Sam Bankman Fried Throws Caroline Ellison Under the Bus as a Witness

Sam Bankman Fried Throws Caroline Ellison Under the Bus as a Witness
  • Sam Bankman ⁤Fried began testifying​ to the jury Friday in his fraud trial.
  • SBF‍ tried to blame his subordinates when ⁣questioned⁢ by his ‌lawyer.
  • Former FTX CEO admitted that mistakes were made at the crypto exchange, the most important of which was ‍the lack of‍ a risk ⁣manager. He said that “many⁢ people ⁤were injured.”

Sam⁤ Bankman Fried, testifying before jurors on his first day in New York, reiterated Friday that​ the FTX crypto exchange failed because of mistakes, ⁢not⁣ abuse of authority. His subordinates were responsible for the biggest mistakes.

For​ example, he told the court‌ that ​he ⁢had asked‍ Alameda Research – the hedge⁤ fund he founded⁣ with close ties to FTX ⁢and which was headed ⁤by Caroline Ellison – to hedge FTX’s risks.

Bankman-Fried responded curtly to his defense attorney’s question about whether Ellison had⁤ followed his attorney’s ​advice to “downsize” Alameda to reduce‍ his risks and shrink the billion-dollar hole.

The crypto​ mogul, who is accused of fraud and conspiracies, began his testimony⁢ to jurors on​ Friday by saying he made mistakes at his now-defunct crypto giant FTX – the biggest ⁤mistake being ‌failing to manage risk.⁢ Hiring experts –‍ and that “a Lot of people ​were hurt.

Mark Cohen, Bankman-Fried’s attorney, spent most ⁢of Friday morning walking his client through the⁢ early days‌ of FTX and Alameda Research – Bankman-Fried’s​ trading firm. The focus was on changing prosecutors’ narrative ‍about the companies’ ‌collapse into one more favorable to Bankman-Fried – portraying them as legitimate, well-intentioned businesses ⁣and providing context for explaining the motivations behind controversial decisions.

According to the ⁤FTX founder, ​a carefully⁢ considered feature‌ in the exchange’s⁣ software,‌ which allowed ⁣Alameda to avoid liquidating its positions and allow it to have a ⁤negative⁤ account, was implemented as a​ fix ⁤for ‍a‍ bug in​ the exchange’s risk management system.

Sketch of Sam-Bankman Fried testifying​ in court on⁣ October 27, 2023. (Nikhilesh De/CoinDesk).
Sketch of Sam-Bankman Fried ​testifying in court on⁤ October ​27, 2023.

Alameda’s ability to “go⁤ negative” was a key factor in its⁢ ability to withdraw unlimited amounts ⁢of funds from FTX customers. ⁣The FTX⁢ founder’s case is based on the fact that he stole from ‌his customers through‍ his trading ​shop.

Bankman Fried blamed his former colleagues for the “Allow-Negative ⁤Feature”: Gary Wang, a prosecution witness, and‍ Nishad Sing, ‌a Nishad⁢ Singh.‌ He said⁤ they implemented⁢ the system based on Bankman Fried’s vague‌ instructions to fix the error.

Bankman-Fried follows a strategy that focuses on blaming former colleagues. Bankman-Fried claimed⁢ that he “supervised”​ Wang, ⁣FTX’s chief technology ‌officer, ⁢and Singh,⁤ its chief technology officer. However, he said they‍ had ‍full decision-making authority.

In ⁤his‌ early testimony, Bankman-Fried also attempted to portray other events in Alameda ⁢in a more⁤ positive light than ⁢that of prosecutors.​ Bankman Fried testified that although prosecutors suggested Bankman Fried and his​ colleagues ⁣delete the ‌communications to avoid legal​ problems, he did so because‍ he learned ‍the ⁢rule as a ‌quantitative trader on Jane Street.

The “New York Times Bankman-Fried said that ⁣the “test” was‌ often ⁣used as​ a reference in the quant shop. He recalled that “anything you ​write down” could be featured in The New⁢ York front page of⁣ The ‍Times. He⁤ continued:⁤ “Some things that ​are harmless can⁢ seem very bad without context.”

Bankman-Fried focused ⁣his testimony​ on the ⁢legality⁤ of Alameda’s massive borrowing from FTX (Alameda could borrow like anyone else) and the ‌exchange’s⁤ ability to claw back funds to⁢ users to cover​ losses. (This is covered in a section of FTX’s Terms of Service, but‌ only ‍applies to a margin trading feature used‍ by a relatively small number‌ of users.)

Bankman-Fried ‍appeared composed‍ and confident on ⁢the stand. The former crypto ⁢founder was eager to tell his story, as evidenced ⁣by the deliberate, clear wording​ of his statement ⁢and his easy recollection ⁢of ⁣his ‌early years as a crypto founder. Bankman-Fried’s answers ⁣often descended into breathless monologues. That led to objections from prosecutors and sharp criticism from⁤ Judge Lewis Kaplan, who asked him to⁤ answer directly.

“Introverted ⁣by nature”

Bankman-Fried contradicted statements by former members of his‍ inner circle about⁢ his characteristic slovenly⁤ appearance.

Ellison testified earlier this month ​that her former lover and boss‌ wore cheap clothes and⁢ drove a featureless car to improve FTX’s image.⁤ Bankman-Fried said he chose to ⁤wear shorts with a⁣ T-shirt‍ because it was “comfortable”⁤ and because he kept his hair long out of laziness and “busyness.”

Cohen asked Bankman Fried about‍ FTX marketing budget. He asked specifically about purchasing​ naming rights to the Miami Heat ⁤basketball team’s arena. FTX paid $10 million⁣ per year and signed a 19-year contract. Bankman-Fried was asked if he thought the purchase made sense. He said that $10 million per year represented 1% of FTX revenue at the time.

Bankman-Fried said he has no intention of⁢ being the face of FTX. He said, “I’m ‌an introvert by nature.” He​ recalled that he did a few interviews ‌as‌ CEO of FTX and that he did “well” in them. This led ‍to him receiving more requests. He said that after some time it⁤ was already too late to find‍ another face to represent FTX.

Judge limits SBF defense

Bankman-Fried began ⁣his testimony‌ on Friday and the judge ruled that he could​ add testimony about ⁣FTX lawyers’ role in deleting the internal​ communications. However, Kaplan prohibited the defense from presenting ⁣a wider range of statements‍ about FTX lawyers to the jury.

The ⁤question with which‍ Kaplan sent the⁣ jury ⁢on their way was ⁤a preview. When questioned by his ⁢defense on ‍Thursday, the former FTX boss made it⁢ clear that he ⁣wanted to place‌ blame⁣ on former FTX chief advisor Dan Friedberg ‌and an outside law ⁢firm Fenwick & West.

Bankman​ Fried said Thursday that he was ‍pleased with the way FTX operated, as his lawyers were​ involved in everything from the company’s terms and ⁣conditions to the formation of ​North Dimension ⁤- a subsidiary of Alameda Research – Bankman Fried’s trading firm – serves to secure ‍accounts⁤ and process payments.

The judge did not give a comprehensive defense recommendation⁣ to ‌the lawyers who ⁣defended the former⁣ FTX boss granted⁢ in his process. The ⁤judge will not inform the jury⁤ about ‌the FTX document‍ retention policy when it⁢ comes to discussions with attorneys.

This policy is important⁤ because Bankman-Fried ‌explained that it allowed⁣ the company to⁢ delete hundreds of internal⁤ messages on apps like Signal. ⁣It is also controversial.

After the judge made his decision, Bankman-Fried began testifying ​before a jury⁢ that will decide Bankman Fried’s​ fate on fraud‌ and conspiracy charges.

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