda, nor of the privileges that Alameda had with the crypto change.
Such privileges included Alameda’s exemption from FTX’s liquidation engine (a device that closes positions prone to liquidation). With the exemption, Alameda was capable of leverage its place and keep a unfavorable stability with FTX.
The Paradigm co-founder additionally acknowledged that the agency didn’t conduct deeper due diligence on FTX, as a substitute counting on data offered by Bankman-Fried.
Another concern for Paradigm was FTX not having a board of administrators. According to Huang, Bankman-Fried was “very resistant” to the concept of getting buyers on FTX’s board of administrators however promised to construct one and appoint skilled executives to serve on it.
During his brief testimony, Wang acknowledged that he, together with Bankman-fried and Ellison, had dedicated wire fraud, securities fraud and commodities fraud.
Wang additionally famous that Alameda had particular privileges with FTX, similar to the flexibility to withdraw limitless funds from the change, in addition to a line of credit score of $65 billion. To illustrate these privileges, Wang identified that every other market maker would have a credit score line within the tens of millions, whereas Alameda had a credit score line within the billions.
A mortgage of roughly $200 million to $300 million from Alameda was additionally talked about by Wang, allegedly as a part of the acquisition of different crypto corporations. However, the loans have been by no means credited to his account. His testimony will proceed on Oct. 6.
Oct. 4: DOJ and Bankman-Fried’s protection state their arguments
The first hours of SBF’s trial have supplied a glimpse of the arguments the U.S. Department of Justice (DOJ) and the previous FTX CEO’s protection will deliver to courtroom within the coming weeks.
After a jury choice within the morning, each events gave opening statements to the 12-person jury current within the courtroom.
The DOJ took a tricky stance in opposition to Bankman-Fried in its first assertion, portraying the FTX founder as somebody who intentionally lied to buyers to complement himself and develop his crypto empire.
According to the DOJ, Bankman-Fried lied to FTX prospects and buyers, utilizing Alameda as a key accomplice to “steal customers’ funds,” a phrase that was steadily used throughout the opening statements.
As per the trial preview, the DOJ will focus its arguments on allegations that Bankman-Fried misled prospects, buyers and lenders concerning the protection of their funds whereas utilizing Alameda to steal their cash and affect politicians in Washington.
The protection, in the meantime, introduced arguments about Bankman-Fried being a younger entrepreneur who made enterprise choices that “didn’t work out.” The protection denied the existence of secret transactions between Alameda and FTX or a backdoor used to steal buyer funds. According to the earlier arguments offered, all transactions have been professional or made in good religion by Bankman-Fried throughout the crypto market downturn and the next collapse of FTX in November 2022.
The protection additionally highlighted the function of Binance within the financial institution run that led to FTX’s collapse. Testimonies will proceed all through the day.
According to the protection, Bankman-Fried assumed FTX was allowed to mortgage funds to Alameda as a part of a enterprise relationship with the market maker, and there was no secret door for transactions between the businesses.
Prosecutors additionally famous that Ellison, Wang and Singh would provide the jury insider particulars about Bankman-Fried’s function in FTX’s operations and alleged crimes. However, the protection identified that as a part of the cooperation settlement with the federal government, they have been supposed to present testimony in opposition to Bankman-Fried, elevating doubts about their credibility.
The protection additionally downplayed the accusations in opposition to the character of the connection between FTX and Alameda, arguing that FTX margin merchants have been conscious of the dangers related to transactions.
“There was no theft,” the protection claimed. “It’s not a crime to be the CEO of a company that files for bankruptcy.”
In the second half of the primary day of the trial, the jury heard from two witnesses: Mark Julliard, a French dealer and former shopper of FTX, and Adam Yedidia, a pal of Sam Bankman-Fried and former worker at Alameda Research and FTX.
In his testimony, Julliard stated he had 4 Bitcoin (BTC) held at FTX on the time of the change’s collapse, value almost $100,000. He admitted that FTX and Bankman-Fried’s advertising and marketing efforts, in addition to the notable enterprise capital corporations backing FTX, gave him the boldness to make use of the change for crypto buying and selling. He assumed that enterprise capital corporations had completed due diligence on FTX and its management.
During the questioning, prosecutors emphasised that the dealer used FTX completely for spot buying and selling and was unaware that the change used shopper funds for crypto buying and selling with Alameda Research.
Questions for Yedidia have been targeted on his academic background on the Massachusetts Institute of Technology, the place he first met Bankman-Fried and had two skilled experiences with the FTX founder. Yedidia labored at Alameda briefly in 2017 as a dealer after which returned to work for FTX in 2021 as a developer. He was amongst 10 folks residing within the Bahamas on FTX’s $30 million actual property.
In Yedidia’s testimony, prosecutors used former FTX advertisements as proof that the corporate was at all times positioning itself as a protected, trusted and simple option to put money into cryptocurrency, together with advertising and marketing campaigns with NFL participant Tom Brady and comic Larry David. The trial will resume Oct. 5.
Oct. 3: SBF trial begins
The trial of Bankman-Fried started on Oct. 3 with jury choice. Bankman-Fried is charged with seven counts of conspiracy and fraud in reference to the collapse of FTX, the cryptocurrency change he co-founded. He has pleaded not guilty to all expenses. The case is being heard by Judge Lewis Kaplan, who has presided over a protracted record of different high-profile circumstances, together with ones involving detainees at Guantanamo Bay, the Gambino crime household, Prince Andrew and Donald Trump.
Bankman-Fried was ordered to be jailed on Aug. 11 after Kaplan discovered that his sharing of former Alameda Research CEO Caroline Ellison’s private papers amounted to witness intimidation. Alameda Research was a buying and selling home additionally based by Bankman-Fried. Previously, he had been under house arrest in his mother and father’ dwelling in Stanford, California, on a $250-million bond.
December: SBF arrested
Bankman-Fried was arrested within the United States on his arrival from the Bahamas on Dec. 21, 2022. He had been arrested in the Bahamas on Dec. 12 after the U.S. authorities formally notified the nation of expenses the U.S. was submitting in opposition to him. He declared his intention to struggle extradition from the Caribbean nation however modified his thoughts after per week in Bahaman jail and consented to extradition.
Meanwhile, FTX co-founder Gary Wang and Alameda Research CEO (and reportedly someday SBF girlfriend) Ellison agreed to plead guilty within the burgeoning case.
November: FTX collapses
Bankman-Fried’s troubles started when reviews emerged on Nov. 2 that Alameda Research had a big holding of FTX Token (FTT), FTX’s utility token. That revelation led to questions concerning the relationship between the 2 entities. On Nov. 6, Changpeng Zhao, CEO of rival change Binance, introduced that his change would liquidate its FTT holdings, which have been estimated to be value $2.1 billion. Zhao turned down a proposal tweeted by Ellison to purchase Binance’s FTT.
A run began on FTX. Bankman-Fried gave reassurances on Twitter (now X) that the change’s “assets are fine” and accused “a competitor” of spreading rumors. By Nov. 8, the worth of FTT had fallen from $22 to $15.40.
It’s solely been one week since SBF’s infamous “FTX is fine. Assets are fine.” pic.twitter.com/zKoILqquHF
— Robert Smith (@BondHack) November 14, 2022
Also on Nov. 8, Bankman-Fried introduced on Twitter that he had come to an agreement with Zhao “on a strategic transaction.” He wrote, “Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1.”
On Nov. 9, Zhao introduced that Binance would not pursue the acquisition of FTX after due diligence and extra reviews of mishandled funds. The value of Bitcoin (BTC) plummeted to $15,600. The FTX and Alameda Research websites went dark for a number of hours. When the FTX web site got here again, it bore a warning in opposition to making deposits and was unable to course of withdrawals.
On Nov. 10, Bankman-Fried posted a 22-part Twitter thread that started with “I’m sorry.” It was the primary of a protracted string of public statements he made concerning the change’s fall. The following day, the whole employees of Alameda Research stop, and FTX, FTX US and Alameda Research filed for bankruptcy in the United States. Bankman-Fried resigned as FTX CEO and was changed by John J. Ray III, who was finest identified for his function within the Enron chapter.
SBF and FTX earlier than the autumn
At the start of 2022, FTX had a $32-billion valuation and was thought to be in enviable financial condition. Bankman-Fried was seen as a revered enterprise chief by a lot of the crypto group and the world at massive. He was photographed with political leaders and spoke at congressional hearings.
Maxine Waters is chairing the investigation into FTX https://t.co/oFMctH4rRh pic.twitter.com/Ox6O5w4nOl
— Jordan Schachtel @ file.in the present day (@JordanSchachtel) November 17, 2022
He had gained a reputation as a philanthropist, pursuing a philosophy fashionable amongst lecturers often called “effective altruism.” Part of his implementation of that philosophy was political activism within the type of monetary help for candidates.
As the crypto winter set in, Bankman-Fried spoke of FTX and Alameda Research’s “responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion.” The corporations made a bid for Voyager Digital that was rebuffed.
FTX made a deal with Visa to introduce its personal debit card in 40 international locations.
Bankman-Fried, Ellison and different alumni of Jane Street Capital based Alameda Research in 2017. Bankman-Fried went on to discovered FTX with Wang in 2019. Zhao was an early investor within the change.
This is a growing story, and additional data will probably be added because it turns into accessible.
