FTX co-founder Gary Wang is on the stand today in the trial of Sam Bankman-Fried, the cryptocurrency exchange’s other co-founder. Wang, Bankman-Fried’s MIT roommate, is the first of three star witnesses testifying for the government.
(Bloomberg) — FTX co-founder Gary Wang is on the stand today in the trial of Sam Bankman-Fried, the cryptocurrency exchange’s other co-founder. Wang, Bankman-Fried’s MIT roommate, is the first of three star witnesses testifying for the government.
Wang spent less than an hour on the witness stand yesterday but quickly testified that he and Bankman-Fried committed multibillion dollar fraud at the cryptocurrency exchange. Wang, 30, pleaded guilty to fraud and criminal conspiracy last December, a month after FTX’s collapse, in a cooperation deal with federal prosecutors
Prosecutors kicked off the trial this week by portraying SBF as a calculated criminal who knowingly committed fraud by embezzling FTX customer money and confiding to his inner circle about it.
Bankman-Fried’s lawyers hinted at his defense strategy, arguing he was a math nerd who built two successful companies that were hit by market downturns in 2022. Risk management at FTX and sister hedge fund Alameda Research was flawed, they argued, but he never intended to steal customer funds.
Here’s the latest from court (All times are NY):
Alameda Absorbed Some FTX Losses, Wang Says (11:30 a.m.)
Wang testified about problems with FTX’s backstop insurance fund, which was intended to cover losses when a customer’s position needed to be liquidated. He testified that a page on the FTX web page that claimed to show the value of the backstop insurance was a fake number.
He told jurors about the “MobileCoin exploit” of 2021, in which a customer took advantage of a “loophole” in FTX’s margin system, depositing a small amount of collateral while putting on a large position over a couple of months. When MOB dropped and the position needed to be liquidated, at the loss of several hundred million dollars, Bankman-Fried instructed that the customer’s position and collateral be transferred to Alameda to absorb the loss.
The court then took a 15 minute break.
‘The Money Belonged to Customers,’ Wang Says (10:40 a.m.)
Alameda was the only account allowed to have a negative balance, without limit, Wang said Friday. The company policy stated that other customers would have positions liquidated and accounts closed if the positions were losing too much value and the balances nearing zero.
One Alameda trader asked Bankman-Fried if Alameda could keep borrowing funds from the FTX exchange despite the negative balance, Wang said. Bankman-Fried replied as long as the amount Alameda withdraws from FTX is less than what FTX’s total trading volume at the time, then it’s fine to allow Alameda to keep withdrawing.
“The money belonged to customers and the customers did not give us permission to use it for other things,” Wang said.
Wang also told the jury that Alameda accessed FTX funds through a line of credit with the exchange, which Bankman-Fried eventually authorized to be $65 billion. He explained that no other customers had line of credit beyond $1 billion, and that only “a few thousand customers” had single to double digit of millions in line of credit.
Wang Discusses Key Moment with Nishad Singh (10:08 a.m.)
Wang, who was known to be a gifted, but extremely quiet coder in the FTX office, seemed nervous and spoke very quickly during his testimony. He walked the jury through the special advantages Alameda had as a customer on FTX, which included the ability to make trades quickly and without collateral, a $65 billion line of credit and the ability to avoid having its account liquidated and closed when its crypto bets went sour.
He discussed a key moment involving another former FTX executive, Nishad Singh. He said the former engineering head made a change to software code in July 2019 that allowed Alameda to have a negative balance without having its account closed. Singh is also on the list of potential witnesses and made a cooperation deal, pleading guilty to six criminal counts, including wire fraud, conspiracy to commit securities fraud and a campaign finance law violation in February.
But ultimately, Wang pointed to Bankman-Fried, whom he had known since they attended a high school math camp together. The two attended MIT together, pledging the same fraternity.
Alameda Had “Special Advantages” (9:40 a.m.)
Wang entered the courtroom without making eye-contact with Bankman-Fried, speedily walking down the aisle to take the stand. Wang began by explaining technical issues for the jury, including the difference between front-end code, which controlled client-facing elements on the FTX site, and back-end code, which was used to track and value trades and keep track of accounts.
Wang, FTX’s former chief technology officer, testified that Alameda Research was given “special advantages” in FTX’s code, including an “allow negative” feature to borrow “money belonging to other customers of FTX.” When FTX melted down in November, Alameda had a negative balance of $8 billion.
–With assistance from Ava Benny-Morrison.
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