Insights from Sam Bankman-Fried's Second Day in Court

Former crypto mogul Sam Bankman-Fried faced intense questioning from prosecutors on Monday as his ongoing criminal fraud trial entered its third week. He stands accused of masterminding a colossal fraud worth billions, causing significant shockwaves throughout the industry.

Though prosecutors have portrayed SBF as a crafty individual akin to Bernie Madoff, Bankman-Fried's defense lawyers counter that merely being the CEO of a company that subsequently goes bankrupt is not a criminal offense.

The tweets that started — or ended — it all

In response to cross-examination, Bankman-Fried has mostly provided ambiguous replies, claiming to have no recollection of previous conversations or statements he made. Judge Lewis Kaplan has intervened on multiple occasions, reminding Bankman-Fried to provide straightforward yes or no answers and refrain from speculating on the motives behind the questions.

The former billionaire began his testimony by recounting the events leading up to FTX's bankruptcy filing on November 11th of last year.

FTX experienced approximately $1 billion in net withdrawals on November 6th in response to a tweet from the CEO of their larger competitor, Binance. The pace of withdrawals accelerated even more on the following day, with around $4 billion in net withdrawals, which is 100 times higher than the average daily amount.

FTX founder Sam Bankman-Fried, accompanied by his attorneys Christian Everdell and Mark S. Cohen, listens attentively as Caroline Ellison, his former fellow top executive and ex-girlfriend, takes the stand in Manhattan federal court on October 10, 2023. Ellison wasted no time in accusing Bankman-Fried of instructing her to engage in illegal activities prior to the downfall of his cryptocurrency empire in November of the previous year.

Sam Bankman-Fried might require a miracle play to sway the jury in his favor, considering the circumstances.

This prompted him to post the tweet, which has become crucial evidence for the prosecution's claim that he deceived both customers and investors regarding the condition of his businesses.

FTX CEO, Sam Bankman-Fried, testified to jurors that the tweet he posted on the morning of November 7, stating that FTX and its assets were "fine," was accurate at that time. However, as the market continued to crash that evening and the following morning, he expressed concerns about a potential solvency crisis. The decline in the market led to a significant decrease in the value of assets associated with FTX's sister company, Alameda Research. This approximately 50% crash resulted in the firm's net asset value dropping from around $10 billion to slightly above zero, according to Bankman-Fried's testimony.

At that time, he said, he deleted his earlier tweet.

Ellison agreed Alameda should have been hedged

Bankman-Fried recounted a conversation he had with his ex-girlfriend, Caroline Ellison, who was the CEO of Alameda Research at the time. Concerned about the possibility of the market declining by another 50%, he expressed his worry that Alameda might face insolvency.

According to Bankman-Fried, Ellison became emotional and agreed with his assessment that Alameda should have implemented hedging strategies. He further mentioned that she volunteered to resign, emphasizing that it was her own choice.

SBF and Ellison agreed that the immediate priority should be to focus on implementing hedges in order to avoid Alameda's bankruptcy. Ellison, who pleaded guilty and collaborated with the government, testified that she expressed a desire to resign but Bankman-Fried insisted she was indispensable to the company.

Alameda had special privileges

Multiple instances were cited by US Assistant Attorney Danielle Sassoon, where Bankman-Fried publicly declared that Alameda Research did not possess any exclusive benefits and affirmed that both corporations functioned autonomously.

Sassoon questioned Bankman-Fried about whether he remembered saying that FTX and Alameda had acted independently.

Caroline Ellison, the former CEO of Alameda Research LLC, made an appearance in a New York court on Thursday, October 12, 2023. In front of a New York jury, Ellison, who was previously involved romantically with FTX co-founder Sam Bankman-Fried, provided details about her collaboration with Bankman-Fried in deceiving lenders and customers to establish his cryptocurrency empire worth billions of dollars. She also mentioned their unsuccessful efforts to prevent a dramatic collapse.

Stephanie Keith/Bloomberg/Getty Images

It was Bankman-Frieds decision to raid billions from sister crypto company, star witness testifies

Just before the court broke for lunch, Sassoon pressed Bankman-Fried on the issue of Alamedas special treatment.

He responded, acknowledging the likelihood, "That could be correct."

"I dont deny it, no," Bankman-Fried replied.

He thought some of his customers were dumb

While Bankman-Fried publicly advocated for crypto regulation, Sassoon suggested Monday that this support was "just for PR."

"No." Bankman-Fried replied.

Sassoon then referenced an exchange SBF had with a reporter in which he said "f*ck regulators" and that his advocacy was "just PR."

Another private conversation showed SBF calling some customers "dumb m*therf**kers."

SBF pushed back on the question, saying that comment referred only to a "specific subset" of customers.

Whats next

The defense will redirect their questioning to SBF on Tuesday for another full day. The trial is nearly ending, and it is anticipated that closing arguments will be presented on Thursday.

Thirty-one-year-old Bankman-Fried faces the rest of his life in prison if found guilty on all seven federal criminal charges of fraud and conspiracy.