AI legalese decoder: Providing a Solution for Sam Bankman-Fried’s Case

FTX co-founder Sam Bankman-Fried returns to the stand Monday, when heÔÇÖs likely to face a bruising cross-examination based on his Friday testimony that he made mistakes but didnÔÇÖt commit fraud that led to the cryptocurrency exchangeÔÇÖs collapse.

Bankman-Fried was questioned by his own lawyer on Friday, and he used his time on the stand to offer alternative explanations for actions prosecutors have described as nefarious. The case against Bankman-Fried centers on allegedly fraudulent transfers of billions in FTX customer funds to an affiliated hedge fund, Alameda Research, in which he held a 90% interest.

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The onetime crypto mogul also tried to push back on the prosecution testimony of three former close associates ÔÇö FTX co-founder Gary Wang, engineering chief Nishad Singh, and Alameda Chief Executive Officer Caroline Ellison, who is also Bankman-FriedÔÇÖs ex-girlfriend. All three have pleaded guilty to a fraud scheme that they said Bankman-Fried masterminded.

Bankman-Fried appeared confident as he gave his testimony, which largely matched up with accounts that he gave in multiple media interviews after FTXÔÇÖs November 2022 bankruptcy. He claimed he failed to oversee other executives, especially Ellison, and didnÔÇÖt know until very late that Alameda had borrowed an unsustainable amount from FTX.

Unlike on Friday or during those media interviews, Bankman-Fried on Monday is expected to face federal prosecutors eager to tear apart his account. During what was essentially a dress rehearsal outside the presence of the jury on Thursday, Assistant US Attorney Danielle Sassoon appeared to rattle him with her aggressive questioning. Sassoon promised a ÔÇ£significant cross-examinationÔÇØ starting Monday.

Main Takeaways from Bankman-Fried’s Friday Testimony:

• ÔÇÿI Did NotÔÇÖ Defraud

  Right off the bat, Bankman-Fried testified that he didnÔÇÖt defraud anyone. He admitted that ÔÇ£a lot of people got hurtÔÇØ due to the cryptocurrency exchangeÔÇÖs collapse but chalked that up to mistakes. Bankman-Fried said his ÔÇ£biggest mistakeÔÇØ was not hiring a chief risk officer.

• Jane Street to FTX

  Bankman-Fried described how he learned the concept of arbitrage working at trading firm Jane Street Group and how he began to think about applying it to cryptocurrency. ÔÇ£It looked like there were some placesÔÇØ where you could buy Bitcoin for $10,000 and others where you could sell it for $11,000, he said. He eventually launched Alameda to try to seize those opportunities. Not long after starting the fund, Bankman-Fried said he started thinking about launching a crypto exchange.

• ÔÇÿNot a ProgrammerÔÇÖ

  Bankman-Fried stressed that he did not have a background in computer programming and didnÔÇÖt read or write any of FTXÔÇÖs code. He said he relied on Wang and Singh for that aspect of the business and that they were authorized to make decisions without his input. Bankman-Fried was clearly trying to undermine those witnessesÔÇÖ testimony that he directed them to alter FTXÔÇÖs code to allow Alameda to borrow essentially unlimited amounts of money and avoid automatic liquidation protocols.

• Market Maker

  Though he claimed he didnÔÇÖt know exactly what Wang and Singh did, Bankman-Fried said he did ask them to implement measures that would prevent Alameda accounts from being automatically liquidated if they went underwater due to a ÔÇ£catastrophic mistakeÔÇØ by FTXÔÇÖs automated risk algorithm. He said that would have been disastrous because Alameda was a key market maker on FTX early on. He also noted that heÔÇÖd learned how market makers operated with lines of credit at Jane Street and thought it was important that Alameda had the ability to borrow.

• ÔÇÿVery SurprisedÔÇÖ

  Bankman-Fried claimed that he believed Alameda owed no more than $2 billion to FTX and that he was ÔÇ£very surprisedÔÇØ to learn in the summer of 2022 that the true number was about $10 billion. He said heÔÇÖd been telling Ellison to hedge AlamedaÔÇÖs investments for months but that she appeared ÔÇ£less enthusiasticÔÇØ about it. Since late last year, Bankman-Fried has suggested AlamedaÔÇÖs borrowing was EllisonÔÇÖs fault and that he simply failed to supervise her. By August 2022, he testified, he was worried that Alameda was going to collapse. Asked if he was ÔÇ£freaking outÔÇØ then, Bankman-Fried said, ÔÇ£I donÔÇÖt tend to show a lot of freak, outness but, relative to my standard, yes.ÔÇØ

• Bad Romance

  Bankman-Fried only briefly addressed his personal relationship with Ellison, saying they dated ÔÇ£on and offÔÇØ before breaking up in the spring of 2022. ÔÇ£I didnÔÇÖt have the time or the energy to put in what I think she wanted from our relationship,ÔÇØ he said. ÔÇ£It wasnÔÇÖt the first time I had that problem.ÔÇØ He said they had ÔÇ£philosophicalÔÇØ conversations, which she usually initiated by staking out a contrarian position to debate. When she testified, Ellison said Bankman-FriedÔÇÖs utilitarian beliefs were such that he thought lying and stealing could be justified in pursuit of a greater good.

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