Sam Bankman-Fried Denies Wrongdoing in Ongoing Criminal Trial Over FTX and Alameda Operations
Summary:
Sam “SBF” Bankman-Fried, founder of cryptocurrency platforms FTX and Alameda Research, testified in his ongoing criminal trial, denying any improprieties between the two companies while admitting to errors during their rapid growth. The trial saw him denying allegations of directing political donations and asserting that FTX's Terms of Use protected transactions between Alameda and the crypto exchange. Furthermore, he revealed that his suggestions for hedging strategies during 2021 and 2022 were never implemented. The defense is expected to wrap up questioning Bankman-Fried, who could face 115 years in jail if convicted of all charges.
This week saw Sam “SBF” Bankman-Fried testify in his current criminal trial that's unfolding in New York's Southern District, asserting his innocence concerning any alleged improper activities involving FTX and Alameda Research. He did, however, confess to making substantial missteps during the companies' rapid expansion. His official testimony was given on Oct. 27, after a court hearing on the prior day that the jury did not attend. During that hearing, Bankman-Fried had difficulty addressing queries put forth by government lawyers, yet he seemed much more ready the subsequent day when he faced the jury.
Key points from Bankman-Fried’s testimony over the week include his denial of guiding his close associates to make hefty political donations in 2021, and his insistence that FTX's Terms of Use protected transactions between Alameda and the cryptocurrency exchange. Furthermore, he expressed that he had suggested additional hedging strategies for Alameda throughout 2021 and 2022, but these suggestions were never applied.
Bankman-Fried’s questioning by the defense is expected to wrap up on Oct. 30, after which will be the cross-examinations by the prosecution and closing statements from both factions. It was also hinted by the prosecutors that a rebuttal witness may be called next week to verify the accuracy of the testimony of another witness.
Bankman-Fried could be sentenced to 115 years in incarceration if convicted of all fraud and conspiracy charges. Below is a summary of his testimony as reported by Cointelegraph’s.
SBF denies directing political donations
Bankman-Fried refuted in court any claims of directing Ryan Salame, the former co-CEO of FTX Digital Markets, and Nishad Singh, the former engineering director, to direct millions towards political campaigns.
OpenSecret data shows that Singh had donated $8 million to federal campaigns in the 2022 election cycle, while Salame donated $10 million to politicians through loans from Alameda Research. Even though Bankman-Fried denied directing these individuals to make these donations, he acknowledged that lobbying in Washington D.C. played a massive part in his endeavors to press for a regulatory framework for cryptocurrency firms in the U.S in 2021.
The prosecutors claimed that more than $100 million was taken from customer deposits on FTX by Bankman-Fried to fund political campaigns ahead of the 2022 midterm elections. He, however, denied any improper actions during his testimony and stated that the exchange's own funds were used for the political donations since FTX had a revenue of more than $1 billion in 2021.
The importance of the New York Times test
Bankman-Fried had a specific guide for employees' communication at FTX and Alameda Research, referred to as 'The New York Times test'. According to this, employees are not to write any message they wouldn't feel comfortable seeing on the front page of the noted newspaper. He argued that even benign things could seem unpleasant out of context, and therefore, providing sufficient context in messages was important.
The autodelete feature evidence was used by the prosecutors to imply that any improper actions between the firms were being concealed. However, Bankman-Fried clarified that official and regulatory communications were conducted through other platforms, such as Slack or email, with Signal being the go-to platform for daily inter-company discussion.
Details of Alameda’s unique role on FTX
Alameda played multiple roles on FTX, acting as the main liquidity provider, market maker as well as a client. It stepped into to cover customer losses in case FTX’s risk engine malfunctioned.
As a client of FTX, Alameda could also borrow funds by providing collateral to the exchange. The terms of use of FTX permitted borrowers to apply funds for any purpose, thus allowing Alameda to trade with the borrowed funds.
Future of hedging strategies for Alameda
Bankman-Fried revealed that he had discussed hedging strategies with Caroline Ellison, former CEO of Alameda Research in 2021 and 2022 to insulate the trading platform from potential market downturns. Without adequate hedging in place, Alameda incurred major harm from the collapse of the Terra ecosystem and a dip in cryptocurrency prices.
FTX's view on Terms of Use
According to Bankman-Fried, FTX's terms of use include a clawback provision that would distribute losses amongst customers using margin trading and futures contracts in case the exchange's risk engine faltered. The defense lawyers argued that customers trading on FTX were aware of the risks involved.
Published At
10/28/2023 5:52:32 PM
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