Yahoo Finance Prosecutors’ challenge in FTX trial: A scant paper trail left by SBF
The government’s case at trial against FTX founder Sam Bankman-Fried is, so far, heavy on what his top executives claim the crypto entrepreneur said, thought, and did. It is less reliant on indisputable proof of Bankman-Fried’s own words.
Scant documentation left by Bankman-Fried is one hurdle facing prosecutors as they walk jurors through the downfall of the once-booming crypto exchange and try to prove that the former CEO intended to defraud customers, investors, and lenders.
They allege that Bankman-Fried deliberately stole funds that belonged to FTX customers, secretly lending the assets to his crypto trading firm Alameda Research. Bankman-Fried’s defense team is insisting the opposite is true.
"Sam didn’t intend to steal from anyone," Bankman-Fried’s attorney Mark Cohen said during opening statements.
To convict Bankman-Fried, all 12 jurors must find that prosecutors proved, beyond a reasonable doubt, what was in Bankman-Fried’s mind. Cohen said Bankman-Fried believed in "good faith" that Alameda could use FTX’s funds "provided there were sufficient assets for them to be paid back."
Over the last two weeks, prosecutors have introduced damning testimony from Bankman-Fried’s most senior former executives. The witnesses include Caroline Ellison, who was the CEO of Alameda and Bankman-Fried’s onetime girlfriend, as well as Gary Wang, who was the co-founder of FTX and Alameda.
Ellison and Wang, who pleaded guilty in hopes of receiving lighter sentences, told jurors they committed multiple felonies alongside their former boss, testifying that they knew at the time that Alameda’s so-called loans from FTX were illegal.
To corroborate or discount the witnesses’ claims, jurors so far have a fragmented set of preserved messaging app screen grabs, spreadsheets, and Google documents to evaluate.
Some do contain Bankman-Fried’s own words, mostly in Twitter posts. But according to Ellison, Wang, and other former FTX employees, Bankman-Fried limited records by design. He omitted sensitive company information from emails, messages, and other records, and instructed his staff to use self-deleting messaging apps.
"He said that we should think about the New York Times test, meaning that anything we put in writing on Slack should be something we are comfortable seeing on the front page of the New York Times," Ellison testified on Wednesday.
Here is a closer look at how prosecutors are trying to use the limited examples of Bankman-Fried’s own words to prove he intentionally put FTX customer funds in jeopardy and duped investors and lenders into backing his companies:
'FTX is fine'
One source of evidence offered by the government that features Bankman-Fried’s own words is his Twitter feed. The former crypto star was a prolific tweeter before, during, and after FTX’s collapse.
On Nov. 7, 2022, as FTX customer withdrawals spiked, Bankman-Fried wrote: "FTX is fine. Assets are fine," and that the exchange had "enough to cover all client holdings."
Wang testified that at the time of the tweet, Bankman-Fried knew the exchange carried an $8 billion shortfall in customer assets.
"FTX was not fine," Wang said. "Assets were not fine."
Wang, however, admitted on cross-examination that in a Nov. 17 meeting with prosecutors he said the tweet was true because Bankman-Fried was careful to say that FTX was solvent but not liquid.
"I said that, amongst other things, yes."
Taking FTX customer funds
Prosecutors and Bankman-Fried disagree about whether Alameda could legally use FTX customer funds. The defendant’s lawyer claims Bankman-Fried believed Alameda could do so, as long as it had the assets to pay the money back, while prosecutors say the practice was nonetheless criminal.
So far, few records shown at trial indicate what Bankman-Fried believed about the practice.
Some witnesses recounted conversations they say they had with Bankman-Fried on the subject. One was Wang, the co-founder of FTX, who testified that he never thought Alameda was entitled to spend the exchange’s customer funds.
In the company’s first year, he said, Bankman-Fried told him Alameda’s use of FTX funds was OK so long as the amount didn’t exceed FTX’s annual revenue of roughly $150 million.
Between late 2019 to early 2020, Wang said, Bankman-Fried knew Alameda’s debt to FTX totaled $200 million. That’s when he said the defendant suggested adding a digital token Bankman-Fried created called FTT and other assets held in Alameda’s dozens of FTX subaccounts to prop up the balance sheet.
Another witness, FTX venture capital investor Matthew Huang, said Bankman-Fried provided him with a presentation in early 2021 offering reassurances about the sanctity of the FTX deposits and the exchange’s relationship with Alameda.
The presentation stated that FTX acted as a custodian for its customers’ deposits. Prosecutors showed jurors a copy of this presentation.
"Our general understanding was that the platform would take in deposits and hold onto them while their customers could trade on the platform," Huang said, "and if those customers wanted those funds back that they could withdraw them."
Huang said he also raised concerns about Alameda having special privileges on the exchange in an email to Bankman-Fried. Bankman-Fried addressed the concerns in a separate meeting, he said, stating there was no preferential treatment for Alameda.
Huang said Bankman-Fried confirmed Alameda was FTX’s largest trader on the platform, though he omitted that the company was exempt from the collateral requirements imposed on other FTX account holders and could carry negative balances against the exchange.
'Yup and could get worse'
After Alameda had taken billions in customer funds from FTX, witnesses say it became less likely it could pay that money back.
They say Bankman-Fried was aware of these concerns.
One piece of evidence cited by Ellison and shown to the jury was a May 2022 Google document she created called "worries and questions." Ellison said she shared the document with Bankman-Fried because she was concerned about showing Alameda’s financials to its lenders.
At the time, Ellison said, Alameda was heavily invested in declining cryptocurrencies that were significantly reducing Alameda’s assets and, therefore, its ability to return FTX customer funds.
Bankman-Fried added a comment to the document, writing: "Yup and could get worse."
Ellison and Wang testified that in the following months, as lenders demanded repayment, they continued to worry that Alameda lacked enough liquid assets to return FTX funds.
Wang said Bankman-Fried told him and Ellison at a meeting that Alameda could go ahead and repay Alameda’s lenders. The only way Alameda could do that, they claimed, was to use FTX customer funds.
Ellison corroborated Wang’s testimony, claiming that Bankman-Fried directed her to take billions of dollars in FTX customer deposits to repay the Alameda loans.
Bankman-Fried, she said, also instructed her to use FTX customer funds to place speculative cryptocurrency trades and send misleading balance sheets to Alameda’s lenders, making the company’s financials look less risky than they actually were.
"He directed me to commit these crimes," Ellison said.
Those multibillion-dollar directives didn’t appear in emails, chats, or other evidence.
However, prosecutors did introduce a Google document created by Bankman-Fried and shared with Wang and another FTX executive in September 2022 that discussed whether to shut down Alameda in light of a soon-to-be-published Bloomberg story that questioned the close relationship between the hedge fund and the exchange.
"I think it might be time for Alameda Research to be shut down," he wrote. One reason, he added, was that "a PR hit from Alameda and FTX both existing is really large."
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