Thursday marked a significant moment in Sam Bankman-Fried's criminal proceedings, with former colleagues and associates of the defendant appearing to give testimony. Gary Wang, a founding partner with FTX, was called upon to give evidence as part of an agreement with the state. The key witness, Caroline Ellison, is to be heard on Tuesday.
This week in a Manhattan courtroom, two of Sam Bankman-Fried's former peers from MIT who worked at crypto exchange FTX while living with its founder in the Bahamas took the stand to testify against them. Gary Wang, co-founder of FTX, admitted to Assistant U.S. Attorney Nicolas Roos that he had perpetrated financial crimes with help from Bankman-Fried, Nishad Singh and Caroline Ellison, who had been Bankman-Fried's girlfriend and ran sister hedge fund Alameda Research. When asked if he saw anyone present in the courtroom he had committed these crimes with, Wang pointed to Bankman-Fried. During the six week trial, key testimony is expected from Ellison who has already admitted guilt to the several charges, with Bankman-Fried facing seven federal counts, possibly resulting in a lifetime sentence. Bankman-Fried, 31, stayed quiet in court while Wang testified, his emotions visible as he looked between the witness and the ground, eventually putting his head in his hands.
At age 30, Wang served as technology chief for FTX. A fast talker, he was stopped multiple times by Judge Kaplan and the prosecutor to ensure he was speaking at a slower pace. Wang recounted the events leading up to the company going bankrupt on November, including the reaction to reports revealing FTX's practices and ties. An emergency meeting between Bankman-Fried, Wang and Singh was held to consider shutting down Alameda, but Wang and Bankman-Fried were aware that Alameda lacked the resources to pay the $14 billion deficit. The jury was then taken through a selection of tweets, beginning November 7, from FTX and Bankman-Fried's personal account that painted a deceptive picture of operations and the financial state of the company. After FTX filed for bankruptcy, Bankman-Fried asked Wang to accompany him to a meeting with the Bahamas Securities Commission. On the drive, Bankman-Fried proposed transferring assets to Bahamian liquidators to maintain control of the company. Wang said he wasn't at the meeting, although Bankman-Fried's father attended. The next day, Wang met with prosecutors, and he could face up to 50 years in prison when he is sentenced following the trial. He told jurors he had signed a cooperation agreement that stipulated his requirements to provide truthful answers, hand over evidence, and meet with prosecutors.
For months, Bankman-Fried has been aware that Wang and Ellison, who were important people in his life and job, had betrayed him. Both of them accepted a guilty plea in December and have since been giving information to the U.S. attorney's office in Manhattan. Wang's account, which went on until Friday, was done due to a deal with the government. Ellison is supposed to testify under an identical agreement.
Wang, originally from China, was seven when his family relocated to the United States, and thereafter he was raised in Minnesota. He attended the Massachusetts Institute of Technology studying mathematics and computer science, and afterwards he was employed at Google. Wang was aware of Bankman-Fried from high school and had held 10% of Alameda, while the latter owned the majority of the company. Wang informed the court that FTX had established code which enabled exclusive access to their crypto exchange, ultimately generating a debt of $8 billion. Specifically, Alameda could take out unlimited withdrawals of customer deposits and a $65 billion line of credit was set in place. Additionally, he stated that Nishad Singh, FTX's director of engineering had composed the bug in the code and Wang had personally reviewed it. Moreover, Bankman-Fried was the one in control. Furthermore, Wang told the court that he had been given a $1 million loan for himself and had his name on a $200-300 million loan, however the funds were used to invest in other firms at Bankman-Fried's request. Eventually, Wang became aware of Alameda's negative balance surpassing FTX's profits in the beginning of 2020 and he brought this to Bankman-Fried's attention on several occasions. He also mentioned that after this it was found out that Alameda had taken out $3 billion of their $65 billion credit line. Wang was given a base salary of $200,000 plus stock, and he owned roughly 17% of FTX. Lastly, Wang said that in situations of disagreement, Bankman-Fried had the final say.
Originally hailing from China, Wang migrated to the US at the age of 7. Growing up in Minnesota, he pursued studies in maths and computer science from the Massachusetts Institute of Technology, before taking a job at Google. Being familiar with Bankman-Fried since high school, Wang owned 10% of Alameda, while Bankman-Fried had the rest. In court, Wang testified about particular access to the crypto exchange, permitted by means of a code, that resulted in Alameda owing FTX a large sum, estimated to be worth $8 billion. This code gave them the opportunity to draw out unrestricted withdrawals of customers' deposits, and a $65 billion line of credit. Also, Nishad Singh, FTX's director of engineering, was responsible for authoring this bug in the code, that had been assessed by Wang. Bankman-Fried supervised all decisions. Wang himself had obtained a $1 million loan and a loan from Alameda of $200-300 million, however, Bankman-Fried had utilized those funds to invest in other businesses. In early 2020, it was reported that Alameda's negative balance was exceeding FTX's revenue, which Wang had informed Bankman-Fried of on multiple occasions. Eventually, it was uncovered that Alameda had taken out $3 billion from their $65 billion credit. Wang had a base salary of $200,000 plus stock, with roughly 17% of FTX being owned by him. Discrepancies were usually resolved by Bankman-Fried.
On Thursday, Adam Yedidia, witness two for the prosecution, took the stand, continuing with his testimony. Yedidia and Bankman-Fried were college buddies at MIT and kept close in the years that followed. He relayed to the court the details of his stint at FTX from January 2021 to October 2021 in the Hong Kong office, and afterwards in the Bahamas before FTX abruptly shut down last year. He also mentioned “People of the House,” a group chat on messaging app Signal related to Bankman-Fried's lavish $35 million penthouse which many employees stayed in.
Yedidia remembered Bankman-Fried saying he "believed Alameda was liable for the rent". He said that before Yedidia started working in the Bahamas in 2019, his boss asked him if they should be dating, to which Yedidia replied no. Bankman-Fried reacted to Yedidia's answer with a knowing nod. Yedidia's job was to improve the code that provided Alameda with special treatment. In June 2022, he informed Bankman-Fried on Signal that customers had lost $8 billion from an internal database tracking the cash sent to an Alameda account called "fiat at ftx.com". Yedidia and his employer discussed this issue on the pickleball court at the resort in Nassau, Bahamas. Yedidia was concerned, considering it was "a lot of money" invested by FTX customers. After Yedidia asked if everything was good, Bankman-Fried replied they were secure the year before but may need six months to three years to reach that point again. Bankman-Fried seemed "worried or nervous" which Yedidia found out of character. Despite this, Yedidia still trusted his boss and Ellison to "manage the situation". On cross-examination, Everdell, Bankman-Fried's lawyer, highlighted the fact that Yedidia was responsible for the code and asked about how he was attempting to prevent burnout by disallowing bug fixes if Wang was sleeping. Everdell asked about the high compensation Yedidia earned — between $175,000 and $200,000, with bonuses of more than $12 million cash and company equity — before Yedidia left FTX to become a mathematics teacher. Most of the bonuses Yedidia received were invested back into FTX, leaving his equity stake worthless. After many people had left the company, Yedidia reached out to Bankman-Fried with an emotional message, "I love you, Sam. I'm not going anywhere". Soon after, Yedidia began to have suspicions when he found out FTX customer deposits were being used to pay off creditors. He declared fervently that FTX had "defrauded all its customers" before he was asked to leave the court.
Matt Huang, co-founder and managing partner of Paradigm, a crypto venture capital firm that invested over $275 million in FTX, testified in court about his firm's due diligence process prior to investing. Huang said Bankman-Fried assured him that the funds would be used for FTX and not Alameda, and that Alameda had no preferential treatment on the FTX platform, even though it was one of its top traders. Huang revealed his concern about FTX's lack of a board of directors, but that he opted to invest anyway after Paradigm pressed Bankman-Fried on the board issue and received the response that he did not want investors as directors, but did plan on having a board with experts. -CNBC's Dawn Giel contributed to this report.
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