On Friday, October 6th, the trial of Samuel Bankman-Fried, the former crypto prodigy, continued in Manhattan Federal Court. FTX co-founder Gary Wang took the stand to provide his much-anticipated testimony. During his testimony, Wang revealed that Alameda Research had been granted “special privileges,” which included access to a line of credit on FTX’s cryptocurrency exchange, valued at over $65 billion. When questioned by the prosecution about whether these advantages had ever been disclosed to the public, Wang responded with a simple “no.”
Furthermore, Wang disclosed that Alameda Research had “withdrawn more funds than it had on the exchange,” resulting in a debt exceeding $8 billion. These “special privileges” had been implemented at Bankman-Fried’s direction, involving changes to FTX’s code. These changes allowed Alameda Research to withdraw funds from FTX even when their account had a negative balance, and it expedited order processing.
As the majority owner of FTX’s custom cryptocurrency token, FTT, Bankman-Fried had wanted to cover specific FTT expenses under Alameda’s account, according to Wang. Bankman-Fried’s extravagant lifestyle, including expenses like a $35 million penthouse in the Bahamas for FTX employees, had come under scrutiny. Recently, the U.S. Department of Justice issued a forfeiture bill listing Bankman-Fried’s two private jets, valued at a total of $28.5 million, which could be seized as part of the ongoing legal proceedings.
Wang testified that Bankman-Fried had instructed him to ensure that Alameda’s account on FTX was never liquidated. However, on the same day, Wang made these changes to FTX’s code, Bankman-Fried had publicly stated that Alameda’s account was “just like everyone else’s.” Wang clarified that having a negative balance meant that Alameda was using customers’ funds for their own purposes, contrary to Bankman-Fried’s claims.
Wang also recounted a conversation where a trader from Alameda Research asked Bankman-Fried if it was acceptable for the company to withdraw funds from FTX. Bankman-Fried allegedly responded that it was acceptable as long as Alameda’s withdrawals remained below its total trade revenue.
Additionally, Wang revealed that Alameda Research’s debt had grown beyond its total trade revenue, leading him to believe that the debt was unmanageable. He considered Alameda’s enormous line of credit to be a risk for the exchange, as only a few dozen FTX customers had such significant lines of credit.
Wang mentioned a meeting in June 2022 involving himself, Nishad Singh (Director of Engineering for FTX), Bankman-Fried, and Caroline Ellison (Alameda Research CEO and Bankman-Fried’s ex-girlfriend), during which Bankman-Fried instructed Ellison to “return the borrows” consisting of customer funds to creditors. However, Bankman-Fried later suggested shutting down Alameda Research and replacing it with a competitor fund called Modulo.
When FTX faced a crash in November 2022 due to concerns over its complex financial situation, Bankman-Fried publicly claimed that “FTX is fine” while Wang testified that it was not.
Wang, originally from China, immigrated to the United States at the age of seven. He met Bankman-Fried during a high school math summer camp and later lived with him while both attended MIT. They co-founded the now-disgraced crypto exchange in May 2019.
Wang’s testimony was part of a cooperation agreement with the U.S. government, for which he pleaded guilty to four felonies, potentially facing up to 50 years in prison. Bankman-Fried, on the other hand, is facing seven charges, including wire fraud, conspiracy to commit fraud, and conspiracy to commit money laundering, with the possibility of additional charges. If convicted, Bankman-Fried could face a life sentence.
The defense argued that Alameda Research was simply trying to act as a market maker in an emerging industry with few competitors. They will continue their cross-examination of Wang on Tuesday, although Judge Kaplan has criticized their line of questioning as “endlessly repetitive.”
Bankman-Fried appeared visibly nervous when entering the courtroom, with his parents, Stanford Law professors Barbara Fried and Joseph Bankman, also in attendance. Caroline Ellison, considered a key witness for the prosecution, is scheduled to testify when the trial resumes on Tuesday.