UPDATED 3:18 P.M.
NEW YORK (Reuters) -Sam Bankman-Fried’s former lieutenant and business partner recounted the FTX cryptocurrency exchange’s dramatic collapse on the witness stand on Friday, stating his former boss’ tweets assuring customers the exchange was “fine” were false.
In testimony that could prove damning for Bankman-Fried’s defense, Gary Wang said his boss was aware of an $8 billion shortfall in customer assets on Nov. 7, 2022, when he tweeted in the face of a surge of customer withdrawals, “FTX is fine. Assets are fine.”
“FTX was not fine,” Wang said toward the end of nearly four hours of questioning by prosecutors on Thursday and Friday in Manhattan federal court. “Assets were not fine, because FTX did not have enough assets for customer withdrawals.”
Federal prosecutors say Bankman-Fried plundered billions of dollars in FTX customer funds to prop up the hedge fund he and Wang co-owned, Alameda Research, as well as to buy real estate and donate to U.S. political campaigns to garner influence in Washington, D.C.
Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy. His lawyer said during opening statements on Wednesday that Bankman-Fried “overlooked” key functions like risk management but never intended to defraud his customers.
Wang, FTX’s former chief technology officer, testified on the third and fourth days of Bankman-Fried’s trial, which comes nearly a year after the exchange’s November 2022 bankruptcy shocked financial markets and left the 31-year-old former billionaire’s reputation in tatters.
Former college roommates, Wang and Bankman-Fried were living together at the time along with eight other Alameda and FTX executives in a $35 million penthouse in the Bahamas, where FTX was based.
On Friday, Wang testified that on Nov. 6, 2022, FTX executive Nishad Singh knocked on his door and told him customers were trying to withdraw their money faster than FTX could process the transactions.
Days earlier, crypto news site CoinDesk had published a leaked Alameda balance sheet showing the fund’s assets were composed primarily of crypto tokens FTX or its executives had created.
Wang said Bankman-Fried then instructed him to calculate how much additional money would need to be deposited on FTX so customers could withdraw their funds.
When he told Bankman-Fried that Alameda owed the exchange $8 billion, Bankman-Fried responded with what Wang described as a “neutral” demeanor, “That sounds about right.”
WANG HOPES FOR NO PRISON TIME
Wang, 30, is one of three former members of Bankman-Fried’s inner circle who have pleaded guilty to fraud charges and entered a cooperation agreement with the government. He said on Friday he “ideally” hoped to serve no prison time in exchange for his cooperation, though his sentence will ultimately be decided by U.S. District Judge Lewis Kaplan.
Earlier on Friday, he testified about several changes Bankman-Fried asked him to make to FTX’s software code to allow Alameda to withdraw unlimited funds from the exchange. He said no other FTX users had those special privileges, which the exchange did not disclose to its investors or customers.
During cross-examining on Friday afternoon by Bankman-Fried’s lawyer Christian Everdell, Wang agreed that the changes were necessary for Alameda to provide liquidity on the exchange.
Wang’s cross-examination is expected to continue when the trial resumes on Tuesday. After that, prosecutor Nicolas Roos said the government plans to call Caroline Ellison, Alameda’s former chief executive and Bankman-Fried’s ex-girlfriend. She has also pleaded guilty.
Mark Cohen, another Bankman-Fried lawyer, said in his opening statement on Wednesday that jurors should question whether cooperating witnesses were “spinning” Bankman-Fried’s actions that they had agreed with at the time as nefarious in hindsight.
After FTX declared bankruptcy on Nov. 11, 2022, Wang testified that at Bankman-Fried’s direction, he turned over some remaining FTX customer assets to the Bahamas, where FTX was based. Wang said Bankman-Fried said liquidators and regulators there were more amenable to letting him stay in charge of FTX.
“The U.S. side was asking me to transfer the remaining assets to the US and Sam told me that we should try to stall them,” Wang said, referring to FTX’s U.S. bankruptcy lawyers.
Days later, on Nov. 16, Wang said returned to the United States. He said he had his first meeting with U.S. law enforcement the following day.
(Reporting by Jody Godoy and Luc Cohen in New YorkEditing by David Gregorio, Nick Zieminski and Matthew Lewis)
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NEW YORK (Reuters) – Sam Bankman-Fried asked two executives of his FTX cryptocurrency exchange to tweak the exchange website’s computer code to let his hedge fund withdraw unlimited funds just months after FTX was launched in 2019, a former executive testified on Friday at the fallen crypto wunderkind’s fraud trial.
Gary Wang, FTX’s former chief technology officer, said a feature letting the fund, Alameda Research, run a negative balance on the exchange was one of the fund’s special privileges that were not disclosed to the public and ultimately let it withdraw $8 billion in FTX customer funds by the time of the exchange’s November 2022 bankruptcy.
Wang, 30, is one of three former members of Bankman-Fried’s inner circle who have pleaded guilty to fraud charges and entered a cooperation agreement with the government. He and Bankman-Fried were college roommates before going on to co-found Alameda.
Prosecutors say Bankman-Fried plundered billions of dollars in FTX customer funds to prop up Alameda, buy real estate and donate money to U.S. political campaigns in an effort to burnish his influence in Washington, D.C. They say Alameda’s special privileges were one of his main mechanisms to take the funds.
Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy. His lawyer said during opening statements on Wednesday that FTX was a startup, and that Alameda was not just an ordinary customer on the exchange but a market maker, which generated supply and demand in the exchange’s early days.
With Wang on the stand, prosecutors showed jurors portions of FTX’s computer code, which included a spreadsheet column with the title “Allow Negative.” Only accounts Wang said belonged to Alameda had a check mark in that column.
He said Bankman-Fried asked him and Nishad Singh, FTX’s former engineering chief, to implement the feature in July 2019. Singh has also pleaded guilty and is expected to testify later on at the trial, which could last up to six weeks.
Wang testified that when Alameda’s account went below zero, that meant it was taking money from other FTX customers.
Bankman-Fried spoke with his attorney, Mark Cohen, at the defense table after that comment. The defense is expected to cross-examine Wang later on Friday.
While Wang is the first cooperator to take the stand, jurors have so far heard from three other witnesses. A former FTX user testified he was unable to withdraw his funds after the exchange collapsed, and Matt Huang, the head of a crypto-focused fund that invested in FTX, said he was told Alameda received “no preferential treatment” on the platform.
Adam Yedidia, a former FTX computer programmer who reported to Wang, testified that he expressed concern to Bankman-Fried in mid-2022 after learning that Alameda had borrowed $8 billion from the exchange. He said Bankman-Fried appeared worried and told him the companies were “not bulletproof” as they had been the year before.
(Reporting by Jody Godoy and Luc Cohen in New York; Editing by David Gregorio, Nick Zieminski and Matthew Lewis)
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