Sam Bankman-Fried says FTX actions were guided by lawyers

FTX founder Sam Bankman-Fried is questioned by his defense lawyer Mark Cohen as he testifies in his fraud trial over the collapse of the bankrupt cryptocurrency exchange, at federal court in New York City, (Image: Reuters)
FTX founder Sam Bankman-Fried is questioned by his defense lawyer Mark Cohen as he testifies in his fraud trial over the collapse of the bankrupt cryptocurrency exchange, at federal court in New York City, (Image: Reuters)

Summary

In an unusual rehearsal of self-defense testimony, crypto-exchange founder struggles before he testifies in front of a jury.

Sam Bankman-Fried testified in an unusual hearing that he relied on the blessing of lawyers to make business decisions such as deleting communications and making loans to himself, actions that prosecutors said allowed him to commit the crimes that led to the implosion of the FTX crypto exchange.

Bankman-Fried, on trial for fraud, money laundering and other offenses, had been expected to testify in front of a Manhattan federal jury on Thursday afternoon. Instead, in what amounted to a practice session, U.S. District Judge Lewis Kaplan required the FTX founder to walk through several subjects that were in dispute so the judge could rule on what Bankman-Fried could say to jurors.

Wearing an oversize gray suit and purple tie, Bankman-Fried, 31 years old, began steadily and confidently, walking through business decisions that he said were guided by legal advice. But the rehearsal quickly turned when the prosecution came out swinging.

Under cross examination, Bankman-Fried testified that he couldn’t recall specific conversations with the lawyers who he earlier said had overseen bank accounts, loans and communication policies. He at times was evasive and stumbled while saying he didn’t remember key details of the alleged conduct in question.

Assistant U.S. Attorney Danielle Sassoon pressed Bankman-Fried on whether he had proof of the involvement of certain lawyers. “Do you have any paper records of these consultations?" she asked.

Bankman-Fried said he had requested such records but didn’t have them. Under other questioning, he said he had little knowledge of some inner workings of the company he created.

The unplanned court detour came hours after federal prosecutors rested their case, which featured 18 witnesses, including three of Bankman-Fried’s closest former confidants who testified in damning terms against their old boss.

Kaplan said he hadn’t held a hearing to screen a defendant’s planned testimony in a very long time, if ever. But he said it was necessary because the government and defense lawyers couldn’t reach an agreement on what testimony jurors should be allowed to hear.

The judge said he would rule on the admissibility of Bankman-Fried’s testimony on Friday morning. He appeared skeptical of the defendant’s claim that lawyers were involved in key business decisions, offering a hypothetical situation where someone robs a bank, then buys a pricey condo and doesn’t tell an attorney involved in the purchase the source of the money.

FTX crashed in November 2022 and Bankman-Fried was charged the next month.

At trial, he faces seven criminal counts. Prosecutors have accused him of promising FTX customers their deposits were safe, then stealing billions of those funds for lavish real estate, risky investments and campaign contributions. Witnesses have testified that Bankman-Fried lied to investors and lenders by directing his staff to alter financial documents.

If convicted, he could face decades in prison.

Almost from the moment he was arrested in the Bahamas in December 2022, Bankman-Fried has been anything but a typical defendant, eager to make his case in the court of public opinion. He posted on Twitter, started a Substack newsletter and gave interviews in an effort to defend himself. While on house arrest at his parents’ California home before trial, Bankman-Fried had more than 1,000 phone calls with reporters, prosecutors have said.

The move to testify is considered risky, and most defense lawyers advise their clients not to do so. If the judge determines Bankman-Fried lies on the stand, he could hand down a lengthier sentence after a conviction. Still, the potential payoff to such a gamble is huge. Even if just one juror believes Bankman-Fried’s version of events, a hung jury could lead to a mistrial.

The one-time crypto star faced a packed courtroom audience when he took the stand, with his parents, senior prosecutors and author Michael Lewis among those looking on.

Early in his testimony, Bankman-Fried said that FTX used applications like Signal and Slack to communicate in a way that was more interactive than email. He said some conversation threads were set to automatically delete after a certain amount of time.

“Those would be for chatter, for communication," Bankman-Fried said. The threads were, he said, the electronic equivalent of someone walking up to his desk.

Other conversations, such as those that dealt with regulators or certain types of documents, didn’t automatically delete, he said.

Bankman-Fried said throughout his appearance that he discussed policies such as deleting messages with lawyers, particularly former chief regulatory officer Dan Friedberg and lawyers from Fenwick & West, an outside law firm that advised the company.

A lawyer for Friedberg declined to comment. Fenwick & West didn’t respond to a request for comment.

At one point, Sassoon pressed Bankman-Fried to answer whether he recalled having conversations with FTX lawyers prior to November 2022 about customer deposits being used for spending at sister hedge-fund Alameda Research. “I don’t really specifically. No," he said.

Later Kaplan criticized Bankman-Fried for being evasive. “Part of the problem is that the witness has what I’ll simply call an interesting way of responding to questions," the judge said.

The case is likely to be submitted to the jury next week.

Write to Corinne Ramey at corinne.ramey@wsj.com and James Fanelli at james.fanelli@wsj.com

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
more

MINT SPECIALS

Switch to the Mint app for fast and personalized news - Get App