Author: Protos

Compiled by: GaryMa Wu Talks Blockchain

Summary

●According to a plea agreement, FTX co-founder Gary Wang told the jury that he participated in financial crimes under the guidance of Sam Bankman-Fried (hereinafter referred to as SBF) and described some of the crimes in detail.

● Witness testimony proved to the jury that SBF knew about FTX’s financial difficulties but lied to the public and investors.

●Judge Lewis Kaplan harshly criticized Mark Cohen's team for wasting time and repetitive questioning that did not seem to accomplish much. The defense's main goal seemed to be to disparage the prosecution's witnesses, but it was poorly executed.

● During the defense cross-examination, SBF appeared distressed, clenched his hands into fists, and rubbed his eyes. The difficulty of the defense was probably obvious to even SBF’s closest allies.

On Thursday, October 5, FTX and Alameda Research co-founder Gary Wang took the stand to testify against his former business partner SBF in the first full day of witness testimony in the fallen crypto wizard’s criminal trial.

In perhaps his most damning testimony, Wang said he agreed to take out a huge personal loan from the company under pressure. He also said he never actually saw the money, pointing to a broader pattern of financial fraud at the two companies.

In their final conversation of the day, the prosecutor asked Wang: "Did the money from the loan go into your bank account?"

Gary Wang, SBF’s previously mysterious co-founder, replied: “No.”

Gary Wang’s testimony capped off a busy day. The testimony of former FTX developer Adam Yedidia ended with Yedidia recounting a conversation in June 2022 in which SBF was clearly aware of FTX’s financial problems. This, combined with SBF’s numerous tweets trying to convince the public that all was well at FTX, seemed to provide a factual basis for him to be charged with wire fraud.

SBF himself had been silent during the trial, seemingly absorbed in the documents on his laptop. But when Wang's testimony began, SBF paid close attention to the witness for the first time.

Wang remained silent, giving short, focused responses. He detailed his role in creating “special privileges” on the FTX platform for Alameda Research, which allowed the firm to “withdraw unlimited funds” from the exchange and place orders faster than other market makers. This meant that Alameda could “frontrun” not only competitors, but also FTX customers, essentially stealing from them every moment using cheat codes.

Wang said Alameda had a $65 billion line of credit on FTX. That’s orders of magnitude higher than the “tens to millions of dollars” Wang described as normal for FTX market makers. It’s also several times higher than the $8 billion in customer deposits that disappeared.

Wang also described SBF guiding him in achieving these capabilities.

SBF: “We are not invulnerable”

Earlier in the day, former FTX engineer Adam Yedidia, dressed in an ill-fitting suit and loosely tied, looking every bit the image of a socially awkward computer developer, concluded his testimony by detailing a timeline of FTX’s finances.

Yedidia recalled that he was assigned to automate the customer deposit process and learned in the process that Alameda Research had borrowed $8 billion of FTX customer funds. Yedidia expressed these concerns to SBF in June 2022 after a paddle tennis tournament at the Albany resort where FTX and Alameda are located.

SBF responded that while FTX was “bulletproof” in 2021, “we are not bulletproof this year (2022).”

Yedidia reiterated Sam’s estimate that FTX will be “bulletproof” again in “6 months to 3 years.”

It is clear that SBF was aware of serious financial problems at FTX as early as June 2022. Earlier evidence includes SBF still assuring customers on Twitter that FTX was "fine" as late as November 2022. These two sets of facts seem to clearly constitute evidence of fraud.

In short, the defense’s efforts to undermine Yedidia’s testimony were weak.

The defense attorney asked Yedidia: "Would you say that no crypto company is currently bulletproof?"

This appears to reflect a larger defensive strategy of conflating the details of FTX’s operations with “the crypto industry as a whole.”

But prosecutors objected to the nature of the question and excluded it from the proceedings. The defense faced dozens of such objections when it asked witnesses to comment on issues outside the scope of their testimony. Time and again, Judge Kaplan sided with the prosecution, leaving the defense visibly bewildered.

Finally, Kaplan called an off-court conference in which he appeared to chastise the repetitive nature of defense counsel's questioning. In every cross-examination thus far, defense counsel has spent much of the time asking witnesses to repeat facts that have already been established in prosecutorial questioning.

The defense also appeared to try to disparage Yedidia’s testimony by repeatedly questioning him about the release agreement he testified under. But unlike Wang, Yedidia resigned from FTX after learning that Alameda spent customer deposits and has not been charged with criminal conduct, so this line of attack is unconvincing.

SBF's parents show stress

There were dramatic moments in the courtroom during the cross-examination of Yedidia by defense attorneys. On multiple occasions during testimony, SBF could be seen removing his glasses, lowering his head and rubbing his fists against his eyes for several minutes, possibly to hide or hold back tears. SBF's father, Joseph Bankman, also appeared frustrated.

But the true depth of the defense's failings did not emerge until the prosecution conducted a "return" examination, the third round of questioning of Yedidia. Defense lawyers had asked Yedidia about SBF's personal spending habits, seemingly suggesting that not buying expensive clothing or luxury cars meant he was an honest man.

But prosecutors asked Yedidia only a simple follow-up question about spending money: “Have you heard of FTX Arena?”

The question triggered waves of laughter in the courtroom as Yedidia detailed the lavish $100 million spent on the naming rights for the former Miami Heat arena.

Yedidia’s testimony ended with a personal question. After leaving FTX, he went from living in a $35 million penthouse in the Bahamas to becoming a high school math teacher. While it was a moral boost, it highlights how much the association with FTX affected even those who were not accused of participating in SBF’s alleged crimes.

Investor Fraud

Between Yedidia and Wang, we also heard testimony from Matt Huang, co-founder of crypto-focused venture capital fund Paradigm. Like the prosecution’s other witnesses, Huang appeared calm, seemed credible, and was careful with his words, with specific and concise answers.

Huang determined that facts that were seemingly hidden from Paradigm likely influenced their decision to invest nearly $300 million in the platform. Specifically, Huang testified that Paradigm would have been less likely to invest if it had known that Alameda Research had received a special exemption from FTX’s “liquidation engine” and that Alameda was using customer funds as investment capital.

“Our general understanding is that exchanges accept customer deposits and hold them in safekeeping,” Huang testified.

Regarding the crypto industry as a whole, he later said: “There is a widespread belief that customer deposits are sacred.”

Huang’s testimony is the first involving securities fraud charges against SBF, which are based on misleading capital investors about FTX’s business.

When asked about the current value of Paradigm’s $278 million investment in FTX, Huang was blunt:

“We write it off to zero.”

Subsequent Agenda

Friday's court session will end early to accommodate one juror's travel schedule, at 2 p.m. ET. This will likely be used primarily to complete Wang's testimony, which is currently concluded.

ps: According to BitMEXResearch, Wang’s testimony claimed that the insurance fund amount released by the FTX exchange was false, and that the number was generated by a random number generator. The calculation process was similar to obtaining the total trading volume on FTX in the past 24 hours, multiplying it by a random number of approximately 7,500, and then dividing the result by one billion.

Prosecutors said their next witness is Zac Prince, CEO of now-bankrupt crypto lending platform BlockFi.