FTX Founder Gary Wang Says Sam Bankman-Fried Misappropriated Funds


Gary Wang, the former top executive of the failed FTX cryptocurrency exchange, testified that the company’s founder, Sam Bankman-Fried, was the final decision-maker at the firm and directed a closely related hedge fund to misappropriate billions of dollars of funds. From FTX clients.

In more than six hours of testimony in federal court in Manhattan on Thursday and Friday, Mr. Wang said Mr. Bankman-Fried was fully aware that a sister cryptocurrency trading firm, Alameda Research, had diverted $8 billion in client money from FTX. The dollar was manipulated. He said Mr. Bankman-Fried lied in his public statements in November about whether FTX client assets were safe.

Mr. Wangman-Fried ruled on bigger issues at FTX, Mr. Wang told the jury of nine women and three men. “In the end, it was Sam’s decision,” he said.

Mr Wang, 30, who was also the founder of FTX and programmed its code base, is a key witness in Mr Bankman-Fried’s high-profile criminal fraud trial. Mr. Wang is one of three close advisers to Mr. Bankman-Fried who have pleaded guilty and agreed to cooperate against the entrepreneur, who is accused of embezzling $10 billion of FTX client funds for all kinds of personal actions. Accused of conspiring to launder more than $100,000. Projects.

The saga of the rise and fall of FTX has gripped the public for months with a mix of corporate arrogance and personal intrigue. Since the exchange collapsed in November, Mr. Bankman-Fried has become a symbol of the excesses of the crypto industry, and his trial is seen by some as a credibility test for the digital currency industry.

An investigation into the deposits last year uncovered an $8 billion gap in FTX’s accounts, which prosecutors allege largely stemmed from “special privileges” that allowed Alameda to access FTX customers’ money. Was. FTX filed for bankruptcy and Mr. Bankman-Fried was charged a month later with wire fraud, securities fraud, money laundering and related conspiracy. He has pleaded innocent and if found guilty, he could face life imprisonment.

Within weeks of FTX’s implosion, Mr. Wang, Mr. Bankman-Fried’s friend from high school math camp, pleaded guilty to assisting him in that plot. Two other top executives of Mr. Bankman-Fried’s business empire, Nishad Singh and Caroline Ellison, have also pleaded guilty and are cooperating with prosecutors.

Mr Wang and Mr Singh, who also programmed the code underlying FTX’s business, have admitted to creating a secret backdoor that allowed Alameda to borrow almost unlimited amounts of money from the exchange. Prosecutors have argued that this backdoor was one of the primary engines of the scheme to steal customer accounts.

Mr Bankman-Fried’s legal team has argued that FTX and Alameda had a proper business relationship and “were not set up to perpetrate any major fraudulent scheme.”

In court on Thursday and Friday, Mr Wang took the jury through FTX’s early days in 2019 to its stunning collapse last year.

Mr Wang said he and Mr Singh wrote FTX’s computer code to give Alameda special privileges in early 2019 on the instructions of Mr Bankman-Fried. “They asked us to do it, and we told them we did it,” Mr. Wang said.

This effectively allowed trading platforms to make unlimited withdrawals from the exchange, he said. He said none of this was disclosed to customers, investors or lenders of the firms.

“We gave Alameda Research special privileges on FTX,” Mr Wang said. “And we lied to the public about it.”

Mr Wang said Alameda had previously been allowed to extract from trading fees only the equivalent of FTX’s revenue, which was about $300 million at the time. But that credit line grew over time and reached tens of billions of dollars, he said. Mr. Bankman-Fried said he had no problem with it, Mr. Wang said.

Since the FTX implosion, Mr. Bankman-Fried has repeatedly said that he was aware only of the amount that Alameda was borrowing from the exchange. But Mr Wang testified that Almeida’s balance was visible on one of his computer screens in Mr Bankman-Fried’s office. Mr Wang said he, Mr Bankman-Fried, Mr Singh and Ms Ellison discussed the money owed to Alameda at a meeting in June 2022.

At the end of the meeting at FTX’s office in the Bahamas, Mr. Wang said, Mr. Bankman-Fried turned to Ms. Ellison and told her he could use more client funds to pay Alameda’s creditors.

Under cross-examination, Mr Wang said Alameda had certain special privileges that were part of its role as a trading partner to enable FTX clients to freely buy and sell cryptocurrencies. He is scheduled to answer more questions from defense attorneys when the hearing resumes Tuesday.

Mr Wang and Mr Bankman-Fried were classmates at the Massachusetts Institute of Technology before founding FTX together in 2019.

Like Mr. Bankman-Fried, Mr. Wang became extremely wealthy, with an estimated net worth of about $5 billion. Within FTX, he and Mr. Bankman-Fried were considered opposites to each other. Whereas Mr. Bankman-Fried was a grumpy pitchman, Mr. Wang was a shy coder who came to work in the mid-afternoon and worked through the night.

They were also close friends who lived with eight other roommates in a luxury penthouse in the Bahamas, where FTX was located. That relationship ended in December when Mr. Wang pleaded guilty to federal fraud charges, saying he knew “what I was doing was wrong.”

Before Mr. Wang took the stand, lawyers questioned a witness, one of Mr. Bankman-Fried’s MIT classmates, Adam Yedidia. Mr. Yedidia, who worked as a developer at FTX, recalled a conversation he had with Mr. Bankman-Fried in mid-2022, a few months before FTX failed, in which the founder acknowledged that his company was in an untenable position. .

“Sam said something like, ‘We were bulletproof last year, but this year we’re not bulletproof,'” Mr. Yedidia said. He said Mr Bankman-Fried told him it could take six months to three years to make the company “bulletproof again”.

Following Mr. Yedidia on the witness stand was Matt Huang, founder of Paradigm, a venture capital firm that was one of FTX’s biggest supporters. Mr. Huang said that if he had full knowledge of the exchange’s relationship with Alameda he would have had trouble authorizing the investment in FTX.

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