Sam Bankman-Fried testifies that he made ‘bigger mistakes’ at FTX

From the moment his cryptocurrency empire collapsed in November, Sam Bankman-Fried hasn’t stopped talking.

Against the advice of his lawyers, Mr. Bankman-Fried embarked on a lengthy press tour to explain the failure of his cryptocurrency exchange FTX, giving interviews to television presenters and obscure Twitter personalities. After being accused of fraud and placed under house arrest, he invited journalists to visit him so he could continue to defend his actions.

On Friday, Mr. Bankman-Fried, 31, made an even riskier call: He took the stand to testify at his criminal fraud trial in federal court in New York.

During five and a half hours of testimony, Mr. Bankman-Fried denied committing fraud or stealing from FTX customers, while emphasizing his efforts to ensure the exchange’s success. But he also admitted to making mistakes, citing “significant oversights” that harmed FTX customers.

Dressed in a gray suit and purple tie, with his famously tousled hair cut short by a fellow inmate at the prison where he is being held, Mr Bankman-Fried said he had “made a number of small mistakes and a number of larger errors. »

FTX was supposed to “move the ecosystem forward,” he said. “It turned out to be the opposite.”

Mr. Bankman-Fried’s testimony was the most anticipated moment in a trial that has become a referendum on the excesses of the once-thriving crypto industry. The entrepreneur, who positioned himself as the face of the industry when prices of digital coins like Bitcoin and Ether soared, emerged last year as a cautionary tale of hubris and taking of risk that cost customers billions of dollars when the crypto market. crushed.

His decision to testify represented a huge risk. Lawyers generally advise defendants not to take the stand, so that prosecutors do not have the opportunity to catch them contradicting themselves.

But after weeks of damaging testimony from his closest friends and colleagues, Mr. Bankman-Fried had no choice but to make a long-term attempt to change the course of the trial. He was the defense’s third and final witness, and he took the stand after an unusual hearing Thursday delayed his testimony by a day.

“The risks of testifying are enormous and numerous,” said Daniel Silva, a former federal prosecutor now in private practice. “SBF will face a thorough indictment from prosecutors based on the significant public and private statements he has made.”

Mr. Bankman-Fried was arrested in December and accused of masterminding a years-long scheme to embezzle up to $10 billion from customers who had deposited their savings on FTX. Prosecutors accused him of diverting the money into venture capital investments, political contributions and extravagant real estate purchases. They also said he used the funds to support a crypto trading company he founded, Alameda Research.

His trial is the most closely watched white-collar fraud case since Elizabeth Holmes, founder of blood-testing startup Theranos, was convicted and sentenced to 11 years in prison in 2022. Mr. Bankman-Fried , who has pleaded not guilty, could face a life sentence if a jury convicts him of seven counts of fraud, conspiracy and money laundering.

Mr. Bankman-Fried’s defense faces significant hurdles, after a procession of former FTX and Alameda employees testified that he lied to the public and stole money from FTX customers for years. Under cross-examination, his top lawyers, Mark Cohen and Christian Everdell, struggled to poke holes in the testimony, blocked by objections from prosecutors.

But Mr. Bankman-Fried’s decision to testify gave the defense an opportunity to give its side of the story.

When he took the stand Friday morning, the FTX founder showed little emotion as he defended his decisions to a packed courtroom. Court officials set up a row of folding chairs in the gallery to accommodate a group of visiting students. Mr. Bankman-Fried’s parents, Stanford law professors Joe Bankman and Barbara Fried, also watched from the benches, scribbling notes on a legal pad. Author Michael Lewis, who recently published a book about the FTX founder, sat a few rows behind them.

Mr. Bankman-Fried began his testimony with a mea culpa, acknowledging that FTX’s collapse had hurt people across the entire crypto industry. All he wanted to do, he said, was “create the best product on the market.”

Under questioning by Mr. Cohen, Mr. Bankman-Fried walked the jury through his biography, from his upbringing in Palo Alto, Calif., to his undergraduate studies at the Massachusetts Institute of Technology. In college, he says, he belonged to an unusual sort of fraternity, “student, nerdy and dry,” before getting a job at the Wall Street trading firm Jane Street.

Sometimes he presented himself as a novice. When he started trading cryptocurrencies with Alameda in 2017, he said, “I had absolutely no idea how it worked.”

His business empire grew faster than he ever imagined, Mr. Bankman-Fried testified. He was soon working 22-hour days, he said, and receiving thousands of emails daily. He also began making political donations, he said, after concluding that “I could have a substantial impact on the world.”

Mr. Bankman-Fried suggested that the sheer volume of work had led him to ignore important parts of the business. When asked if FTX had a risk management department, he replied: “We definitely should have had it, but no, we didn’t. »

That exchange echoed a fundamental assertion in Mr. Cohen’s opening statement: that Mr. Bankman-Fried was effectively building a plane in mid-flight and acting in “good faith” the entire time.

Mr. Bankman-Fried also reiterated several other assertions that his lawyers have emphasized throughout the trial. He denied illegally backdating documents and said he used legitimate funding sources to fund investments and real estate purchases.

He also blamed Alameda’s problems on Caroline Ellison, the company’s chief executive, and his former girlfriend, saying she failed to properly manage risks. (Ms. Ellison pleaded guilty and testified against Mr. Bankman-Fried.) He learned of an $8 billion hole in FTX’s accounts much later than prosecutors had claimed, a he added.

At times during the testimony, Mr. Bankman-Fried appeared surprisingly relaxed, smiling and making occasional jokes. He said he proposed a possible stadium sponsorship with the Kansas City Royals because he didn’t want FTX “to be known as the Kansas City Royals of crypto exchanges.” When asked why his hair was so unkempt throughout his tenure at FTX, he replied, “I was pretty busy and lazy. »

Mr Bankman-Fried is likely to face a much more difficult time during cross-examination, which could begin as early as Monday when the trial resumes.

A preview of that testimony unfolded Thursday, when the judge in the case, Lewis A. Kaplan, held a hearing in which Mr. Bankman-Fried testified on a narrow set of topics without the presence of the jury.

During intense questioning by a prosecutor, Mr. Bankman-Fried peppered his responses with “uhs” and “ahs” and often looked at his knees as he considered what to say , particularly when asked if he had sought advice from his lawyer. lawyers on whether Alameda could borrow billions of dollars from FTX clients.

Judge Kaplan chastised him several times for not answering questions directly.

“The witness has what I will just call an interesting way of responding,” Judge Kaplan said.