Sam Bankman-Fried trial live updates: FTX backstop fund was ‘fake,’ Wang testifies

FTX co-founder Sam Bankman-Fried faces seven federal charges in a criminal trial taking place in Manhattan. The former crypto exchange exec is accused of misappropriating billions of dollars of customer funds for real estate, donations, political contributions and investments. 

The current state of play: both the prosecution and the defense made their opening statements, and the court heard testimony about SBF’s paddle tennis meeting and the ‘special privileges’ granted to the FTX’s closely-linked fund, Alameda Research.

12:27 pm ET: “Fake” numbers and Alameda privileges

We have your lunch break covered — for court updates, anyway.

Wang’s testimony continues, revealing that — back in 2019 — Bankman-Fried responded to a tweet alleging “Alameda is a liquidity provider on FTX but their account is just like everyone else’s.” 

Meanwhile, at the FTX offices on the same day — July 31, 2019 — Alameda was granted the negative balance feature, meaning it could withdraw funds even if the balance was, well, negative.

Oh, and Wang reiterated that SBF specifically asked for the coding that enabled the negative feature.

The accounts with access to this feature included two Alameda accounts, the FTT sub-account, and two more bookkeeping accounts. In other words, Alameda was the only one with access to these special privileges.

SBF, according to Wang, “never” wanted Alameda’s account liquidated.

And that backstop or insurance fund that FTX once advertised? The numbers were “fake,” according to Wang. There wasn’t $5 million available or 5.25 million FTT. The amounts in those accounts were “lower,” he explained.

The backstop funds didn’t always have enough to cover large losses on the FTX platform, so that they wouldn’t impact the average Joe. 

The testimony echoes threads of what Wang told the court yesterday. Namely, that Alameda had a line of credit from FTX in the billions — “with a B,” he clarified just in case.

11:00 am ET: Up next in the Sam Bankman-Fried trial we have…

When the prosecution finishes with Wang, the defense will have the opportunity to cross-examine. Then, it’s back to the government for final questions and next witnesses. 

Taking the stand: Zac Prince, founder and CEO of BlockFi, and Elan Dekel, vice president of product at Pinecone. The latter is a management system company that works with startups, according to LinkedIn. 

Judge Kaplan noted earlier this week that Friday’s court session will finish early, likely around 3 pm ET. If both sides can’t get through Prince and Dekel by the end of today, they will resume questioning on Tuesday. (Monday is a court holiday.)

Prince is scheduled to go first. Here’s what you need to know about Prince, BlockFi and the relationships to FTX and Alameda:

BlockFi declared bankruptcy in late November 2022, weeks after FTX fell apart. Back in July, a committee of unsecured BlockFi creditors released a 92-page investigation into the firm’s collapse. The report detailed not only the relationship between the former lender and crypto hedge fund but also that the risk management team warned Prince of potential risks related to the Alameda loans.

A 2021 memo from BlockFi’s credit risk team cautioned that Alameda had “wrong-way risk, had unaudited financials, relied on illiquid tokens, and was offering volatile collateral.” 

According to the report, former Chief Risk Officer Rene van Kesteren was “uncomfortable with the risk profile presented by additional FTT as collateral.” 

However, Prince reportedly “expressed interest” in doing more business with Alameda. Per the report, he even “pushed to increase exposure to (and revenue from) Alameda by allowing Alameda to use FTT as collateral, despite concerns from the risk management team regarding its illiquidity.”

What do we know about Dekel? If we’re being honest, not much. 

While LinkedIn gives an idea of what Dekel does, it’s not immediately clear why the prosecution wants him on the stand. His name was mentioned in the list given earlier this week by the prosecution of names who may be called to the stand or just mentioned throughout the trial.

It’s unclear, however, when the witnesses will be called to the stand. It all depends on how long the prosecution takes to finish questioning and how long Bankman-Fried’s team will conduct their cross-examination. 

Yesterday, defense team attorney Christian Everdell spent about an hour and ten minutes on his cross-examination of Yedidia. 

The prosecution told the judge that “we just need to reassess whether [Prince and Dekel] will be Tuesday witnesses or whether, given the fact that we’re now into the next week, we need to make a change.”

9:30 am ET: Gary Wang round two

FTX co-founder Gary Wang is back on the stand today to follow up on his bombshell testimony from yesterday.

ICYMI: Wang told the court that he had committed a litany of crimes alongside Bankman-Fried, former Alameda CEO (and romantic partner) Caroline Ellison, and FTX’s former director of engineering Nishad Singh. 

Wang also informed the court that Alameda was granted “special privileges,” at SBF’s direction. 

While Wang had an equity stake in FTX and co-owned Alameda, he said that when there were disagreements, “in the end, it was Sam’s decision to make.”

Wang is scheduled for cross-examination later this morning, during which the defense will have the opportunity to question him. So far, only prosecutors have asked Wang questions. 

Two other witnesses testified yesterday, Paradigm’s Matt Huang, and former SBF roommate and FTX employee, Adam Yedidia. 

Of the three testimonies yesterday, Huang’s didn’t present any shocking revelations. He told the court that he tried to push for a governance model for FTX. However, Bankman-Fried seemed “resistant” to grant investors a board seat. While SBF did mention to Huang that a board of directors was a potential future consideration, such a plan never came to fruition.

Yedidia, who initially took the stand on Wednesday, was back on Thursday to finish both his testimony and cross-examination. The latter part, as Blockworks reported yesterday, saw sleepy jurors, a lot of objections and a judge’s warning. 

There were some interesting soundbites, however, with Yedidia recounting a meeting he had with SBF in June 2022. Bankman-Fried, at a paddle tennis court (what a great meeting spot), told Yedidia that FTX was “bulletproof last year” but not “bulletproof” in 2022, and expected that it could take six months to three years to become “bulletproof” again. 

Narrator’s voice: FTX fell roughly five months later.

Following the conversation, SBF reportedly became “worried or nervous.”

This is a developing story.

Blockworks reporters Casey Wagner and James Cirrone are covering Sam Bankman-Fried’s trial from the courtroom in New York. Follow for instant trial updates on their X accounts.

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