At a glance

• Jurors reached a decision to convict on all seven counts in under five hours on Thursday, a judgment as surprisingly swift and decisive as the trial itself.
• Bankman-Fried’s sentencing will take place March 28, 2024. He faces as much as 110 years in prison. The final sentence may be more like 25-50 years, but his deceptive testimony will do him no favors.
• The government has until February 1 to decide whether to pursue a second trial for further charges, including campaign finance fraud and bribery.

Late on Thursday, November 2, a jury in Manhattan found Sam Bankman-Fried guilty on seven counts of wire fraud, conspiracy, and money laundering. The judgment marks somewhat of an end to one of the biggest financial frauds in American history. Bankman-Fried’s name is now scrawled in the mud of eternity alongside figures like Bernie Madoff, Elizabeth Holmes, Jho Low, and Charles Ponzi himself.

Both the jury’s deliberation, and the trial itself, were swifter than expected. The trial wrapped nearly two weeks ahead of schedule after pieces of the defense’s proposed arguments were stripped away by Judge Lewis Kaplan’s rulings. Kaplan also seemed eager to push things to their conclusion this week, tacking extra hours onto the court day both Wednesday and Thursday.

Kaplan offered to let the jurors stay nearly four hours later than normal on Thursday. Pizza was ordered for what could have been a lengthy slog through seven complex charges — but at 7:45, just before the 8pm deadline, the jury announced they’d reached a verdict.

Bankman-Fried’s parents, the Stanford professors Barbara Fried and Joseph Bankman, were present in court nearly every day of the trial — including for the announcement of the verdict. When the forewoman of the jury began reading the decision, Bankman collapsed forward in his seat. Fried, whose uncontrollable tics and tremors became more and more pronounced as the trial progressed, briefly stuck her fingers in her ears, as if wishing not to hear.

Bankman-Fried himself gave one last characteristic display. He was ordered to stand and face the jury during the reading of the verdict, and gave no visible reaction as it came down. He then sat in his chair again, but changed his mind and stood back up, then for a moment hovered half-out of his chair and glanced around as if hoping someone would tell him what to do. His legal team offered no advice.

Read more: Sam Bankman-Fried just failed the most important exam of his life

There are many reasons to resent both Bankman-Fried and his parents, who benefitted from and allegedly helped shape his fraud. But in the moment of truth, it was hard not to empathize with their suffering and confusion. Even for those of us who helped uncover and pursue the FTX fraud, there was little joy in watching something very close to the end of a human life.

After the reading of the judgment, jurors were released and court officers gratefully clocked out. But Bankman-Fried and his legal team lingered in the courtroom, whispering in a huddle, lead lawyer Mark Cohen placing his hand on Sam’s shoulder reassuringly as a gaggle of journalists looked on. Barbara and Joe, holding each other, moved behind the defense table, preparing to say goodbye to their son.

But they weren’t allowed a final hug or a lengthy goodbye. Sam barely looked at his parents before being escorted to meet his fate.

The aftermath of Sam Bankman-Fried’s trial

There will be a few grace notes to Sam Bankman-Fried’s symphony of waste and stupidity. 

He was returned to federal custody last night, but his sentence won’t be decided until March 28, 2024. Bankman-Fried could receive as much as 110 years, but the actual number is subject to a calculation of victim impact, and Judge Kaplan’s sense of Bankman-Fried’s remorse. 

Given that Bankman-Fried seems to have lied on the stand, though, Kaplan is unlikely to feel lenient. A widespread estimate is that Bankman-Fried will be sentenced to around 25 years hard time, emerging from prison in his mid-fifties.

Sam may also have to stand trial again. A second set of charges, notably including alleged campaign finance violations, were severed from the current case for procedural reasons relating to Bankman-Fried’s extradition from the Bahamas. They are currently scheduled to be tried on March 11 of next year, but the government has until February 1 to let Judge Kaplan know if they intend to move forward with the trial. 

Sometimes once an initial conviction is secured in situations like this, further charges aren’t pursued. In this case, though, dropping the campaign finance charges could be politically dicey: in an undeniably rich bit of irony, Bankman-Fried’s criminal concealment of donations was part of a plan to craft his image as a Democratic megadonor. That has led to conspiracy theories among right-wingers that could trigger outrage if he’s let off the hook for, among other allegations, funneling money through straw donors into his mother’s political action committee.

There will also be a series of post-trial motions between now and the end of November. It seems very likely Bankman-Fried’s defense team will pursue an appeal, though Mark Cohen didn’t quite go that far in a brief statement last night. Instead he made the vaguer promise to “keep fighting.”

Finally, there remain months if not years of work cleaning up the immense mess wrought by a handful of wildly reckless fraudsters. That includes a series of clawback lawsuits filed in recent months by the FTX estate, including a suit against FTX legal chief Dan Friedberg, and another against Joe Bankman and Barbara Fried. One lingering but major question is whether Sam’s parents are also in criminal jeopardy, given what appears to have been a substantial role in both directing and benefitting from the fraud.

Read more: Bankman-Fried’s dad spotted in damning group chat during Ellison’s testimony

FTX wasn’t just a fraud, it was a cult

The story of Sam Bankman-Fried is an incredibly sprawling saga, a puzzle box whose deeper chambers remain to be fully unlocked. The trial itself, though, drew a clearer picture of one specific element: the relationship between Sam and his confessed co-conspirators Nishad Singh, Gary Wang, and Caroline Ellison.

Many in the crypto world prior to the trial had assumed FTX’s top leadership were, in essence, a gang of thieves gleefully collaborating on a complex con. But while there’s no question Nishad, Gary, and Caroline engaged in criminal behavior, the trial instead painted a picture of something closer to a cult, in which Bankman-Fried cajoled, bullied, and manipulated those around him into doing his bidding.

This is most obvious in the case of Caroline Ellison, who for deeply mysterious reasons seems to have been madly in love with Sam Bankman-Fried. Her willingness to take what was ultimately a fall-guy role as CEO of Alameda Research, while getting badly shortchanged on her compensation, was just one way Sam bent her to his will.

Nishad Singh, meanwhile, appears to have been a “true believer” in the image that Sam Bankman-Fried crafted. In particular, Singh claimed in testimony to have been enticed by the tenets of effective altruism, and described giving away large portions of his pay to charities during his time working for Sam. But Singh made his donations to actual, real charities, while Bankman-Fried gave money to “pandemic research” and “political action” organizations controlled by his own family members. It’s little wonder that Singh, who originally joined Alameda way back in 2017, seemed to feel most deeply betrayed by Sam.

Read more: Alameda Research used customer funds as early as 2019, Gary Wang testifies

Gary Wang is the most difficult of the three to assess, but his apparently extreme social alienation at least hints at why he was so easy for Sam to manipulate. While Bankman-Fried literally can’t seem to shut up, Wang is frequently described as close to non-verbal. Given their longtime closeness, it’s not hard to imagine Gary seeing Sam as a kind of protector, a shield against the outside world, who asked only for Wang’s coding skills and loyalty in return.

While this was the biggest change in the story that took shape during the trial, the proceeding featured a truly vast trove of exhibits and testimony that remain to be picked over. There may even be more major bombshells to uncover – but Sam himself, at least, has been stopped.

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The post Sam Bankman-Fried’s trial is over — what now? appeared first on Protos.

In the criminal fraud trial of Sam Bankman-Fried, it’s all over bar the shouting. Both prosecution and defense made their closing statements in a marathon court day on Wednesday, and the jury will begin deliberations by the end of today. 

Those closing statements were the respective legal teams’ final pitches to the jury. In a legal sense, the prosecution bore the burden of proving the charges against Bankman-Fried beyond a reasonable doubt. Its closing statements, delivered with vigor and precision by Assistant US Attorney Nicolas Roos, rose to that challenge by reviewing reams of documents and testimony showing that Bankman-Fried directed a group of co-conspirators to funnel FTX customer funds to Alameda Research, whose profits almost entirely belonged to Bankman-Fried.

The mood in the courtroom was somber, and almost all jurors and alternates were attentive. Notably, both of Bankman-Fried’s parents were absent from the courtroom for the prosecution’s closing, presumably sequestered in private chambers that they’ve been given use of throughout the trial. They reappeared, though, to watch the defense team make its final plea for their son’s freedom.

The defense, in a legal sense, had an easier job than the prosecution: they only needed to raise a reasonable doubt in the jury’s mind that Bankman-Fried is guilty. But that was a larger challenge than it might seem, given the evidence the jury has seen over the last few weeks. That has included testimony from Bankman-Fried’s former lieutenants that he specifically directed them to deceive investors. It also included reams of evidence that Bankman-Fried himself had made knowingly false statements about the safety of customer funds on FTX, and about Alameda’s special privileges on the exchange.

The defense has leaned heavily into efforts to discredit those witnesses or otherwise cast doubt on the prosecution’s tactics. In its closing argument, that included reiterating that figures like Caroline Ellison had plea deals with the government, and suggesting that they were trying to, in Cohen’s words, “get out from under” the FTX disaster by throwing Bankman-Fried to the wolves. Cohen also claimed the prosecution was unfairly painting Bankman-Fried as a “monster, a villain,” with its emphasis on his spending and lifestyle.

What’s been harder to find in defense arguments, though, is a coherent alternate explanation for what happened. There has been little dispute that $8 billion went missing — so how is it possible that no crime was committed?

Read more: Conspiracy theorists should accept that SBF is likely going to prison

“Good Faith is a complete defense”

It was only really with Bankman-Fried’s own testimony in recent days, and with Wednesday’s closing defense statement, that a true narrative and rationale for the defense came into focus. 

At its core is the claim that, at every step of the path from FTX’s founding to its catastrophic failure, Bankman-Fried was acting in “good faith.” As Cohen laid out the legal theory on Wednesday, if Bankman-Fried actually believed that his representations were true when he made them and also believed that all of his actions were legal and in the best interests of customers, no crime was committed. 

Cohen delivered the various elements of this defense in a far more muted style than Roos brought to the prosecution’s closing. While Roos delivered much of the prosecution’s case in a conversational and extemporaneous tone, Cohen remained firmly stationed behind his podium, largely reading from a script in a tone that could be uncharitably characterized as some mix of tired and defeated.

To make his good-faith case, Cohen argued in part that Bankman-Fried’s expenditures and risk-taking were all reasonable business decisions, even if his judgment turned out to be faulty after the fact. Some of this was picayune, such as arguing the cost of the FTX Arena naming rights and other marketing spending as a reasonable percentage of FTX’s revenue.

More substantively, Cohen argued that some decisions that the government had characterized as evidence of criminal motive were, instead, strategic business choices. For instance, in the fall of 2021, Bankman-Fried knew Alameda Research’s trading accounts were on the order of $3 billion in debt to FTX customers, but still insisted Alameda should borrow several billion more dollars to sink into venture capital investments. Caroline Ellison thought this was a very bad idea, and Bankman-Fried overrode her. Cohen didn’t dispute the facts of this key moment, but characterized it as a difference of “business judgment” between Bankman-Fried and Ellison.

The good faith defense also relies on several more far-fetched claims, though. Those include that Bankman-Fried honestly misunderstood basic elements of his own company’s policies, and was totally ignorant of specific important facts about FTX’s financial situation at crucial moments.

Most fundamental to this good faith defense, and perhaps most challenging to convincingly establish, is that Bankman-Fried genuinely believed that Alameda Research had the full right to borrow any and all funds, fiat and crypto, that customers deposited or custodied with FTX. Bankman-Fried has further claimed to have believed that money borrowed through FTX’s margin lending program could be withdrawn from the exchange and used for any purpose of the borrower’s choosing — including, Bankman-Fried agreed during his testimony, for “muffins.”

Read more: Sam Bankman-Fried’s lawyers can’t stop making mistakes

In a good example of the fragility of most elements of the defense’s good-faith arguments, though, the prosecution in its closing showed jurors margin lending agreements that specifically prohibited removing margin loan funds from FTX or using them for any purpose other than trading.

Bankman-Fried’s lawyers say FTX customers knew the risks

In perhaps the most farfetched leg of the defense, Cohen argued that the FTX’s terms of service included “no restriction on fiat currency” use by the exchange. In other words, Cohen argued that all FTX customers implicitly understood their fiat deposits to be, in effect, unrestricted loans to FTX rather than property over which they retained control.

Bankman-Fried’s claimed ignorance of details of FTX’s finances is another major pillar of the defense. These claims in particular require rather elaborate theories of what happened. For instance, Cohen discussed the infamous spreadsheet in which Caroline Ellison prepared seven alternate versions of Alameda’s balance sheet, for the purpose of obtaining a loan. 

Google metadata has shown clearly that Bankman-Fried viewed the document. So to claim that Bankman-Fried was not party to defrauding lenders, Cohen had to argue to Ellison that his client only viewed one of the seven tabs, and approved its use without looking at it closely. “It seemed reasonable [for Bankman-Fried] to rely on a balance sheet prepared by Caroline,” Cohen told the jury.

This is just one part of the near-total ignorance of FTX’s finances that Bankman-Fried must have kept until November 7, 2022, if certain actions of that day are to be maintained as anything other than fraud against his customers. Specifically, Cohen addressed a November 7 tweet by Bankman-Fried including the claim that “FTX is fine. Assets are fine.”

To claim this was not deceptive, the defense again fell back on Bankman-Fried’s ‘good faith’ misunderstanding of Alameda’s borrowing privileges on FTX. As Cohen argued, Bankman-Fried believed that “assets were fine” in the sense that Alameda’s borrowing of FTX customer assets was collateralized by a huge mixed bag of assets, ranging from FTT and Serum tokens to Robinhood shares.

Read more: Sam Bankman-Fried’s defense team failed to crack Caroline Ellison

Jurors have already been presented with an inconsistency here, though: as with the restrictions on use of funds, various FTX policies have made it clear that all margin collateral had to be held on the exchange. In fact, Bankman-Fried himself laid out that policy in testimony before Congress. On-exchange collateral was fundamental to the vaunted automated ‘risk engine’ that was heavily touted as protecting customers against clawbacks. Bankman-Fried and his team have tried to argue that Alameda was not the only entity allowed to borrow against off-exchange collateral, subject to manual rather than automated oversight. But these efforts have been glancing and unsupported by strong evidence.

Furthermore, a ‘good faith’ defense of Alameda’s borrowing must claim that assets including a trove of Robinhood shares were valid collateral for Alameda, despite the fact that they were no longer technically Alameda’s property: those shares had by November 2022 been transferred to a holding company controlled by Bankman-Fried. Bankman-Fried’s extremely loose understanding of corporate property structures is just one of the many convolutions, and even contradictions, in the defense’s theory of events.

Following a few procedural formalities, today jurors will begin deliberations. How long it takes them to reach a verdict may depend heavily on whether they seriously entertain Bankman-Fried’s side of the story, or if the prosecution has already thoroughly rebutted his protestations of ignorance.

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The post What does Sam Bankman-Fried think he did? appeared first on Protos.

At a glance

• Under cross-examination on Monday, Sam Bankman-Fried was evasive when confronted with his own incriminating comments — seemingly failing what may prove to have been the biggest exam of his life.
• Judge Kaplan was visibly irritated with Bankman-Fried, at one point snapping at the FTX founder to “just answer the question.”
• Bankman-Fried’s evasion tactics included splitting hairs and conveniently failing to recall events that would have made a lasting impression on most.

On Monday October 30, Sam Bankman-Fried took the stand in his own defense, facing cross-examination by Assistant US Attorney Danielle Sassoon. The proceedings frequently verged on farce, as the FTX founder was again and again confronted with seemingly hard evidence of fraudulent claims made by him over the years.

Sassoon presented Bankman-Fried with a relentless catalog of his own direct quotes and official FTX promotional material that touted the exchange as safe, or that denied that Alameda Research, the hedge fund also owned by Bankman-Fried, had any special privileges or rights on the FTX platform. Given extensive evidence contradicting these and other direct statements, Sassoon seemed to thoroughly establish clear factual evidence for many of the fraud charges.

In just one example, Sassoon walked Bankman-Fried through his own sworn testimony before US legislators in Washington, DC on May 12, 2022. In that testimony, Bankman-Fried said that market makers on FTX were required to post “pre-funded collateral deposits instead of credit line extensions,” a claim which seemed to directly contradict Bankman-Fried’s own knowledge of Alameda Research’s immense credit line on FTX at the time.

Read more: How Sam Bankman-Fried thought he could win it all back

Even when so directly confronted with his own incriminating words, Bankman-Fried tried to redefine terms or, for lack of a better word, weasel out of admitting that he had actually said what he had clearly said. At one point, Bankman-Fried was shown an array of his statements that falsely reassured investors or customers that Alameda Research’s “account is like everyone else’s.” 

But Bankman-Fried insisted that, in every instance, he was solely claiming that Alameda did not have access to customer data for the purpose of front-running. That is, the statements weren’t lies because he didn’t intend to refer to Alameda’s margin trading privileges or immense line of credit. Bankman-Fried’s protests were undermined, though, by the lack of such qualification in most cases when he had made the claim.

Judge snaps at evasive Sam Bankman-Fried

Another major theme of the day was Bankman-Fried’s apparently terrible memory. Again and again, when asked about some aspect of events, Bankman-Fried initially claimed to not recall them, before having Sassoon call up direct evidence of those events – including, frequently, in published interviews or audio recordings of Bankman-Fried’s own voice. 

In many cases this made Bankman-Fried seem absurd, as when he claimed not to remember flying to the Super Bowl on a private jet. “You don’t recall traveling to the Super Bowl on a private plane?” AUSA Sassoon deadpanned in response. “Is that because you were on private planes so often?”

Bankman-Fried also frequently tried to evade questions by splitting hairs or deconstructing specific words. For instance, several minutes were given over to his insistence that claims that FTX’s risk engine “reduced clawbacks,” or socialized customer losses, were more important than, and meaningfully distinct from, document headings that implied claims to “prevent clawbacks.”

At one point, as Bankman-Fried tried to evade a question about his post-collapse efforts to regain access to FTX data, Judge Lewis Kaplan seemed to lose patience. 

“Would you just answer the question?” the judge snapped.

SBF set to be questioned by defense again

Bankman-Fried’s criminal trial has been shadowed from the beginning by the question of whether the former FTX CEO would testify in his own defense. Though criminal defense experts broadly argue a defendant rarely does themselves favors by taking the stand, Bankman-Fried has shown consistent disregard for such conventional wisdom. 

That led him to make extensive media appearances in the days immediately following the collapse of his allegedly corrupt enterprise, apparently convinced that his gift of gab can talk him out of the entire misunderstanding. He may have realized the depth of his mistake even as he was in the course of repeating it, as a variety of incriminating statements to media were played back to him before a jury.

Read more: Sam Bankman-Fried lied to FTX lawyers about using customer funds

On Tuesday, prosecutors expect to finish their cross-examination before lunch. That will be followed by redirect questioning by the defense, and finally one or two rebuttal witnesses from prosecutors. That’s expected to make up most of the day, with closing statements beginning on Wednesday, November 1.

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The post Sam Bankman-Fried just failed the most important exam of his life appeared first on Protos.

At a glance

• Mark Cohen spent hours last week getting his client’s version of numerous aspects of his alleged crimes. Bankman-Fried testified he was unaware of many elements of the fraud, including Alameda Research’s various special privileges.
• This laundry list of denials leaves government prosecutors spoiled for choice of topics in their cross-examination — and we’ve already seen Bankman-Fried collapse under questioning from assistant US attorney (AUSA) Danielle Sassoon.
• A question hovers over this strategic oddity: Are the high-profile defense lawyers crafting their own strategy? Or are they taking marching orders from the delusional Bankman-Fried and his parents?

Sam Bankman-Fried seemed calm and confident in his first testimony before the jury in his own defense on Friday, October 27. But with prosecutors set to cross-examine the former FTX CEO as early as Monday, that confidence and sense of calm will likely evaporate.

That’s in part because the defense’s direct questioning seems to have left prosecutors spoiled for choice of topics in their cross-examination of the alleged mega-fraudster. Defense lawyer Mark Cohen has taken Bankman-Fried through a laundry list of specific points already laid out by prosecutors, rather than using his client’s testimony to craft a clear alternate explanation of what happened to FTX customers’ money. 

Cohen’s approach let Bankman-Fried directly deny the versions of a few events laid out by prosecution witnesses. However, it also handed a gigantic cache of ammunition to prosecutors. 

The cross-examination of witnesses in US courts is limited to topics introduced on direct questioning. But government prosecutors will now be free to grill Bankman-Fried on a vast range of inconvenient topics. Unbelievably, the defense even re-introduced what is possibly the single most damning piece of physical evidence seen in court so far: the notorious set of seven alternate balance sheets created by Caroline Ellison in the course of an allegedly fraudulent loan application.

Cohen delivered all of this material in a rote, low-energy, and sometimes confusing manner. But the cross-examination is expected to be taken up by AUSA Danielle Sassoon, who in an evidentiary hearing on Thursday quickly reduced Bankman-Fried to a stammering wreck. 

Sassoon’s full cross-examination will be at much greater length and in far greater detail, further testing not just the coherence of Bankman-Fried’s claims, but also his seemingly very limited focus. And thanks to the defense’s shotgun approach, Sassoon will have her pick of topics on which to hang the defendant.

Read more: How Sam Bankman-Fried thought he could win it all back

I didn’t do it

Bankman-Fried could be seen swaying anxiously from side to side when he first took the witness stand last week. His much remarked-on jailhouse haircut has begun to grow out, and he even seemed to have a strange bald spot over his left temple. His baggy suit was accentuated by a sloppily-tied tie, the skinny tail flapping down to his belt.

The most substantive portions of Bankman-Fried’s testimony for the defense amounted to denying that he was directly involved in key decisions that enabled the embezzlement of FTX customer funds. But most of it was devoted to seemingly secondary details, such as how many emails Bankman-Fried received in an average day as CEO of FTX (many thousands, apparently).

Bankman-Fried claimed that he believed Alameda Research’s borrowing from FTX was drawn entirely from the accounts of margin traders who had agreed to that use. He also claimed that “FTX didn’t have restrictions” on how funds withdrawn from the platform by borrowers could be used, meaning Alameda was free to do whatever it wanted with the funds. But as we already heard in Thursday’s evidentiary hearing, Bankman-Fried’s understanding was not firmly grounded either in advice from his lawyers, or the actual agreements signed by customers. That line of questioning will surely return in Sassoon’s cross-examination this week.

Cohen also led Bankman-Fried through an incident when FTX’s vaunted ‘risk engine’ seemed to malfunction, triggering cascading liquidations that could have threatened Alameda, thanks to its role as a buyer of last resort. Bankman-Fried then described meeting with Nishad Singh and Gary Wang and asking them to implement safeguards against an ‘erroneous liquidation’ of Alameda. In Bankman-Fried’s telling, he asked for some sort of “alert [or] delay” in liquidating Alameda. 

Bankman-Fried claimed to not know that in response, Wang and Singh implemented the notorious ‘allow negative’ function on Alameda’s FTX accounts — in essence, making it impossible for Alameda to be liquidated at all.

Cohen also asked Bankman-Fried about FTT, the FTX exchange token. Specifically, he asked about the mechanism and price growth of FTT, with the apparent goal of establishing that Alameda’s purchases of FTT were legitimate market decisions, rather than market manipulation. But prosecutors have already introduced the idea that Alameda’s stash of FTT, which it used as collateral to borrow customer funds, was worth far less than it appeared on paper. Sassoon will almost certainly take the invitation to drive that point home one more time, with Bankman-Fried in the hot seat.

Read more: Sam Bankman-Fried lied to FTX lawyers about using customer funds

The defense also invited Bankman-Fried to talk about Caroline Ellison and, specifically, her leadership of Alameda Research. There was extensive discussion of her decision not to follow Bankman-Fried’s advice to hedge at various points. That failure to hedge at a specific moment forms the core of the defense’s version of events, in which the real crime wasn’t misusing customer funds, but failing to make winning trades with them.

But this exchange again opened the door for a vast number of difficult topics on cross-examination. That includes not just Bankman-Fried’s romantic relationship with Ellison, but also his floating of Modulo Capital — headed by another of Bankman-Fried’s romantic partners — as a potential replacement for Alameda’s roles on FTX.

Aside from this handful of meaningful denials, Cohen’s questioning was largely boring and confusing. In one representative early stretch, Cohen asked Bankman-Fried “What is a database?,” whether FTX’s database was “on a computer,” and “how many computers did you have?” More time was devoted to such seemingly irrelevant details than to key questions of criminal responsibility. Cohen also skipped back and forth in time frenetically, repeatedly backtracking to cover questions he “forgot to ask,” or following Bankman-Fried’s digressions through time.

Boring the jury to death might actually be a valid approach when you don’t have much of a case. But even given that, it seems poised to backfire badly because Cohen so vastly broadened the possible scope of the prosecution’s cross-examination.

And not only did the defense introduce a staggering range of topics — Bankman-Fried’s answers often opened up even more. For instance, Cohen asked Bankman-Fried about FTX and Alameda’s 2020 relocation to Hong Kong. Bankman-Fried offered that Hong Kong had a good regulatory environment, suggesting the goal of the question may have been to rebut the idea that FTX was located outside of the US to avoid regulatory oversight. 

But Bankman-Fried then went on to mention “problems with exchange accounts that got resolved within days” after he went to Hong Kong. It seems this could provide an opening for prosecutors to grill him on his alleged bribes to Chinese officials, which was how other “problems with exchange accounts” were resolved in a 2021 incident. That alleged bribery is not part of the current case but has been allowed into evidence in connection with other charges.

Read more: Sam Bankman-Fried’s defense team failed to crack Caroline Ellison

Is Bankman-Fried the client from hell?

While Cohen did little to make it coherent for the jury, the defense’s version of events was at least vaguely discernible for those paying close attention. 

According to Bankman-Fried’s version of events, Alameda Research had every right to borrow FTX customer funds freely and use them for whatever they wanted. Sam didn’t keep good track of that borrowing, but it’s not his fault, because FTX was growing so fast. He also had no idea that Alameda was using FTX customer dollar deposits (even though he was CEO of Alameda when that use began). Spending FTX deposits on things like the Orchid penthouse, stadium naming rights, and huge services contracts with Tom Brady were all reasonable business decisions. But then the crypto market crashed, and Caroline Ellison hadn’t hedged Alameda’s positions thoroughly enough, so all the money evaporated. 

Whoopsie.

Some will note that this is almost unchanged from the narrative laid out in the media tour Bankman-Fried undertook after his exchange’s collapse. This, along with the generally shambolic nature of the defense, has led to speculation: 

Are Cohen and Everdell pursuing a strategy of their own choosing? 

Or is their seeming ineptitude merely a by-product of having perhaps the worst client of all time?

Bankman-Fried’s contempt for lawyers — and for that matter, for the system of law itself — was further clarified by the recent release of Bloomberg’s excellent documentary “RUIN.” In a recorded interview with citizen journalist Tiffany Fong on November 16, 2022, Bankman-Fried says that his lawyers were at the time urging him to stop making media appearances.

“After that, they said Sam, we only have one thing to tell you. You have to promise that you never, ever say “you fucked up” again. I told them to go fuck themselves … I don’t think they know what they … look, they know what they’re talking about in the extremely narrow domain of litigation. They don’t understand the broader context of the world,” the then-30-year-old Bankman-Fried opined.

Read more: Sam Bankman-Fried’s lawyers can’t stop making mistakes

It seems Bankman-Fried doesn’t have any more respect for legal expertise within the “extremely narrow domain of litigation,” either because according to absolutely every legal authority I’ve spoken to, it’s nearly impossible Cohen and Everdell actually want him to take the stand. As Judge Lewis Kaplan made clear at the beginning of the trial, that decision is ultimately Sam’s alone, and he seems to have chosen to die on the hill of his own innocence.

On top of Sam’s seeming contempt for expert advice, the defense team may be facing interference from Bankman-Fried’s parents, Joseph Bankman and Barbara Fried. They are in court daily, often flanked by fellow Stanford law professor David Mills, who has seemed to act as an intermediary between the parents and the core defense team. Fried in particular has seemed to react badly to the defense’s performance at various points.

Mills was garrulous in court during the first weeks of the trial, but by last Friday, events seemed to have taken their toll. Seen exiting the conference room for family members, Mills seemed not just dejected but defeated, his lanky fringe of grey hair drooping into his fallen face as he shuffled down the halls of the Southern District of New York courthouse.

It seems that neither Sam Bankman-Fried’s own purported brilliance nor his parents’ vast web of powerful friends have managed to save him from the consequences of his mistakes.

Starting on Monday, as impossible as it may seem, things are poised to get even worse.

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The post Sam Bankman-Fried is about to walk into a brutal interrogation appeared first on Protos.

At a glance

• Sam Bankman-Fried gave testimony on Thursday, October 26 in an evidentiary hearing, with no jury present.
• Bankman-Fried seemed flustered under cross-examination, and prosecutors walked him into many seemingly troubling admissions.
• Judge Lewis Kaplan seems unlikely to allow defense lawyers to question Bankman-Fried in open court about advice he received from lawyers about matters such as deleting Signal chats and FTX-Alameda payment arrangements.

As with almost every aspect of the defense effort so far, Sam Bankman-Fried’s first testimony in his own criminal trial went worse than even harsh critics likely expected. 

Bankman-Fried crumbled under determined cross-examination from prosecutors, repeatedly stumbling, mumbling, avoiding questions, taking awkward pauses, contradicting himself, frequently saying he “did not recall” seemingly key details, and receiving multiple harsh reprimands from Judge Lewis Kaplan for prevaricating or dodging questions.

The sole saving grace for the former FTX CEO was that the jury wasn’t present, as his first testimony came in a subordinate evidentiary hearing that closed out proceedings on Thursday, October 26. Michael Lewis, famed author of the controversial FTX book Going Infinite, was present to see Bankman-Fried flounder.

The hearing came after the prosecution closed out its case on Thursday morning with a forensic witness from the FBI. The defense then called its first two witnesses, lawyer Krystal Rolle and forensic acountant Joseph Pimblay, to little discernible impact. 

Bankman-Fried will be the final witness in his own defense, but the defense first had to try one last time to convince Judge Kaplan to let it pursue a seemingly key element of its defense strategy: blaming FTX’s lawyers. More specifically, blaming former FTX Group top lawyer Dan Friedberg.

Kaplan had already ruled that a so-called ‘advice of counsel’ defense was unacceptable during the defense’s opening statement. But he granted the defense one last hearing to decide if it could pursue lawyer-related questions during the defendant’s testimony. Without the jury present, the hearing was effectively a condensed preview of Bankman-Fried’s testimony.

Bankman-Fried performed ably under direct questioning from his own team’s Mark Cohen, calmly discussing Friedberg and the firm Fenwick & West’s approval of things like FTX’s document retention policies, personal loans to executives, terms of service, and receipt of customer deposits via Alameda Research. Bankman-Fried would later explicitly state that he believed such lawyer-approved arrangements meant Alameda had the right to freely borrow and use FTX customer funds.

Read more: Sam Bankman-Fried lied to FTX lawyers about using customer funds

SBF was savaged by a pitbull

Cross-examination from assistant US attorney Danielle Sassoon was, unfortunately for Bankman-Fried, a very different story. Sassoon is a proverbial pitbull who methodically disassembled Bankman-Fried’s various appeals to legal authority. Sassoon, a knife-sharp questioner has emerged as one of the stars of the trial and kept up a relentless pace, repeatedly leaving Bankman-Fried flustered. More than once, Sassoon seemed to maneuver him into uncomfortable admissions.

Sassoon frequently toyed with and goaded Bankman-Fried — albeit with the bone-dry manner of a cold-blooded professional. At one point, she invited him to read through Alameda Research’s Payment Agent agreement with FTX and identify specific lines that authorized Alameda’s use of customer funds. After a lengthy search, he pointed to a clause allowing Alameda to ‘hold and transfer’ FTX assets until the exchange demanded their return. But Bankman-Fried also admitted that no lawyer had told him that this clause granted Alameda those rights.

In a lengthy exchange about Alameda Research’s notorious ‘allow negative’ designation and exemption from liquidation on FTX, Bankman-Fried seemed extremely evasive about his own knowledge and involvement. He said he had spoken to Gary Wang and Nishad Singh about implementing ‘speed bumps’ that would ‘address the risk of improper erroneous liquidations’ of Alameda accounts, but claimed not to know that Wang and Singh had responded to this request by simply making Alameda immune from liquidation.

In easily the most disastrous exchange of the day, Bankman-Fried repeatedly dodged a key but very straightforward question: whether he knew that Alameda accounts were allowed to run negative balances on FTX. Instead, he repeatedly alluded to Alameda having ‘a positive overall Net Asset Value‘ on FTX. That is, rather than answering to the negative capacity of individual Alameda accounts, Sam tried to imply that the sum of all Alameda accounts on FTX remained positive.

After Sassoon attempted again to get a clear answer on the matter, Bankman-Fried said he was “going to respond to the question I think you’re asking.” That echoed statements recounted by Michael Lewis in which Bankman-Fried outlined a communication strategy of answering the question he wished an interviewer had asked, rather than the one actually presented.

But it seems that doesn’t get you as far in the Federal court system as it does with the credulous US business media. After several attempts by Sassoon, Judge Kaplan intervened, clearly irked: “Not once did the [prosecution’s] question include the phrase ‘net asset value,’” he scolded Bankman-Fried.

“In that case,” the defendant replied, “I don’t know what you mean by negative balance.” 

Bankman-Fried further said that he “did not recall” discussing with lawyers the use of the North Dimension entity to receive FTX customer deposits via Alameda Research bank accounts. When asked whose decision it was to receive deposits through this convoluted mechanism in the first place, Bankman-Fried answered that, “I’m actually not entirely sure … I don’t recall being a part of it.”

Bankman-Fried likes ‘reasonable risk’

Sassoon also extracted from Bankman-Fried the clarification that, while his legal counsel had helped draft a general document retention policy, they had not specifically signed off on the deletion of various Signal group chats — including those where the FTX ‘inner circle’ seemed to have coordinated fraud.

Bankman-Fried also admitted to contemporary knowledge of chief lawyer Dan Friedberg’s connection to prior frauds, and admitted that Friedberg’s tolerance of taking ‘reasonable risk’ had been a factor in his hiring. Sassoon also asked Bankman-Fried about Friedberg’s apparent use of ‘illegal narcotics’ with other FTX Group employees, but Judge Kaplan struck down that question.

Sassoon seemed to test just how far Kaplan would let her go as Bankman-Fried’s first appearance wound down. The prosecutor questioned Bankman-Fried about his commitment to safeguarding customer assets.

Read more: Sam Bankman-Fried’s lawyers can’t stop making mistakes

Was this only a matter of physical and cybersecurity, she asked, or “does that also include not embezzling customer funds?”

The in-your-face question was rightly struck down by Judge Kaplan. But while her lawyerly demeanor never cracked, one could sense Sassoon’s enjoyment of the moment — almost as if she were spiking the football and doing an end-zone dance in the defense’s face.

In closing remarks, it seemed almost certain that Judge Kaplan would prohibit questioning that implied responsibility by FTX’s legal counsel. In what he called a hypothetical, Kaplan compared the argument to a bank robber who got bad legal advice on how to hide the loot.

Kaplan’s final decision will come in court on Friday, to be followed by Bankman-Fried’s first appearance to testify before a jury. The defense’s direct questioning will likely take up the bulk of the time, with more fiery cross-examination to come in the first days of next week. 

After that, perhaps on Tuesday or Wednesday, the legal teams will present closing statements. Both sides are likely to rest by the end of the week, and send the case to the jury for its decision.

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The post Sam Bankman-Fried on the stand is even worse than we expected appeared first on Protos.

As Sam Bankman-Fried’s criminal trial gets back underway on Thursday, things feel oddly settled on the legal front. The prosecution and its array of insider witnesses have established beyond any reasonable doubt that Bankman-Fried coordinated the frenetic embezzlement and misuse of customer funds. Barring some truly dramatic revelation or supremely canny tactic by a defense that has so far shown no such capacities, Bankman-Fried will likely be found guilty by a jury of his peers within no more than a few weeks.

But the very certainty of the legal case invites a much more difficult question: what was Sam Bankman-Fried’s plan?

Bankman-Fried spent, invested, gave away, or otherwise disposed of a gargantuan portion of the funds customers had entrusted him with. While crypto market volatility helped expose that activity, what could have possibly been his goal in flinging assets into the ether with such seeming abandon? What, even in an ideal world, was the FTX endgame?

One of the clearest glimpses so far of what Bankman-Fried was thinking came in testimony from former FTX General Counsel Can Sun on October 18. Under questioning from Assistant US Attorney Danielle Sassoon, Sun recounted a conversation with Nishad Singh:

“[Nishad] said that he found out about the hole, basically that Alameda was taking FTX customer assets in late summer of ’22, so August or September of 2022. He said that he talked to — he confronted Sam directly about it, and Sam told him back then that it is what it is and there is nothing we can do about it. The only thing we can do is to grow the company and fill in the hole.”

This strikes me as the very definition of hearsay, but it was admitted in court, so I’m going to take it as an accurate representation of what Bankman-Fried said.

Read more: Sam Bankman-Fried’s lawyers can’t stop making mistakes

Risk on

And “grow the company and fill in the hole” was not just how Bankman-Fried hoped to address the fallout from his actions: it also seems to be how he rationalized them in the first place. In essence, it appears that his plan was to spend customer funds to make FTX so huge and influential that it could repay Alameda’s extensive fraudulent borrowing of customer funds, or perhaps even become ‘too big to fail.’

The fact that those funds were not his to use seems to have been absent from his moral or strategic calculations. And of course, Bankman-Fried’s seeming belief that a crypto exchange could generate infinite money speaks to his total lack of any deep understanding of crypto itself — but that’s a topic for another day.

This leverage-long, risk-on mindset seems to come largely from the tenets of utilitarianism and effective altruism — or, at least, from Bankman-Fried’s understanding of them. As Michael Lewis puts it in Going Infinite — a catastrophic failure of a book that nonetheless contains some incredibly interesting moments — “people able to calculate the expected value of complicated financial gambles were the same people drawn to the belief that they could calculate the expected value of their entire lives.” (Of course, believing this about yourself is in itself borderline sociopathic, and taking such claims for granted is where Lewis fails most dramatically.)

More specifically, Bankman-Fried seems to have come to believe that taking high-risk, high-return bets was almost always the right decision. During the trial, we’ve heard this described as an ‘expected value’ calculation, a practice that made up the core of utilitarian and effective altruism thinking as understood by the FTX squad.

Sam himself got early lessons in expected value at Jane Street, where he traded before founding Alameda. Michael Lewis recounts that interns at Jane Street were encouraged to place bets with each other constantly. Soon, as a source told him, “the interns are all addicted to gambling, and to positive expected value gambling more than anything in the world.”

At a high level, this appears to have been Bankman-Fried’s rationalization for using customer funds to buy political influence through donations, and social influence through endorsement and advertising deals with people like Tom Brady and Larry David.

While according to traditional accounting standards FTX couldn’t afford these exorbitant outlays, in Sam’s mind, the certainty of his own infallibility made using customer funds to pay for them the best possible plan, because it generated maximum ‘expected value.’ 

At least as deployed by Bankman-Fried, these calculations were often absurd on their face. One gobsmacking early example laid out by Lewis involved $4 million worth of Ripple (XRP) tokens going missing fairly soon after the creation of Alameda Research. Sam “told his fellow managers that in his estimation there was an 80% chance it would eventually turn up. Thus they should count themselves as still having 80% of it.”

Read more: Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison

This moment embodies the absurdity of expected value calculations in two ways. On the one hand, it leads to absurd ways of thinking about the world. But more to the point, what Bankman-Fried here seems to think is some sort of “rationalism” is actually nothing more than a feeling — where, after all, did that 80% number come from? Not, at least as told by Lewis, from any specific process of thought. Sam just estimated the odds.

Bankman-Fried even seems to have been aware of how absurd such arguments seemed to other people. Lewis quotes Sam saying, “The place I am strongest is the place where you have to do things other people would find shocking.” 

Shocking, in retrospect, seems to have at least in part meant ‘irresponsible and immoral.’ Basing decisions on long-term oddsmaking would strike most people as both morally and scientifically incoherent. On the one hand, it presumes that the individual making decisions — in this case, Bankman-Fried — has superior judgment to everyone else who might have something to say about the situation. Let’s take Bankman-Fried’s effective altruism at face value, just for a moment. Given that, his entire quest to make money via FTX, then donate it to ‘effective’ causes, depended on the idea that he, in his late twenties, knew what was right for the world better than all living government and civil society figures.

Immoral calculus

Moreover, in his apparent belief that normal standards of morality didn’t apply to him — a view Caroline Ellison testified to hearing him express — Bankman-Fried seems to have assumed he knew what was right for the world better than all of the major social figures who had come before him in the history of mankind. This callow, Holden Caufield-esque rejection of everything the world of adults stood for seems to have been the closest thing to a genuine ethos Bankman-Fried possessed. 

Part of the same infinite self-regard was, apparently, the belief that he would inevitably succeed in business. This seems implicit, first, in his use of customer funds in the first place. It returned in far more pathetic form in his whining insistence after FTX’s collapse that, if he had not been forced to declare bankruptcy, he could have gotten his customers all of their money back. 

Of course, these are all merely Bankman-Fried’s possible conscious thoughts. But whether he was capable of acknowledging it or not, he was also driven by the base desires that drive all humans. As insider Nishad Singh said in reference to Bankman-Fried’s insistence on buying a $36 million penthouse for his leadership team, “Sam is a fan of views.”

Read more: Bankman-Fried’s dad spotted in damning group chat during Ellison’s testimony

On a similar note, but much sadder, is FTX bankruptcy CEO John Ray III’s assessment of Sam’s motivation for spending utterly absurd sums to hire celebrity influencers. “For the first time in [Bankman-Fried’s] life,” Ray said, “everyone ignores the fact that he’s a fucking weirdo.” Or, as Lewis puts it, “Sam was buying himself some friends.”

Of course, he would never in a million years have admitted that. Instead, as Lewis himself describes, Bankman-Fried had a superficially rational argument that influencers like Tom Brady had a unique power to draw in customers to FTX.

In a nutshell, this is the Shakespearean tragedy of Sam Bankman-Fried as a person. Brought up on the ideology of ‘expected value’ and making odds on coin flips, he came to see himself as someone who always knew the odds. This made him comfortable risking other people’s money, even without their permission. He was sure he was going to win, so why not bet it all?

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The post How Sam Bankman-Fried thought he could win it all back appeared first on Protos.

At a glance

• FTX’s former general counsel Can Sun testified to his own ongoing deception by Sam Bankman-Fried in 2021 and 2022.
• Bankman-Fried’s repeated explanations for the missing funds may have originated in “theoretical justifications” offered by the lawyer.
• Prosecutors also highlighted FTX terms of service clauses that clearly prohibited FTX use of customer funds.

Can Sun, former FTX general counsel, testified on Thursday that Sam Bankman-Fried repeatedly misled him about the nature of financial flows in the FTX empire.

Sun, a Yale Law graduate, joined FTX in August of 2021 and was given the task of revamping the exchange’s terms of service. He walked prosecutors through sections of those terms that clearly indicated that FTX would not move or borrow their funds without consent. 

Sun also recounted multiple instances, including in something called FTX’s ‘Key Principles,’ when Bankman-Fried assured him customer funds were sacrosanct. Sun said he frequently told investors and others that Alameda Research and the FTX exchange were separate entities, “based on representations made to me by Sam [Bankman-Fried].”

But in mid-2022, Sun testified, he began to discover a variety of inconsistencies, which prosecutors walked him through. They included the undocumented transfer of millions of dollars to Bankman-Fried and former FTX executive Ryan Salame. Sun also described discovering, in August or September of 2022, that Alameda had special privileges on FTX. 

“I was shocked. It went against everything we had told regulators,” Sun testified. “I asked for it to be removed.” 

Sun stayed with FTX after his discovery because he thought Alameda’s margin exception was being changed — and because “I was told the … [Alameda] carveout had never been triggered.”

Read more: Could Sam Bankman-Fried’s Adderall dose be grounds for mistrial?

However, on November 7, 2022, Sun finally made a discovery he couldn’t ignore. FTX was attempting to raise emergency capital from Apollo Capital, amid serious worries about its stability. Apollo wanted financials, and Sun described seeing something like an accurate picture of the situation in a meeting with Bankman-Fried, Nishad Singh, Ramnik Arora, and Joe Bankman.

“I was shocked,” Sun testified. “It showed FTX was short $7 billion.” The documents also showed Alameda’s borrowing of FTX customer funds. When he asked about the revelations, Sun said he “did not get straight responses” from other senior executives. 

Sun also described Nishad Singh as extremely distraught during the same meeting. “His entire face was pale, grey. It looked like his soul had been plucked away from him.”

On November 7, Bankman-Fried asked Sun “for a legal justification for why the funds were missing … [Sam] asked me to come up with a legal justification.”

But of course, Sun said, “there were no legal justifications for the money being taken.” But that night, Sun laid out to Bankman-Fried a few “theoretical arguments” that could explain the missing funds, including if they were a result of voluntary lending by margin traders. But, Sun made clear in testimony, these theoretical arguments were not supported by the facts of what actually happened.

The prosecution then played footage of a “Good Morning America” interview from December of 2022 in which Bankman-Fried blamed the shortfall on margin losses. The clear implication was that he’d been reciting one of Can Sun’s hypotheticals, not the truth.

Sun resigned from FTX on November 8, and hasn’t been charged with a crime, but did testify under an immunity grant.

Read more: Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison

Bankman-Fried’s team struggle to explain away Alameda loans

The defense, as usual, worked to undermine Sun’s version of events. They honed in on a $2.3 million loan and $3.5 million bonus Sun received from FTX, vaguely imputing Sun’s motives.

Also revealed were details about the involvement of credible outside legal and accounting teams in the structuring of large loans from Alameda Research to Gary Wang, Nishad Sing, and Bankman-Fried (Caroline Ellison’s name was notably absent from a tally of these loans shown as evidence). The loans, totaling more than $2 billion, have been consistently positioned as shady by the prosecution — for instance, in testimony by Nishad Singh that the money never touched his bank accounts.

But as Sun described it — and apparently in the eyes of firms including Fenwick & West — the loans were a valid legal means of structuring transfers from FTX’s international companies into, in one case, the FTX.US entity. 

However, as Sun made clear both here and regarding the home loan he accepted, these loans were premised on the idea that they were funded entirely from Alameda’s profits. In reality, as Sun articulated during his testimony, the money had been taken from customers.

The trial will now be paused until Thursday, October 26. The prosecution is expected to wrap up its case that day with just a few more brief customer and investor witnesses. The defense will begin to make its case after lunch the same day, though their witness list remains undetermined. The defense has the option to request specific witnesses to attempt to rebut prosecution evidence. 

But the big question is whether Bankman-Fried himself will take the stand in his own defense. If he chooses to, it seems possible that it could happen as soon as next Friday.

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The post Sam Bankman-Fried lied to FTX lawyers about using customer funds appeared first on Protos.

At a glance

• The Defense team for Sam Bankman-Fried has repeatedly walked into hilarious mistakes.
• Judge Lewis Kaplan has constantly reprimanded Mark Cohen and Christian Everdell for wasting time.
• Is there a larger strategy behind what seems like mere ineptitude?

Sam Bankman-Fried’s white-shoe lawyers have a very hard job. They also seem to be doing it quite poorly.

Indeed, at their lowest moments, Mark Cohen and Christian Everdell are like the Laurel and Hardy of bad lawyering.

In the third week of trial, Bankman-Fried’s defense team has yet to establish any real counter-narrative to the prosecution’s case — but worse, they’ve made repeated, serious missteps that actually seemed more likely to harm SBF in the eyes of the jury than to help him.

One sterling example came on Thursday, October 12, as Cohen was cross-examining former BlockFi CEO Zac Prince about the due diligence process at the now-collapsed crypto lender. Cohen and Prince were reviewing a report from BlockFi’s risk team recommending against further lending to Alameda, in around August of 2021.

“So when an exception approval was included,” Cohen asked, “that meant the credit team doing the sort of on-the-ground work couldn’t say ‘yea’ or ‘nay’ to the loan, correct?”

“That’s one of the reasons, yes,” Prince affirmed.

“And it had to go up the chain of command.”

“Correct.”

“Ultimately to the executive committee, I believe you said,” Cohen continued. “And you were a member of that committee.”

It was just one exchange of several working to establish one thing: that Prince, in reviewing Alameda Research’s loan application, could override his own risk committee’s fears. Those included fears about things like the volatility of the FTT tokens Alameda was using as collateral.

Cohen was clearly gearing up for a bombshell revelation, a punchline that would discredit Prince and his testimony.

But that bombshell would turn out to be more of a lead balloon, its payload merely hot air.

Read more: Alameda Research used customer funds as early as 2019, Gary Wang testifies

No, this loan did not get made

The day before, on Wednesday, October 11, Prince had told the prosecution about his company’s loans to Alameda Research. Among other points, he’d also been clear that BlockFi would never have lent to Alameda if it had known about Alameda’s huge personal loans to FTX executives and its massive borrowing of FTX customer funds. It seemed clear evidence that Bankman-Fried and his inner circle had defrauded lenders.

On Thursday morning, Cohen needed to change the narrative. His questions seemed poised to nail Prince as the real culprit in BlockFi’s demise:  a CEO who overrode his own risk management department. Victim-blaming has been one of the defense’s major tactics so far. The implicit subtext is often something like “Only a complete rube would trust our client.”

Finally, after nearly an hour of lead-up, Cohen moved in for the killing blow:

“So the [risk] team is telling you and other executives, their recommendation is not to go forward … Now did in fact the loan get made?”

“This loan,” answered Prince, “No, this loan did not get made.”

If you listened closely, you could hear the ‘wah-wah’ of sad trombones on the wind.

Cohen’s big lead-up had fallen into a hole, seemingly because he had his basic facts wrong.  BlockFi did make more loans to Alameda after the rejected application, but only at higher collateralization levels, as Prince would go on to explain to Cohen.

Cohen had effectively spent almost an hour helping the prosecution rather than his client. Instead of painting Prince as a cowboy who took risks heedlessly and had only himself to blame for losing money to Alameda, he’d shown that Prince did carefully follow procedures. The only culprit left standing was the FTX inner circle who had doctored information on loan applications sent to BlockFi.

Bankman-Fried’s lawyers are hesitant and clumsy

This was just one particularly striking misstep from a defense that has made plenty in the course of the trial. They’re at a big disadvantage because of limiting rulings and witnesses rejected by Judge Lewis Kaplan (and, of course, because their client looks guilty as hell). But they’re not doing much with what they’ve been left.

When Cohen and Christian Everdell were first hired as Bankman-Fried’s defense team, that would have been nearly unthinkable. As the Wall Street Journal pointed out, they had some unsavory clients — most notably, Ghislaine Maxwell. But they were also elite: Both Cohen and Everdell are former Federal prosecutors, and Everdell is a graduate of Harvard. Cohen & Gresser, which Cohen co-founded, has a reported 80 lawyers with offices in New York, London, and Paris.

That led me to assume that these guys were the legal defense version of Harvey Keitel’s Wolf from Pulp Fiction. These two, circumstances implied, rolled in to defend the worst people for the biggest paychecks. Perhaps amoral but ruthlessly competent, forcefully defending their clients’ right to a vigorous defense while using every trick in the book to help alleged criminals walk free.

But the reality, so far, has seemed far grubbier, clumsier, and sadder than such cinematic imaginings would have it. Cohen and Everdell seemed squeamish about pushing hard on Caroline Ellison, who they were expected to tar as an irresponsible leader at Alameda. They’re hesitant, clumsy, mispronounce names, and constantly trip over technical details. Judge Lewis Kaplan has continuously fumed at the defense for spending long periods simply having witnesses re-state the answers already given to the prosecution. Kaplan has had to reprimand both Cohen and Everdell for, in effect, wasting time.

Time and again they’re rebuffed in their attempts to find daylight between their client and the, at best, catastrophic mismanagement of FTX and Alameda Research. They have frequently set up lines of questioning during cross-examination that didn’t just fizzle out but blew up spectacularly in their faces. All of that is almost certainly souring the jury against the lawyers. Even leaving aside the damning evidence on display, it may also be turning jurors against Bankman-Fried.

After three weeks in court, Cohen and Everdell seem less like shadowy super-lawyers, and more like the only even vaguely credible and competent option available to the likes of Ghislaine Maxwell and Sam Bankman-Fried.

Did Bankman-Fried buy a yacht?

Another slapstick moment came in Cohen’s opening-week cross-examination of former FTX engineer Adam Yedidia, who was close to the so-called ‘inner circle’ but not seemingly part of the conspiracy.

“Did you observe Mr. Bankman-Fried,” Cohen asked, “and how he spent his money in your day-to-day interactions with him? … He didn’t buy, for example, fancy watches, did he?”

“No,” Yedidia answered. 

“He didn’t buy a yacht, correct?

“To my knowledge, he did not buy himself a yacht.”

Cohen further went on to ask Yedidia whether Bankman-Fried wore fancy clothes or drove a fancy car. He tried to get Yedidia to specify that Bankman-Fried drove a Toyota Corolla. He showed a picture of Bankman-Fried onstage with Bill Clinton and Tony Blair, in his uniform of cargo shorts and a t-shirt.

The goal of this line of questioning was typical of the defense, in that it was superficial and flimsy. Cohen was working to imply to the jury that because he wasn’t making big personal expenditures, Bankman-Fried couldn’t be a crook. There is a further possible case to be made for his purported commitment to effective altruism, but the topic has barely come up at trial thus far.

By my count, Cohen’s rhetoric backfired in four ways.

First, Cohen caught a reprimand from Judge Kaplan for trying to push Yedidia to say Sam drove a Toyota Corolla specifically. Second, just days later Caroline Ellison would testify that Sam had returned a luxury car in favor of the Corolla, but only to help cynically burnish his effective altruist image. Third, showing a picture of Bankman-Fried on stage in shorts and a t-shirt with Bill Clinton, when Bankman-Fried is also implicated in various forms of influence-peddling, seems shortsighted.

But the fourth devastating counterpunch came when the prosecution returned for redirect, their chance to briefly rebut the defense’s cross-examination of Yedidia. Redirect came from AUSA Danielle Sassoon, whose precise, rapid-fire questioning has been a welcome contrast to Cohen and Everdell’s dithering.

“You were asked some questions on cross-examination about the defendant’s spending,” Sassoon began. “What was the FTX Arena?”

A wave of uproarious laughter ripped through reporters and other onlookers, who knew what was coming. (I was sitting in the overflow viewing room that day, where standards of behavior are a bit looser than in the courtroom proper.)

FTX Arena, of course, was the Miami Heat venue renamed for FTX in 2021. “As I recall, [the deal] was about a hundred million dollars,” said Yedidia (it was actually $135 million).

In the two weeks since, the prosecution has excelled in showing that Bankman-Fried spent FTX customer money with wild abandon, on everything from venture capital investments to hiring celebrities to planning a massive HQ building that never happened. Bankman-Fried frequently overrode his lieutenants’ fiscal worries even after he was well aware that funds were missing from the exchange. The defense has spent almost no further effort, much less made any progress, on portraying Bankman-Fried as in any way a modest spender.

Read more: Sam Bankman-Fried’s parents show signs of stress as defense flounders

You’ve tried the best, now try the rest

Bankman-Fried’s defense team also frequently struggles with basic precision. Cohen in particular seems to have a tenuous grasp on some of the terminology he’s putting to witnesses, leading to many truly head-scratching and pointless back-and-forths. In one instance, just before his big faceplant with Zac Prince, Cohen seemed to confuse a “top 10” cryptocurrency by market cap with “the top 10 percent” of cryptocurrencies. The confusion ate up several minutes of court time and almost two pages of the 180-page court transcript.

This certainly suggests that the team is simply failing because they’re ill-prepared. But given their pedigree, it’s hard to accept such a simple explanation for their decidedly underwhelming performance so far. It’s tempting to impute some three-dimensional chess to anyone with ‘Harvard’ next to their name.

For instance, maybe Cohen and Everdell are wasting time on purpose. Maybe they think boring and confusing the jury is their best bet. Another hypothetical would be that they’re intentionally antagonizing Judge Kaplan to set up grounds for an appeal — and to be fair, Kaplan does seem to be cutting them absolutely no slack. Maybe there is some other strategy here that just looks like incompetence to novice legal observers.

That would mean they’ve given up on influencing their primary audience, the jury. The jury, remember, is made up of regular folks, who neither know nor care about the niceties of legal procedure. They care about a coherent story and intuitive trust. The verdict will hinge far more on vibes than procedure, and seeing SBF’s lawyers stumble so badly can only turn them more against him.

But there is one more possible explanation, at least for some of their flubs, hinted at in the exchange with Yedidia about the Toyota Corolla. Had they known the real story of the Corolla, they would have been less likely to bring it up. 

That strongly implies they were never told the real story by Bankman-Fried, or by his parents. There is strong evidence that Sam, Barbara, and Joe are all deep in the throes of denial and delusion about what happened. They might not be giving their lawyers the facts they need to build a convincing defense. They may even be misleading their own team into embarrassing traps.

Or maybe Cohen and Everdell are simply less impressive than advertised.

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The post Sam Bankman-Fried’s lawyers can’t stop making mistakes appeared first on Protos.

At a glance

• Now in its second week, Thursday’s court session in the criminal fraud trial of Sam Bankman-Fried was mostly taken up with the cross-examination of Caroline Ellison by Bankman-Fried’s defense team.
• After being previously barred from discussing his venture capital investment in AI startup Anthropic, Bankman-Fried’s defense team appeared aimless in its questioning of Ellison.
• Defense lawyer Mark Cohen gestured at Ellison’s trading decisions and threats to her leadership of Alameda Research, but didn’t drive home any straightforward reason for the jury to disbelieve her testimony.

The cross-examination of Caroline Ellison concluded around 3pm on Thursday, October 12, after hours of questioning by Sam Bankman-Fried’s defense team. It fell surprisingly short — Bankman-Fried’s lead lawyer Mark Cohen once again lapsed into a rote repetition of points already made by the prosecution, with only a few vague lines of attack emerging.

Ellison more than kept her composure throughout the cross-examination. It was bizarre to watch unfold, because the exact opposite had seemed so likely. Ellison is a key witness for the prosecution. This week she has detailed, accompanied by evidence, exactly how Bankman-Fried directed her to commit what she describes as crimes. Undermining Ellison’s credibility was widely considered crucial to any effort to plant seeds of reasonable doubt in the jury’s minds.

But Cohen seemed to visibly flounder in attempts to undermine the credibility of Ellison’s testimony. He came nowhere close to offering an alternate theory of what really happened to all that money: you could infer a few ideas if you’re already familiar with the case, but the jury didn’t seem to have much to sink its teeth into.

Bankman-Fried’s defense team can’t hit back at Ellison

Cohen opened by asking whether Alameda revenue and profits were held in the same infamous ‘fiat@’ bank balances as FTX customer deposits. The implied argument appeared to be that ‘not all the money (spent on random impulsive venture capital investments and lost on token gambling) was stolen.’

Cohen asked Ellison about Sam Trabucco, who served as co-CEO of Alameda for a time. This might have been meant to work towards the idea that Trabucco’s strange disappearance from the Alameda offices after late 2021 left Ellison in over her head as a solo CEO. The same can be said for Cohen introducing later moments when Sam proposed adding a second co-CEO, Ben Xie, and Ellison actually stood up for herself and told Sam no. 

The strategy here is, at best, to fundamentally confuse the issue. It does seem Alameda Research wasn’t very good at trading cryptocurrency, but that’s tangential to the core issue that they were doing it with customer funds. Given the broadly financially savvy jury, this obfuscation seems unlikely to be effective.

Read more: Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison

Questions about accounting staff seemed intended to advance Cohen’s case that the FTX team was “building the plane in the air” and the only crime was being sloppy. But Ellison testified that FTX actually had one accountant on staff starting in 2021, and hired two more in 2022. That’s more accounting staff than I would have assumed myself, but it’s fuzzy to me what it accomplishes for the defense.

Another line of questioning seemed to blow up in the defense’s face. “Sam gave the ultimate direction” when it came to trading decisions at Alameda Research, Ellison said. Reporting about the FTX-Alameda relationship has been entered into evidence, so jurors have a sense that exactly this sort of interlocking influence is, at best, suspicious.

Ellison remains relatable and genuine in eyes of jury

In another moment of attempted misdirection, Cohen quizzed Ellison about Alameda’s use of loans from the likes of Voyager and Genesis. Cohen had Ellison specify that this sort of loan could be used for a wide variety of investments and expenses, clearly trying to muddy the distinction between contract-based commercial loans and the off-book plundering of customer deposits.

The pattern repeated itself on topics like the FTT token, whether it was smart for Alameda to invest in the Terra stablecoin (in hindsight, it wasn’t) and whether Caroline hedged enough as head of Alameda. Written self-assessments and internal management notes called Caroline’s capabilities and job performance into question.

Cohen didn’t particularly try to get under Ellison’s skin about these negative assessments, including from Bankman-Fried. He could have pressed her for details about her worries, probed her mindstate and stress levels, actually built a picture of Caroline Ellison as particularly inept or out of control. But she just doesn’t read that way on the stand, and the prosecution has managed to depict her as a bullied underling rather than a jilted lover. 

That might be why the defense wasn’t willing to really go at Caroline Ellison hammer and tongs. She seems so credible and relatable, despite her serious lack of spine when her ethics were really on the line, that a full-throated attack on her credibility could backfire by making the jury hate them.

Defense lost chance to introduce Anthropic stake

The defense also seemed occasionally underprepared on basic points. Cohen, for instance, mispronounced the name of Ryan Salame, a high-ranking FTX executive entangled with the political donations angle of the saga (it’s SAY-lem, not Sa-LAAM).

In fairness to their efforts, the defense team had been deprived of one possible — not to say particularly strong — line of questioning before even entering court this morning. Judge Kaplan ruled yesterday that the defense couldn’t discuss the recent performance of an investment in artificial intelligence startup Anthropic.

Read more: Caroline Ellison delivers the financial smut we’ve been waiting for

Kaplan quipped that it was like robbing the Federal Reserve, but arguing you did nothing wrong because you used the money to buy Powerball tickets.

“I certainly would never let in Anthropic,” Kaplan ruled with typical bluntness. “It’s unrepresentative. It’s meaningless.”

The next court session on Friday, October 13 is expected to introduce another member of Bankman-Fried’s inner circle, former FTX director of engineering Nishad Singh, to the jury. Protos will be in the courtroom hearing his testimony — expect a thorough update as usual.

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The post Sam Bankman-Fried’s defense team failed to crack Caroline Ellison appeared first on Protos.

At a glance

• During Sam Bankman-Fried’s trial yesterday, Caroline Ellison briefly lost her composure as she described the sense of relief she felt after FTX collapsed and the truth came out.
• Ellison described efforts to use the identities of “Thai prostitutes” to create fake accounts on Chinese crypto exchanges to extract frozen Alameda Research money.
• Bankman-Fried was very calculating about his image, Ellison testified. Alameda paid for luxury cars early on, but Sam traded them in for more modest models, such as a Toyota Corolla, apparently to better align with his image of selflessness.
• The name of Bankman-Fried’s father, Joseph Bankman, could be seen in records of group chats in which executives seemed to contemplate further fraud.

Caroline Ellison’s continued testimony in the Sam Bankman-Fried case reached a dramatic peak on Wednesday, October 11. Ellison, the nominal former CEO of Alameda Research, very effectively conveyed that Bankman-Fried was in charge of all the important decisions. 

Ellison’s testimony included dozens of scandalous details about her time working for her former boyfriend. This included using the identities of what Ellison described as “Thai prostitutes” in a scheme to extract Alameda funds frozen on Chinese crypto exchanges. This effort failed, leading to the payment of large apparent bribes to Chinese officials to unfreeze the funds. Ellison described her own role in this bribery — at Bankman-Fried’s orders — in detail, though the bribery itself is part of charges that will receive a separate trial.

Ellison also detailed what the jury is likely to see as Bankman-Fried’s calculated efforts to deceive investors and the public about his character — efforts some might find even more instinctively off-putting than his financial manipulations. One significant element of Bankman-Fried’s selfless image was the idea that he was a billionaire who still drove a modest Toyota Corolla. But Ellison said that when she first arrived at Alameda, both she and Bankman-Fried had company-funded luxury cars. Later, Sam had the cars traded in for more modest models because, Ellison said, “he thought it was better for FTX’s image.”

Bankman-Fried breaks norm to watch Ellison speak

Bankman-Fried showed only subtle signs of being affected by Ellison’s testimony. For much of the trial he has been practically a statue, sitting upright at the defense table with his fingers on the keyboard of a laptop where he is ostensibly reviewing documents for his defense. But several times during Ellison’s he broke this pose, resting his chin on his hand and watching as she spoke.

Ellison seemed calm and precise for most of the testimony. This only changed briefly as she choked up while describing the days surrounding FTX and Alameda’s collapse in November 2022. Prosecutors showed records of chats in which she told Bankman-Fried she was in “the best mood I’ve been in in a year” on November 7, 2022.

Read more: Caroline Ellison delivers the financial smut we’ve been waiting for

“That was overall the worst week of my life,” she testified. “[But] one of the feelings was a sense of relief that I didn’t have to lie anymore, that I could start being honest and start taking responsibility …”

Overall, Ellison was very convincing in the role of a fairly naive person who had made serious mistakes but genuinely regretted them. Whether or not the jury feels the same could be the crux of the entire trial — the defense, in their cross examination, is likely to try and pin a lot of responsibility for FTX’s fall on Ellison.

Alameda, FTX, and Modulo Capital funds “the same,” SBF wrote

Ellison testified to receiving explicit instructions from Bankman-Fried to further various kinds of fraud, including misrepresenting the nature of Alameda Research, manipulating the market price of the FTT token, and creating fake balance sheets to deceive investors and lenders.

She told the court that Bankman-Fried effectively guided her to lie to a Bloomberg reporter for a piece about the ties between Alameda and FTX. At the time, Ellison described the relationship between the two entities as “arm’s length,” but on the stand Wednesday she said that wasn’t true at the time.

Ellison addressed an infamous Twitter reply she sent to Changpeng Zhao (CZ), CEO of Binance, offering to buy FTT tokens for $22 each as CZ sought to unload them. She described Bankman-Fried ordering her to both make that tweet, and to defend the price of FTT as faith in FTX failed. Ellison estimated Alameda spent “tens of millions [of dollars], maybe $100 million” defending FTT’s price at $22. This money, Ellison said, would otherwise have gone to fulfilling customer withdrawals.

In one particularly striking document, Bankman-Fried wrote to executives at both Alameda Research and Modulo Capital, another trading firm effectively funded by stolen FTX customer money. Tensions had arisen between Alameda and Modulo — nominally separate companies which in theory should have been competitors in the market. 

Read more: Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison

But in fact, according to Bankman-Fried, everyone should be “treating all dollars the same” between the three firms. The priority for all staffers at the three firms should be “being aligned and always doing what is best for the company” (emphasis added). Though the prosecution didn’t belabor the point, the document seemed to make more explicit than ever that Bankman-Fried had engineered a shell game that relied on the illusion of separation between entities that were in fact active collaborators.

This was just one of many moments when it was clear that Sam Bankman-Fried saw no boundaries between the balance sheets of Alameda Research, FTX, or the countless smaller entities that made up his Potemkin empire. Again and again, Ellison described Bankman-Fried ordering her to create documents or send messages that misrepresented exactly what assets belonged to which entity.

Most specifically, Ellison walked the court through the preparation of a fake balance sheet to be sent to Genesis Trading in the early summer of 2022. On Bankman-Fried’s orders, she prepared a whopping seven different balance sheets, which concealed Alameda’s billions of dollars worth of related-party loans and borrowing from FTX balances in a variety of ways. Ellison and Bankman-Fried eventually chose one of these to send to Genesis, which overstated Alameda’s net value by many billions of dollars.

Joseph Bankman seen in group chat discussing FTX fraud

Another seeming revelation was not highlighted by prosecutors: evidence that seemed to even more deeply implicate Joseph Bankman, Sam’s father. Towards the end of her testimony, Ellison was guided to comment on screenshots of a group chat called “small group chat.” In that chat, on around November 8 as everything unraveled, FTX senior management explicitly discussed whether, and in what ways, to lie about how much money FTX actually had to cover withdrawals.

Attendees who looked closely could see the recipients of those messages: Sam Bankman-Fried, Caroline Ellison, Nishad Singh, Ramnik Arora, Gary Wang — and Joseph Bankman.

The next court session on Thursday, October 12 will focus on Ellison’s cross-examination by defense counsel Cohen. 

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The post Bankman-Fried’s dad spotted in damning group chat during Ellison’s testimony appeared first on Protos.