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Cryptogambling / FTX co-founder testifies in SBF trial, reveals alarming fraud scheme

FTX co-founder testifies in SBF trial, reveals alarming fraud scheme

Publish Date: 06/10/2023
Video: FTX sues founder Sam Bankman-Fried to recoup funds

FTX sues founder Sam Bankman-Fried to recoup funds

On Thursday, FTX co-founder Gary Wang gave his testimony in Manhattan federal court in the trial of Sam Bankman-Fried, the former CEO of the defunct exchange. The platform’s former chief technology officer confessed that he joined Bankman-Fried in carrying out fraud related to wires, securities and commodities.

Brought to the States from the Bahamas last December and jailed since August, Bankman-Fried pleaded not guilty to seven fraud and conspiracy charges. His legal team insists that he lacked any malicious intent. Instead, he committed fraud to protect his companies after the cryptocurrency market plummeted.

Testifying for over half an hour, Wang said that he and Bankman-Fried had allowed Alameda Research to withdraw “unlimited funds” from FTX and lie about it to the public. Alameda is a crypto hedge fund that Wang and Bankman-Fried established in 2017.

“We gave special privileges to Alameda Research to allow it to withdraw unlimited funds from FTX and lied about it,” Wang, Bankman-Fried’s roommate when they studied at the Massachusetts Institute of Technology, said. He also noted that Bankman-Fried had told him to alter the exchange’s code on the computer program so that Alameda was able to draw a $65 billion (S$89 billion) line of credit.

“It withdrew so much that FTX was not able to pay customers who tried to withdraw,” Wang said.

As an FTX co-founder, Wang received $200,000 in salary and holds 10 percent of Alameda as well as 17 percent of FTX shares. However, Wang emphasized that his wealth never matched Bankman-Fried’s, seeing that the ex-CEO owned the rest of the firm and had the final say on most business decisions.

Wang explained that Bankman-Fried handled the company’s public-facing duties, such as lobbying and talking to the media, while Wang’s role was limited to coding.

Wang said that Bankman-Fried oversaw Alameda’s operations. This fact potentially undercuts Bankman-Fried’s testimony that Alameda relied on its chief executive, Caroline Ellison, who happened to be his former girlfriend.

Ellison herself pleaded guilty to fraud, and her testimony was heard by prosecutors in opening statements on Wednesday.

Other witnesses

Other than Wang and Ellison, two former high-level executives set to bear witness against Bankman-Fried are Nishad Singh, the former engineering director at FTX, and Adam Yedidia, who made software for FTX before departing. Both pleaded guilty shortly after Bankman-Fried was arrested.

Yedidia, who was also Bankman-Fried’s MIT classmate, testified with immunity on Thursday as he was worried that he might have written a code that contributed to a crime as a developer. He said that Bankman-Fried had been aware of the potential $8 billion shortfall at FTX from loans to Alameda five months before both companies collapsed.

The developer had just finished patching an accounting bug in mid-June when he discovered the company owed $8 billion in debt. “We were bulletproof last year, but we’re not bulletproof this year,” Bankman-Fried said on the development, as quoted by Yedidia.

Bankman-Fried also said it could take three months to three years to regain security, which demonstrated that the ex-CEO was aware of the company’s financial issues.

Yedidia also told the jury that she resigned from the company after learning that Alameda was using customer funds to repay creditors.

Bankman-Fried could face up to 110 years in prison if found guilty.

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