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NEW YORK: Sam Bankman-Fried has given permission for the illegal use of Funds from FTX customers and assets to plug financial holes at an affiliated hedge fund from the early days of the stock market, FTX co-founder Gary Wang told a New York jury Friday as prosecutors made their case that Bankman-Fried was the mastermind behind one of the biggest frauds in the world. American history.
Eventually, the losses at the hedge fund, Alameda Research, became so great that there was no way to hide them any longer, Wang said on his second day of testimony.
“FTX was out of order,” Wang said, referring to the now infamous tweet that Bankman-Fried wrote just a few days before the exchange filed for bankruptcy in November 2022.
Prosecutors allege Bankman-Fried, 31, stole billions of dollars from investors and clients to finance a lavish lifestyle in the Bahamas and buy the influence of politicians, celebrities and the public.
Wang was FTX’s Chief Technology Officer and is part of what has been called the “inner circle.” FTX executives who agreed to testify against Bankman-Fried in exchange for leniency in their own criminal cases.
He is expected to conclude his testimony on Tuesday. Wang has pleaded guilty to bank fraud, securities and commodities fraud as part of his agreement with prosecutors.
Prosecutors hope that Caroline Ellison, the former CEO of Alameda and Bankman-Fried’s ex-girlfriend, will take the stand on Tuesday.
Wang and Bankman-Fried started Alameda in 2017 and then founded FTX in 2019.
Wang told the jury that, at Bankman-Fried’s direction, he inserted code into FTX’s operations that would give Alameda Research the ability to make virtually unlimited withdrawals from FTX and have a line of credit of up to $65 billion.
Alameda was initially granted these privileges because the hedge fund was the primary market maker for FTX’s clients in the early days of the exchange.
Alameda benefited from its unlimited withdrawal options and lines of credit from the start, Wang said, in the form of both cryptocurrencies and dollars. Initially it was only a few million dollars, but it grew over the years.
“It raised more money than it had on the exchange,” Wang said, adding that the money it took in was “money from (FTX) customers.”
The relationship was essentially a two-way street, with the stock market able to help the hedge fund and vice versa, as FTX grew rapidly between 2019 and 2022. At one point, when a loophole in FTX’s software was exploited to cause hundreds of millions of dollars in paper losses on a certain cryptocurrency, Wang said Bankman-Fried ordered that loss moved to Alameda’s balance sheet because its financial FTX’s condition was more visible to the public, while Alameda’s balance sheet was not.
Alameda’s deep financial ties to FTX stood in contrast to Bankman-Fried’s public statements that the hedge fund was “no different” than any other FTX client.
Losses at Alameda reached as much as $14 billion in the months leading up to the exchange’s bankruptcy. Bankman-Fried and Wang discussed solutions to the problems at Alameda in the summer of 2022, including closing the hedge fund, but by then it was too late.
“(Alameda) couldn’t pay this back,” Wang testified.
FTX filed for bankruptcy on November 11. Wang testified that within hours of FTX filing for bankruptcy, Bankman-Fried instructed him to send most of FTX’s remaining assets to securities regulators in the Bahamas instead of to U.S. authorities handling the bankruptcy.
Bankman-Fried said Bahamian regulators “seemed more friendly to him, and seemed more likely to let him retain control of the company than the U.S.,” Wang testified.
After this conversation, Wang contacted the FBI on November 17, saying he knew what he had done was wrong and that he wanted to avoid a lengthy prison sentence for his crimes.
In opening statements this week, Bankman-Fried’s lawyers alleged that Wang and other FTX lieutenants failed to do their jobs, including setting up appropriate financial hedges that would have protected FTX from last year’s crypto price crash.
They said Bankman-Fried believed he was managing a liquidity crisis caused by the value of cryptocurrency collapsing by more than 70 percent and criticism from one of his biggest competitors that caused a run on his businesses by customers seeking to recover their deposits.
In their cross-examination of Wang on Friday, Bankman-Fried’s lawyers tried to downplay any special relationship between Alameda and FTX, saying it was not unusual for market-making entities like Alameda to suffer losses or borrow money from an exchange.
Eventually, the losses at the hedge fund, Alameda Research, became so great that there was no way to hide them any longer, Wang said on his second day of testimony.
“FTX was out of order,” Wang said, referring to the now infamous tweet that Bankman-Fried wrote just a few days before the exchange filed for bankruptcy in November 2022.
Prosecutors allege Bankman-Fried, 31, stole billions of dollars from investors and clients to finance a lavish lifestyle in the Bahamas and buy the influence of politicians, celebrities and the public.
Wang was FTX’s Chief Technology Officer and is part of what has been called the “inner circle.” FTX executives who agreed to testify against Bankman-Fried in exchange for leniency in their own criminal cases.
He is expected to conclude his testimony on Tuesday. Wang has pleaded guilty to bank fraud, securities and commodities fraud as part of his agreement with prosecutors.
Prosecutors hope that Caroline Ellison, the former CEO of Alameda and Bankman-Fried’s ex-girlfriend, will take the stand on Tuesday.
Wang and Bankman-Fried started Alameda in 2017 and then founded FTX in 2019.
Wang told the jury that, at Bankman-Fried’s direction, he inserted code into FTX’s operations that would give Alameda Research the ability to make virtually unlimited withdrawals from FTX and have a line of credit of up to $65 billion.
Alameda was initially granted these privileges because the hedge fund was the primary market maker for FTX’s clients in the early days of the exchange.
Alameda benefited from its unlimited withdrawal options and lines of credit from the start, Wang said, in the form of both cryptocurrencies and dollars. Initially it was only a few million dollars, but it grew over the years.
“It raised more money than it had on the exchange,” Wang said, adding that the money it took in was “money from (FTX) customers.”
The relationship was essentially a two-way street, with the stock market able to help the hedge fund and vice versa, as FTX grew rapidly between 2019 and 2022. At one point, when a loophole in FTX’s software was exploited to cause hundreds of millions of dollars in paper losses on a certain cryptocurrency, Wang said Bankman-Fried ordered that loss moved to Alameda’s balance sheet because its financial FTX’s condition was more visible to the public, while Alameda’s balance sheet was not.
Alameda’s deep financial ties to FTX stood in contrast to Bankman-Fried’s public statements that the hedge fund was “no different” than any other FTX client.
Losses at Alameda reached as much as $14 billion in the months leading up to the exchange’s bankruptcy. Bankman-Fried and Wang discussed solutions to the problems at Alameda in the summer of 2022, including closing the hedge fund, but by then it was too late.
“(Alameda) couldn’t pay this back,” Wang testified.
FTX filed for bankruptcy on November 11. Wang testified that within hours of FTX filing for bankruptcy, Bankman-Fried instructed him to send most of FTX’s remaining assets to securities regulators in the Bahamas instead of to U.S. authorities handling the bankruptcy.
Bankman-Fried said Bahamian regulators “seemed more friendly to him, and seemed more likely to let him retain control of the company than the U.S.,” Wang testified.
After this conversation, Wang contacted the FBI on November 17, saying he knew what he had done was wrong and that he wanted to avoid a lengthy prison sentence for his crimes.
In opening statements this week, Bankman-Fried’s lawyers alleged that Wang and other FTX lieutenants failed to do their jobs, including setting up appropriate financial hedges that would have protected FTX from last year’s crypto price crash.
They said Bankman-Fried believed he was managing a liquidity crisis caused by the value of cryptocurrency collapsing by more than 70 percent and criticism from one of his biggest competitors that caused a run on his businesses by customers seeking to recover their deposits.
In their cross-examination of Wang on Friday, Bankman-Fried’s lawyers tried to downplay any special relationship between Alameda and FTX, saying it was not unusual for market-making entities like Alameda to suffer losses or borrow money from an exchange.
