SBF's problem in FTX trial is evidence from his closest friends
Some of the most damaging evidence thus far against FTX founder Sam Bankman-Fried at his criminal trial is coming from the people who know him best.
Gary Wang, 30, met Bankman-Fried at summer camp when he was 7 years old. The two later became college classmates at Massachusetts Institute of Technology and co-founded FTX along with a crypto hedge fund called Alameda Research.
On Thursday Wang sat across from Bankman-Fried and admitted in court the two also committed fraud together. How? With a computer code that gave Alameda unlimited access to withdraw FTX customer funds and lenient margin trading collateral requirements.
Wang testified that Bankman-Fried did not write, review, or implement FTX’s code, but directed him to create its features. These features gave Alameda unlimited access to customer funds deposited into FTX, extraordinary lines of credit to place margin trades on the exchange, and the ability to incur negative balances.
“How much money over the course of your time at FTX did Alameda withdraw into the negative?” Assistant US Attorney Danielle Sassoon asked Wang Thursday. Alameda "had withdrawn $8 billion" by the time FTX declared bankruptcy in November 2022, Wang said.
Wang said Alameda “withdrew so much that FTX was not able to repay customers who were trying to withdraw."
The testimony from a member of Bankman-Fried's inner circle went to the heart of the allegations against the 31-year-old crypto entrepreneur — that he embezzled billions in FTX customer funds while misleading investors and lenders.
Other members of this tight circle are also expected to testify, including Caroline Ellison, the former CEO of Bankman-Fried's hedge fund Alameda Research and a one-time romantic partner, as well as former FTX chief engineer Nishad Singh. Wang, Ellison, and Singh have pleaded guilty to criminal charges.
On Friday Wang went even deeper into how things worked at FTX and Alameda, which also acted as a customer of the cryptocurrency exchange.
At Bankman-Fried's direction, he said the code he wrote in 2019 exempted Alameda from the rules that applied to other FTX customers and allowed it to essentially take whatever it wanted from the exchange.
Alameda, for example, used an "allow negative" feature to take on negative balances through withdrawals or trades with FTX, overriding a program that would automatically liquidate positions in such accounts.
Alameda was also awarded a $65 billion line of credit at FTX, a significantly larger amount than any other client. These arrangements, he said, were never disclosed to customers or investors.
In early 2020, Wang said he told Bankman-Fried there was a negative balance for Alameda. Bankman-Fried allegedly told Wang to include holdings of FTT, FTX's own digital currency, in the calculation and Wang said that still didn't close the gap.
Alameda eventually borrowed as much as $14 billion from FTX. "The money belonged to customers, and the customers did not give us permission to use it for other things," Wang said.
'It concerned me'
Wang wasn't the only former MIT roommate who offered evidence against Bankman-Fried this week. Another was Adam Yedidia, whom Bankman-Fried hired to work at Alameda. Yedidia, like Wang, wrote computer code for the exchange. He agreed to testify under a grant of immunity from prosecution.
Yedidia said in June 2022 he came across an $8 billion shortfall at FTX from loans made to Alameda.
"It concerned me," Yedidia said. "It seemed like a lot of money for Alameda to be owing FTX. And I wanted to be certain that Alameda could repay that debt." Yedidia added: "It was possible that FTX customers might need that $8 billion."
He said raised the issue with Bankman-Fried during an exchange outside the luxury complex in the Bahamas the two shared with other FTX executives, asking if things were OK.
"Sam said something like, ‘We weren’t bulletproof last year. We're not bulletproof this year,'" said Yedidia, who noted that Bankman-Fried appeared worried.
There was a time when Yedidia said he assured Bankman-Fried he wouldn't quit after other employees had exited. "I said, I love you, Sam, I am not going anywhere. Don't worry."
But he resigned in November 2022. Prosecutors asked him what changed his mind.
"I learned that Alameda had used FTX customer deposits to repay its loans to creditors," he said, and "what Alameda did seemed like a flagrantly wrong thing to have done."
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