Sam Bankman-Fried’s perspective on FTX fall


Sam “SBF” Bankman-Fried took the stand this week to testify in his ongoing felony trial within the United States District Court for the Southern District of New York, denying any wrongdoing between FTX and Alameda Research whereas acknowledging making “big mistakes” through the firm’s fast-paced development. 

His official testimony began on Oct. 27, after a listening to on the day prior to this without the jurors present. During the listening to, Bankman-Fried struggled to reply questions raised by authorities attorneys, whereas he appeared a lot better ready the next day when dealing with the jury.

Just a few highlights of Bankman-Fried’s testimony this week embrace denying directing his internal circle to make millionaire political donations in 2021, in addition to claims that FTX’s time period of use lined transactions between Alameda and the crypto trade. Moreover, the previous CEO said that he had requested extra hedging methods for Alameda all through 2021 and 2022, however they had been by no means carried out.

The protection is predicted to conclude Bankman-Fried’s examination on Oct. 30, adopted by the prosecution’s cross-examinations and shutting arguments from each side. Prosecutors additionally hinted at a rebuttal witness subsequent week, who’s somebody referred to as to show that the testimony of one other witness is fake or inaccurate.

Bankman-Fried might be jailed for 115 years if discovered responsible of all fraud and conspiracy counts. Cointelegraph’s on-the-ground protection of his testimony is summarized beneath.

SBF refutes claims over political donations

Bankman-Fried denied having directed Ryan Salame, the previous co-CEO of FTX Digital Markets, and Nishad Singh, the previous director of engineering, to funnel tens of millions of {dollars} in contributions to political campaigns.

According to information accessible on OpenSecret, Singh gave $8 million to federal campaigns within the 2022 election cycle. Salame additionally donated $10 million to politicians via loans from Alameda Research.

Even although Bankman-Fried denied instructing each to make political contributions, he acknowledged that lobbying in Washington, D.C., performed a key function in his efforts to push a regulatory framework for crypto companies within the United States throughout 2021.

“I got here to consider that I may affect the world.“

According to prosecutors, Bankman-Fried used funds from clients’ deposits on FTX to make greater than $100 million in political marketing campaign contributions forward of the 2022 U.S. midterm elections.

Bankman-Fried denied any wrongdoing throughout his testimony, asserting that FTX had greater than $1 billion in income in 2021 and that political donations had been constructed from the trade’s personal funds.

The New York Times check

Bankman-Fried had a suggestion for workers’ communication at FTX and Alameda Research: The New York Times check. 

Based on the casual check, workers shouldn’t write something they wouldn’t be snug seeing on the entrance web page of the newspaper. According to Bankman-Fried, even innocent issues may “look pretty bad out of context,” so workers ought to make sure to at all times present adequate context in written messages.

Bankman-Fried described the check as a part of his clarification of why greater than 200 channels on Signal had an autodelete coverage that completely deleted messages after per week.

Prosecutors used proof of the autodelete characteristic within the earlier days to counsel that any wrongdoing between the businesses was being lined up. According to Bankman-Fried, official communications and regulatory paperwork had been dealt with by different channels, comparable to Slack or electronic mail, however Signal was the selection for each day communication throughout the firms.

Alameda’s distinctive function on FTX 

Bankman-Fried offered particulars about Alameda’s billionaire line of credit score with FTX. According to his testimony, Alameda served as FTX’s fee supplier for wire transactions whereas the trade couldn’t have its personal account. 

Besides being a fee processor, Alameda was additionally the first liquidity supplier, market maker and consumer of FTX.

As a liquidity supplier and market maker, Alameda must step in and canopy buyer losses if FTX’s threat engine failed. During his testimony, Bankman-Fried offered an instance of a failure of the danger engine that resulted in Alameda overlaying tens of millions of {dollars} in losses in 2021.

The nature of Alameda’s function within the trade’s operations prompted customized options in FTX’s code, comparable to the power to go unfavourable by way of a line of credit score with out activating the danger engine. According to Bankman-Fried, the exemption was mandatory to stop Alameda’s potential liquidation, which might negatively affect the crypto markets.

As a consumer of FTX, Alameda was additionally capable of borrow funds by depositing collateral within the trade. The phrases of use of FTX enable debtors to make use of funds for any objective, which suggests Alameda may commerce with the borrowed funds.

Alameda’s line of credit score with FTX grew in tandem with the crypto trade through the bull market.

Scenes from outdoors Bankman-Fried’s trial location in New York. Source: Ana Paula Pereira/Cointelegraph

Alameda fails to hedge

Bankman-Fried mentioned hedging methods with Caroline Ellison, former CEO of Alameda Research, in 2021 and 2022 whereas in search of to defend the buying and selling platform from a doable market downturn.

According to his testimony, Bankman-Fried requested Ellison to hedge $2 billion in Bitcoin (BTC) towards a doable worth decline in 2021. The technique was by no means carried out, he informed jurors.

Ellison’s notes, which had been shared as evidence by prosecutors, reveal that Bankman-Fried was “freaking out” about hedging in early 2022. The protection used the proof for example that hedging was certainly one of Bankman-Fried’s highest considerations and that he mentioned it with Ellison continuously.

Without applicable hedging, Alameda was considerably harmed by the Terra ecosystem collapse and decline in crypto costs. In September 2022, Bankman-Fried realized the legal responsibility between the businesses had grown from $2 billion a 12 months earlier than to over $8 billion.

“I was very surprised,” he claimed in courtroom, stating that he believed Alameda’s belongings outweighed its liabilities by practically $10 billion.

Clawback provision when it comes to use

According to Bankman-Fried, FTX’s phrases of use embrace a clawback provision that may socialize losses amongst clients utilizing margin commerce and futures contracts if the trade’s threat engine fails.

The doc introduced in courtroom states that:

“[…] your account steadiness could also be topic to clawback because of losses suffered by different customers.”

If FTX couldn’t cowl losses associated to identify margins and futures, damages can be shared amongst all clients. Defense attorneys used the supply to argue that clients buying and selling on FTX had been conscious of the dangers concerned.