On Friday, Sam Bankman-Fried began his first day testifying before a jury with a loss. The FTX co-founder had intended to explain exactly how much he relied on lawyers to steer his decision-making amid the cryptocurrency exchange’s rise and collapse, but US District Judge Lewis Kaplan ruled that particular part of his proposed testimony could not be heard by the jury, The Wall Street Journal reported.
Bankman-Fried had testified on Thursday that his in-house legal team oversaw paperwork for “hundreds of millions of dollars in personal loans to himself and other founders of the platform,” CNBC reported. He told the court that having his legal team’s blessing was something that he “took comfort in.”
“That evidence would in my judgment be confusing and prejudicial,” Kaplan said, dealing what many outlets considered a serious blow to Bankman-Fried’s defense.
Bankman-Fried’s defense started Thursday with the testimony of two other witnesses, CNBC reported. But winning hinges largely on Bankman-Fried’s testimony, which could be critical to convince a jury that FTX’s demise could be chalked up to a businessman making mistakes, not—as the government contends—to a “mastermind” scheming to misappropriate customer funds. According to The New York Times, Bankman-Fried has been accused of investing $10 billion in customer funds to finance his “lavish spending.”
Bankman-Fried faces seven criminal charges, including felony counts of wire fraud and conspiracy to launder money, and could face decades in prison if he’s found guilty. He has pleaded not guilty, and on the stand Friday, when he was asked if he defrauded anyone or used customer funds, he told the jury that the answer to both questions was “no,” CNBC reported. He also pleaded ignorance several times, testifying that, at times, he had no knowledge of how Alameda Research was managing customer funds.
Since the trial started, the jury has spent weeks weighing what CNBC described as a “mountain of damning evidence,” painting Bankman-Fried as the key figure “orchestrating the spending of FTX customer money.”
On Friday, Bankman-Fried testified that his biggest mistake was not investing in risk management, the WSJ reported, admitting to “significant oversights” that triggered the collapse, allegedly occurring without any malicious or nefarious intent. Because he did not hire a dedicated risk management team and a chief risk manager at FTX, he said that FTX ultimately lacked appropriate oversight while experiencing rapid growth—a recipe for its collapse.
Bankman-Fried said that he’d initially intended for Sam Trabucco, former co-CEO of Alameda Research, to serve as a risk manager, but after Trabucco left for “early retirement,” the other co-CEO Caroline Ellison was stuck juggling Trabucco’s responsibilities with her duties as the “people manager,” The Washington Post reported. Some of this testimony was refuted by Ellison, who is serving as a witness cooperating with the government. At least three cooperating witnesses have testified that “Bankman-Fried had directed them to engage in a scheme to misappropriate FTX customer money and conceal it,” The Times reported.
Legal experts have said that Bankman-Fried’s testimony could be a disaster for his defense, unintentionally convincing the jury that he is the criminal mastermind and fraudster he insists that he is not. It’s clear from today’s testimony that he intends to counter that narrative by portraying himself as someone who made mistakes while acting in good faith. Despite analysts’ predictions that Bankman-Fried might dig his own grave, the WSJ reported that on Friday, Bankman-Fried appeared “confident” in building his defense before the jury.
However, not everyone was as confident in the answers that Bankman-Fried gave on the stand, and it seems likely that the jury may have occasionally grown frustrated with Bankman-Fried during his time on the stand. According to The Post, the first three hours of Bankman-Fried’s testimony contained “no revelations,” and the judge repeatedly grew impatient whenever Bankman-Fried gave “long, rambling answers.”
On “multiple occasions,” Kaplan asked Bankman-Fried “to stop talking” and eventually “admonished Bankman-Fried for trying to provide his own definition of market manipulation.”
“You will take what I say manipulation means,” Kaplan instructed Bankman-Fried and the jury.
Bankman-Fried’s testimony is expected to continue on Monday, when the government’s cross-examination will likely start early in the morning.
While Bankman-Fried will not necessarily be able to blame FTX lawyers for steering him wrong, he will be able to argue that lawyers influenced his decisions about FTX’s document retention policies, The Post reported.
At the trial’s conclusion, if Bankman-Fried is found guilty, Kaplan will issue sentences for both Bankman-Fried and witnesses cooperating with the prosecution, the WSJ reported. The cooperating witnesses likely expect reduced sentences, hoping to escape jail time. Bankman-Fried could receive a maximum sentence of 110 years, Reuters reported.