Sam Bankman-Fried, testifying in his own defence at his fraud trial on Friday, acknowledged that a “lot of people got hurt” when the FTX cryptocurrency exchange he founded collapsed, but said he did not defraud anyone or take customer funds.
Shortly after taking the witness stand in Manhattan federal court, Bankman-Fried said he made “a number of small mistakes and a number of larger mistakes” while running the now-bankrupt exchange. The biggest mistake, he said, was not implementing a dedicated risk management team.
“We thought that we might be able to build the best product on the market,” Bankman-Fried said. “It turned out basically the opposite of that. A lot of people got hurt – customers, employees – and the company ended up in bankruptcy.”
Prosecutors accuse Bankman-Fried of using FTX customer funds to prop up his crypto-focused hedge fund, Alameda Research, make speculative venture investments and donate more than $100 million to U.S. political campaigns. He also faces charges of scheming to cheat Alameda’s lenders and FTX investors.
He has pleaded not guilty to two counts of fraud and five counts of conspiracy brought in December 2022, one month after FTX declared bankruptcy following a wave of customer withdrawals.
Prosecutors say he directed that Alameda be given special trading privileges on FTX, such as a $65 billion line of credit and an exemption from having its positions liquidated if it posted losses. They say those privileges allowed Alameda to siphon deposits from the exchange’s unsuspecting customers.
Responding to questions posed by his defense lawyer Mark Cohen, Bankman-Fried gave long-winded answers and spoke in calm, measured tones as he disputed that narrative. He said Alameda was a “market maker” that served to boost volume on FTX, and thus could borrow money from the exchange to make trades.
Bankman-Fried said he grew concerned about the potential for an “erroneous” liquidation of Alameda’s assets, which would be “catastrophic” for the platform. He said he directed two FTX computer programmers, Nishad Singh and Gary Wang, to implement a feature to prevent this from happening.
“It was scary,” Bankman-Fried said. “This was something that presented systematic risk.”
Prosecutors will have the chance to question that account when they cross-examine the 31-year-old former billionaire.
BANKMAN-FRIED TESTIFIES ABOUT 'NERDY' FRAT LIFE
Bankman-Fried, who was jailed in August after U.S. District Judge Lewis Kaplan found he likely tampered with witnesses, wore a suit and spoke with two water bottles placed in front of him on the witness stand. The former mogul once known for wearing shorts and T-shirts and sporting an unkempt mop of curly locks cut his hair before his trial began.
He described playing “lots of board games” when he lived in an alcohol-free, “nerdy” fraternity house at the Massachusetts Institute of Technology, where he graduated with a physics degree in 2014 – part of an effort to push back on what his lawyers have termed prosecutors’ portrayal of him as a “cartoon of a villain.”
Jurors have heard from three of his closest confidantes at FTX and Alameda – Singh, Wang, and former Alameda chief executive officer Caroline Ellison. All three have pleaded guilty and agreed to cooperate with prosecutors. They testified earlier this month that they committed financial crimes at Bankman-Fried’s behest.
For criminal defendants, taking the stand is a risky proposition because it opens them up to potentially probing cross-examination by prosecutors.
But given Bankman-Fried’s penchant for risk, legal experts say he likely viewed taking the stand as his best shot to counter the allegations made by members of his inner circle, which were backed up by spreadsheets the three said demonstrated how customer funds were stolen and text messages in which they discussed FTX’s shortfall of funds with Bankman-Fried.
Prosecutors will have the chance to cross-examine Bankman-Fried when Cohen finishes his questioning.
They may ask why he did not disclose to FTX customers that Alameda had special trading privileges on the exchange, and why he posted on social media amid the run on customer deposits last November that FTX was “fine” when he knew it was short billions of dollars.
Closing arguments and jury deliberations are expected to begin next week.