The trial of crypto exchange FTX founder Sam Bankman-Fried has taken a surprising turn as his firm Alameda Research got accused of secretly accessing customer finances.
Bankman-Fried's close friend and former college roommate, Gary Wang, testified incriminatingly in a Manhattan federal court on Friday. Wang revealed that, in 2019, he had been told to give Alameda Research permission to keep a negative balance on FTX, which had only recently been formed. Due to this negative balance and a "large line of credit" from FTX, Alameda Research was able to access consumers' deposits without their permission.
Gary Wang said that these deposits were used to replenish Alameda's negative balance, enabling the trading business to take as much money from FTX as it wanted. "The money belonged to customers, and the customers did not give us permission to use it for other things," he said, as quoted by Financial Times.
Wang further said that Alameda implemented a covert and special borrowing facility on July 31, 2019, the same day Bankman-Fried told users of the FTX on Twitter that their accounts were handled "just like everyone else's." Before FTX's 2022 collapse, Alameda's accounts had exclusive access to this facility. Alameda's line of credit was raised many times throughout this time, reaching a maximum of $65 billion.
Wang also recalled that when he voiced his worries to Sam Bankman-Fried regarding the final credit increase, the FTX founder said, "He was fine with that."
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Other Testimonies Heard
Another former FTX worker and Bankman-Fried friend, Adam Yedidia, testified earlier on in the trial about a troubling $8 billion liability hanging over Alameda's financial sheet. Sam Bankman-Fried had been asked about this risk by Yedidia, to which the founder of FTX had replied, "We were bulletproof last year; we're not bulletproof this year," according to a CNN report.
Yedidia stated that FTX clients would repay $8 billion if they withdrew their investments. Considering it a "very large debt," Yedidia wanted to know if Alameda could pay. "I trusted Sam," he responded, not pressing the matter.
The Guardian reported that the prosecution called Matt Huang, a co-founder of the cryptocurrency investment firm Paradigm, a witness. Paradigm is one of the prominent investors in FTX.
A Big Blow to the FTX Founder
Additionally, the relationship between Sam Bankman-Fried and Caroline Ellison, who oversaw Alameda Research, was revealed to the jury throughout the trial. Ellison, Bankman-Fried's on-again, off-again girlfriend, will likely be the key witness for the prosecution. She has already entered a guilty plea for her part in the collapse of the two firms.
Gary Wang's testimony, in which he admitted to fraud after FTX failed and promised to assist the authorities, is a big blow for Sam Bankman-Fried. The 31-year-old entrepreneur is charged with wire fraud and money laundering and may serve decades in jail if convicted. Sam Bankman-Fried's legal team has maintained that he always worked "in good faith" and never intended to deceive anyone.
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