Inside the Explosive First Week of Sam Bankman-Fried's Court Battle

The fraud trial of Sam Bankman-Frieds commenced only four days ago, and already a crucial testimony has been provided by one of his closest associates. The partner confessed that they were responsible for the crimes, all of which were carried out under SBF's direction. Gary Wang, the co-founder of the now-bankrupt cryptocurrency exchange FTX, is the initial witness expected to testify under oath that the leadership of the crypto firms engaged in fraudulent activities and embezzled funds from investors in a massive scheme involving FTX and its affiliated trading house, Alameda Research.

Over the span of approximately six hours of testimony, Wang shared the account of FTX's ascent and decline, with Bankman-Fried exercising control over virtually every aspect, even resorting to misleading individuals outside his trusted circle regarding the true state of affairs within the company.

In this courtroom sketch, Sam Bankman-Fried is seen sitting alongside his defense team during his fraud trial related to the bankruptcy of FTX, a cryptocurrency exchange. The trial took place in Federal Court in New York City on October 4, 2023.

US prosecutor accuses Sam Bankman-Fried of constructing his crypto empire through deceit, while Bankman-Fried maintains that his business collapse was due to being overwhelmed. His defense attorney argues that the fast-paced nature of the crypto industry caused certain aspects to be neglected as they were being developed.

The defense has yet to present its case in the trial, which may go on for up to six weeks. It is still uncertain whether Bankman-Fried will give his testimony.

Here are some key points from the initial week in court.

Alamedas special privileges

Former FTX employees, who have testified in court, shed light on crucial aspects of the government's case. They provided the jury with a detailed explanation of the covert financial entanglement between FTX and Alameda, two ostensibly independent companies founded by Bankman-Fried.

Alameda engaged in intricate and high-risk cryptocurrency market speculation, akin to a conventional hedge fund. On the other hand, FTX served as the user-friendly interface that facilitated crypto trading. To start trading on FTX, you simply needed to create an account, deposit funds onto the platform, and begin. FTX generated revenue by charging fees for these trades.

Gary Wang gives his testimony in the fraud trial of Sam Bankman-Fried, relating to the downfall of FTX, the cryptocurrency exchange that went bankrupt. The proceedings took place at the Federal Court in New York City on October 5, 2023, as depicted by Jane Rosenberg in her courtroom sketch.

FTX co-founder confesses to fraudulent activities alongside Sam Bankman-Fried. Nevertheless, FTX neglected to disclose to its clientele that the funds they transferred were being stored in a bank account under Alameda's control. Additionally, according to prosecutors, FTX's operators surreptitiously allowed Alameda to utilize FTX as a clandestine source, enabling them to borrow an essentially limitless sum of money.

Adding a layer of complexity, Alameda, much like other businesses and individual investors, utilized FTX. However, Alameda deviated from the norm as Wang, who admitted guilt for financial offenses in a plea agreement, attested to personally crafting certain portions of the computer code that granted the company clandestine entry to FTX funds, inclusive of customer deposits.

He further mentioned that Alameda possessed an astonishing line of credit worth $65 billion from FTX - a jaw-dropping amount specifically crafted to be impenetrable. Notably, Alameda stood as the sole FTX client authorized to maintain a negative balance.

Christian Everdell and Mark Cohen, attorneys for Sam Bankman-Fried, exit court in New York on Wednesday, Oct. 5, 2023.

Stephanie Keith/Bloomberg/Getty Images

Bankman-Fried's legal team disputed Wang's description of Alameda's privileges, arguing that Alameda had control over the bank account where FTX funds were being deposited due to FTX's struggle to find a banking partner (a common issue for crypto companies). During the cross-examination of Wang, defense lawyer Christian Everdell suggested that Alameda's ability to go into a negative balance and obtain a significant line of credit were essential for its role as a "market maker" on FTX, rather than being part of a malicious scheme. Everdell referred to previous conversations where Wang had stated that the "allow negative" feature was necessary for Alameda to fulfill its duties as a market maker.

What SBF said as FTX foundered

In addition to misappropriating customer funds for lavish real estate and extravagant private jet excursions, Bankman-Fried is being accused by prosecutors of deceiving investors, clients, and the general public regarding these actions.

In November 2022, with customers withdrawing their FTX account funds in large numbers, Bankman-Fried stated on Twitter that both FTX and customer assets were stable.

However, Wang contradicted this statement on Friday, affirming that FTX was actually in a precarious state and customer assets were also in jeopardy.

FTX did not have enough assets to cover all its client holdings because Alameda had withdrawn all of it, he said.

Star witness coming Tuesday

Caroline Ellison, Alamedas former CEO and Bankman-Frieds on-and-off girlfriend, is expected to take the stand when court resumes on Tuesday.

Caroline Ellison, former CEO of Alameda Research.

From carolinecapital/X

Ellison, 28, holds a significant role in the prosecution as the star witness due to her position as the head of Alameda and her firsthand knowledge of Bankman-Frieds' conduct. Similar to Wang, she has admitted guilt for multiple fraud charges through a plea agreement.

Prosecutors have highlighted a crucial point during the trial, involving an audio recording of a meeting where Ellison discloses to Alameda employees that the fund utilized funds from FTX customer accounts to repay lenders. Court documents reveal that when an employee inquires about the decision-maker, Ellison casually responds with, "Um... Sam, I suppose."