The Journal. - The Trial of Crypto’s Golden Boy: The First Key Witness

Episode Date: October 7, 2023

Gary Wang, FTX’s former chief technology officer, took the stand in the government’s case against Sam Bankman-Fried. Producer Rachel Humphreys and WSJ’s Caitlin Ostroff discuss what Wang says he knows about the secret code that allowed Alameda Research to borrow billions of dollars of customer money from FTX.  Further Reading: - What’s Happening Today at the Sam Bankman-Fried Trial  Further Listening: - The Trial of Crypto’s Golden Boy  Learn more about your ad choices. Visit megaphone.fm/adchoices

Caitlin, it is the end of the first week of Sam Bankman-Fried's trial. It has been a week of incredibly early mornings and then hours spent on uncomfortable courtroom benches. But we have a jury in this case now and we have heard opening arguments from the prosecution and defense. And now we're hearing from witnesses. We've had several witnesses already. And right now on the stand, we have a key witness, a star witness. Yes. Right now we are hearing from Gary Wong. And Wong has known Sam Bankman-Fried for years.

They co-founded companies together. They became billionaires together. But now Wong has pleaded guilty and is cooperating with the government. And Bankman-Fried has pleaded not guilty. So they found themselves in very different parts of the courtroom. And Wong's testimony has been explosive. He's revealed just how big the mess really was at FTX and Alameda. Yeah, and we still haven't heard much from the defense's cross-examination.

But Wong has said a lot, and a lot of it has surprised me. From the Journal, this is the trial of crypto's golden boy. I'm Rachel Humphries. And I'm Caitlin Ostroth. Coming up, the first key witness. We'll see you next time. No. Some wine? Yes. Get almost, almost anything delivered with Uber Eats. Order now. Alcohol in select markets. See app for details. So, Caitlin, we are in the midst now of witnesses at this stage of the trial. What would you say the jury is listening for from these witnesses? What would you say the jury is listening for from these witnesses? So remember, the jury is tasked with deciding whether Bankman Freed is guilty or not guilty of charges that the government has brought against him, including fraud and conspiracy.

And so it's their job to sit there, listen to all of the witnesses, look at all of the evidence, and eventually decide whether Bankman Freed is guilty beyond a reasonable doubt or not guilty. And they're starting to hear from witnesses this week. We've heard from a person who invested on FTX, and we heard from a former FTX employee. And so we're starting to hear from people who had some interaction with FTX and Bankman-Fried. And that's taken us through the end of this week with Gary Wong, the former chief technology officer of FTX. And Wong and Bankman-Fried go back a pretty long way, don't they? Yeah, I think more so than others we've heard from thus far.

So they know each other going back all the way to high school, and they actually met at what was called a math camp. There's literally a camp designed for people who are just like these math savants. And so that's where he and Bankman Freed originally met. And years after math camp, Wong became one of the founders of FTX, and he was in charge of overseeing a lot of the code that FTX was built on. After the collapse, he pleaded guilty to fraud and agreed to cooperate with prosecutors, but he could still face time in jail. And we had Wong's testimony start on Thursday. Yeah, and I noticed that on the benches that we sit on at the back of the courtroom, all the reporters kind of like bristled in anticipation just before Wong came in

because he's a guy who didn't do interviews, who we've never heard speak before. It's kind of been this like silent figure. And he walked in, took the stand, and fairly early on was asked to point out Bankman Freed in the room. And he had to kind of stand up and crane around to see Bankman Freed. And I room and he had to kind of stand up and crane around to see

Bankman-Fried. And I just thought it was like kind of a moment. These are two people who've been friends for so long. I'm not sure if they've seen each other for a while. And wow, like what a scene to be in to like see each other again. It was so awkward watching him kind of like crane and point to Bankman-Fried. It was so weird to witness. Yeah, and then almost as soon as the prosecution began its examination of him, one of the first questions they asked him was, did you commit financial crimes? And he said, yes.

And he was asked who he committed them with, and one of the names he mentioned was Bankman Freed. And I thought that felt like a real moment. And Wong brought up some new details that we didn't know about yet regarding how FTX set up the code that allowed Alameda to borrow money from FTX. Yes, he did. And that gave the courtroom an opportunity to see a lot of the code, which was a big moment for you, Caitlin, because you love code. And for me, it was just another

moment of confusion. We should add that I'm a little bit of an amateur programmer, which is why. Explains it. And we also, in our pre-trial episodes, we talked about this code that allowed Alameda to borrow up to $65 billion from FTX. But before the trial began, we didn't know when these privileges had begun. And this is what Wong talked about today. Wong said that one bit of code that gave Alameda special privileges was written, according to him, in July 2019. Now that's just

months after FTX was founded. And that code was referred to by Wong in court as the ability for Alameda to go negative. Basically, he said they could be in debt to FTX. Yeah, and the specific day that that code was changed was actually July 31st, 2019. And the reason that we're calling out that date is because shortly thereafter, the government showed a tweet that Bankman Freed had written that same day, actually,

in which he told someone that Alameda's account was, quote, just like everyone else's on FTX. And at the moment that the press saw that tweet and they saw the date on it, there was this gasp on the benches where they were so surprised. And then according to Wong, there was also this code that allowed Alameda to borrow money. And by late 2019, early 2020, Wong said Alameda was already tapping customer money. And Wong went on to say over time, the limit for how much Alameda could borrow changed. He said initially it was a few million. Then he said it grew to a few hundred million. Then Wong said it went beyond one billion. And then he said it was set to 65 billion.

What I was really looking to try and get more info on and didn't really get answered was why Alameda needed these privileges on FTX. And there wasn't really a clear-cut answer that we got to that. And so it's possible maybe we get more info, but it's one of the things I'm still wondering about. And while Wong said that Alameda never borrowed the full, you know, $65 billion that it had access to, they did borrow what wound up being an eye-watering amount of money. And we're going to talk about how much that was after the break. American Express will be right there with you. Heading for adventure? We'll help you breeze through security.

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Suddenly, you're on a fresh adventure, becoming the hero of your own night. Unapologetically full-flavored cocktails with a 13% punch. can and take a sip. Suddenly you're on a fresh adventure, becoming the hero of your own night. Unapologetically full-flavored cocktails with a 13% punch. Seagram 13. Dare to make your own luck. Must be legal drinking age. Please enjoy responsibly. Available at the LCBO. Today in court, we learned a lot from Wong's testimony about what was going on inside FTX last year in the lead up to the collapse. And we started in June of 2022. That summer, crypto prices were crashing. Tons of companies were going broke. Yeah. So against that backdrop, there was a meeting between Bankman Freed, Wong, and Caroline Ellison and Nishad Singh, who's the head of engineering at FTX,

where they were basically trying to figure out how much money did Alameda owe just to FTX. And they were putting these numbers together and they made a spreadsheet. And Wong testified that after kind of adding everything up, he came up with a number. And Wong testified that after kind of adding everything up, he came up with a number, and that was $11 billion. Right. And Wong testified that he told Bankman-Fried about that $11 billion debt. And he said Bankman-Fried didn't seem shocked.

And he even testified that after that, Bankman-Fried directed Caroline Ellison to actually have Alameda repay the money that it owed to its other lenders, despite the $11 billion debt. And after that, the prosecution moved on to asking Wong about events of November 2022, when FTX collapsed. And they began by asking him about what happened on Sunday, November 6th. Yeah, so Wong testified that November 6th is when he found out that customers were trying to pull swaths of money off the exchange. This was after the Coindesk article that we spoke about in our pre-trial episodes came out with some information on the ties between

FTX and Alameda. And Wong testified that he talked to Bankman Freed and Bankman Freed told him that there's another account that's not reflected in your calculations determining how much money in crypto FTX has. And Wang said that Bankman Freed said that this was an old Alameda account, but it had been given a different name. And that account, Wang said said owed $8 billion to FTX. Yeah. And again, that was a bit of a moment I felt in the courtroom. And they then went on to ask about the very next day. Yeah. And then the government showed a tweet that Bankman Freed had sent out from the day after November 7th, where he was trying to reassure customers saying that FTX was fine, that the assets were fine. But Wong testified that that

was a lie. And we did get some cross-examination from the defense today of Wong, and that is going to continue into Tuesday. And they seem to be struggling a little bit. Judge Kaplan is getting frustrated with how they are often repeating the prosecution's questions. And he's given them a bit of a telling off. Maybe they have a strategy they pull out on Tuesday. We're not sure. But after that, we may get a star witness. Yeah, and that's Caroline Ellison.

She is the witness that everyone has been waiting to hear from. And there's a lot of anticipation about what she might say. And being the CEO of Alameda Research, but also Bankman Freed's former romantic partner, you know, she could wind up being a major turning point in this whole trial. That's all for today, Saturday, October 7th. The trial of crypto's golden boy is part of The Journal, which is a co-production of Spotify and The Wall Street Journal. I'm Caitlin Ostroff.

And I'm Rachel Humphries. Thanks for listening. Check back here for trial updates.