The Journal. - The Trial of Crypto’s Golden Boy: Things Sam Is Testifying About

Episode Date: October 28, 2023

With the jury in attendance, Sam Bankman-Fried took the stand to testify in his defense. Rachel Humphreys and Caitlin Ostroff break down where his story of the FTX collapse has differed from the testimony of his former colleagues Caroline Ellison and Nishad Singh. 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

It's the end of the week, Friday. It was a short two-day week, but actually very long. It still feels very long, in part because the press corps has not slept the last two days. Yeah, the reporters have been relentless, and today was the second day that Sam Bankman-Fried took the stand in his own defense. But really, it felt like the first day, didn't it? Yeah, because at least to the jury, it was. We had the sort of dry run with parts of his testimony yesterday, but the jury had gotten sent home. And so this was the first full day of having Bankman-Fried on the stand. And so we saw a lot more people show up today much earlier. Yeah. And I didn't even get

inside the courtroom today, Kate, and I was in the overflow room with many other people and reporters staring at a TV screen with a feed from the courtroom. So I could get only a sort of rather overexposed camera view of Bankman Freed. What was your impression being in there today? Yeah, so Bankman Freed was pretty calm and collected. There were some moments where you kind of felt that he was shaking his leg, his whole body seemed to go up and down a little bit. But by and large, he seemed pretty comfortable. He was relaxed, smiling. He tried joking a couple of times to the jury with his kind of dry humor. And he, by and large, told a very different story,

one that contradicted what we've heard from his former colleagues. But the real test will come next week when prosecutors get their chance to grill Bankman Freed, but this time in front of the jury. From The Journal, this is the trial of crypto's golden boy. I'm Caitlin Ostroff. And I'm Rachel Humphries. Coming up, Sam Bankman-Fried tells his side of the story.

Travel better with Air Canada. Transcription by CastingWords Before we get going, and I know there are some people listening who are invested in this, which is why I bring it up. Caitlin, where are we on the free coffee tally at the end of week four? We have gotten two more free coffees. So yeah, we've now got four free cups of coffee. I will just add as well that the new hack that I've discovered today, get the coffee before you go into the courtroom. Drink it before you go in at around 8.15am. We will be proposed the day it ends. Yeah. Don't drink the coffee after one. It doesn't taste good. So yesterday we had testimony from Bankman Freed. And this morning, Judge Kaplan's first order of business was to decide what from yesterday, Thursday, the jury could and could not hear. Yeah, Kaplan decided that Bankman Freed would not be allowed to give most of that testimony to the jury.

testimony to the jury. And that's a big blow to the defense because they had really hoped to argue that the involvement of FTX lawyers showed that he was acting in good faith. Yeah, for the defense, it was a little bit like we saw the movie trailer yesterday, but today we weren't going to see the actual movie. Instead, we watched something quite different. So Bankman Freed came into the court this morning and he was up in front of the jury and he started off by admitting he made mistakes, didn't he? Yeah, right at the start, he said that he made mistakes, some small, some big. And he said that chief among the mistakes was that FTX didn't protect against risks as much as they should have. And later on, he testified that this was a really big problem because FTX was growing so fast. Yes. And today we went back to the very early days of him founding Alameda Research. And the

defense really painted a picture of him as this hardworking, smart guy who created this incredibly successful business empire. Yeah, they kind of reintroduced him to the jury and Bankman-Fried said, you know, he went to MIT, he founded Alameda out of a two-bedroom Airbnb in Berkeley, California. Bankman-Fried kind of joked to the jury, he's like, you know, it was a two-bedroom, but it was basically for when you add the attic

and the couch in the living room, which is basically another bedroom. And he also said he, quote, wasn't much of a programmer. So he brought in talented friends like Gary Wong to work with him. And a couple years later, they founded FTX in 2019. And Bankman Frey had said that he was just really busy. As the company grew, he talked about working really long hours, up to 22 hours a day, having thousands of emails.

He joked that 60,000 unread emails was actually quite good for him. And he only took a day off every couple of months. Yeah, and he also talked about how he unexpectedly became the face of FTX, how he did a couple of interviews and they went well. And almost before he knew it, he was the face of the company. And by the time he might have wanted to step back from that role, it was really too late. Right. And while we heard on the one hand that Bankman Freed was trying to manage a scrappy, fast growing startup, he also testified that he was very involved in one particular thing, which was marketing. He talked about how he came up with

the idea to sponsor a sports stadium because he thought this would have a huge brand impact, that this was something he thought would stick in people's heads. And he spoke about how he always remembers the names of stadiums. Yeah. And so this was how FTX came to be the brand name on the Miami Heat Arena. But I don't know about you, Caitlin, sports stadiums names, they don't really stick with me personally. And I was thinking about how a lot of stadiums get renamed and people still call them the old name anyway, like in London, the O2 Arena, a lot of people still call it the Millennium Dome. Yeah, no, the sports arena near where I grew up, I call it one thing from 10 years ago

and my mum calls it something from when she was a teenager. Yeah. But anyway, Bankman-Fried also spent some time today sowing doubt about the testimony we heard from his former colleagues, especially Nishad Singh and Caroline Ellison. And we're going to talk about

Bankman-Fried's version of events next. With Uber Reserve, good things come to those who plan ahead. Family vacay? Reserve your ride as soon as you book your flights. To all the planners, now you can reserve your Uber ride up to 90 days in advance. See Uber app for details. Wherever you're going, you better believe American Express will be right there with you. Heading for adventure? We'll help you breeze through security. Meeting friends a world away? You can use your travel credit.

Squeezing every drop out of the last day? How about a 4 p.m. late checkout? Just need a nice place to settle in? Enjoy a room upgrade. Wherever you go, we'll go together. That's the powerful backing of American Express. Visit amex.ca slash yamx. Benefits vary by card. Terms apply. One big theme of Bankman-Fried's testimony today was that he wasn't involved in some of the things that his inner circle testified he was, or that things weren't quite as they described. Right. And one of those things he spoke about was a portion of the FTX code that allowed Alameda to owe money to FTX. We heard about this in testimony from other members of his inner circle, and they called this the allow negative feature, basically. And today, Bankman-Fried testified that while he was aware of the practice, he was not aware of this term for it. Yeah, and that was just really the start of Bankman-Fried distancing himself from events that,

according to colleagues, he had been at the center of. And I was quite struck by his discussion of something that happened in late 2021 with regards to FTX's revenue. Yeah, we heard from Nishad Singh when he testified that Bankman Freed had directed him to find a way to bring FTX's revenues over the line into $1 billion in 2021. And Singh testified that to do this, he altered a transaction history to make it look like the company had reached that $1 billion level,

even though they hadn't. Yeah. And I actually went back today to my notes and Nishad Singh testified that Bankman Freed told him to do it. And I wrote that in court at the time, Bankman Freed had shaken his head. Today on the witness stand, Bankman Freed said that he wanted FTX's revenue to be a billion because he likes a round number. And he didn't tell Nishad to do anything to make that happen. And this wasn't the only time that Bankman-Fried told a different story than a former colleague because he spent quite a bit of this afternoon talking about his working relationship with the CEO of Alameda, Caroline Ellison. Yeah, Bankman Freed testified that he

repeatedly asked Ellison to hedge the crypto trading firm's risks. And hedging is a really jargony word for basically just reducing how much risk your investment carries by buying or selling another asset. So basically, it's a little bit of protection, just in case something goes wrong. In the same way that you might hedge that there might not be enough courtroom coffee or enough another asset. So basically, it's a little bit of protection, just in case something goes wrong, in the same way that you might hedge that there might not be enough courtroom coffee or enough quality courtroom coffee, and you opt to have a cup or two before you actually get to the courthouse. I'm going to learn hedging when it comes to coffee. That's my aim for this trial. And Bankman-Fried also said that he would check in with Ellison periodically to see if Alameda had in effect hedged its positions. But he said that he was told that it hadn't.

And Alameda wasn't hedged in June 2022 when prices for cryptocurrencies fell quickly. Would hedging have prevented Alameda, though, from suffering such a huge deficit, Caitlin? Hedging have prevented Alameda, though, from suffering such a huge deficit, Caitlin. I mean, we can't say definitively, but Ellison testified that a lot of FTX customer money had been used to pay off Alameda's lenders and to make speculative investments. And with the amount of money that was being spent, it's kind of hard to see how hedging would have helped to that degree. Right. Okay. let's talk about what Mike Winfried said he knew about how money was being spent at FTX. He was asked several times by his lawyer, Mark Cohen, today, if he knew where money for things came from. And he would say things like

a loan from Alameda. And I noticed that one phrase that was largely absent from his testimony today was customer funds. Yeah, one of the few instances it was mentioned was when Bankman-Fried was asked if he took customer funds and he said no. But Bankman-Fried also testified that he wasn't aware of how Alameda Research was using FTX customer funds that were deposited into its bank accounts. You'll remember that one of the ways prosecutors say money was taken is it went straight into Alameda bank accounts. Bankman-Fried said he wasn't sure if Alameda was just holding the money or trying to transfer it to FTX or borrowing from it. He said, quote, at the time,

I wasn't entirely sure what was happening. Yeah, that was kind of a bit of a theme of some of his testimony today. And towards the end of the afternoon, Bankman-Fried testified that he didn't find out how much money Alameda owed FTX until June 2022, and that he really didn't begin to understand the full scale of the problem until a month or so before FTX collapsed. Yeah, we heard from both Nishad Singh and Caroline Ellison about how stressed they were between June and the collapse of FTX in November because of Alameda's alleged use of customer funds. But what Bankman Free told us today was that he was surprised at finding out

about it. And he did so, quote, in pieces from his colleagues. He didn't seem stressed and he gave the impression that he didn't know everything that was going on. Yeah, the only time he actually mentioned freaking out asked if he was, in fact, freaking out about Alameda's hedging. And Sam said, quote, I don't tend to show a lot of freak outness, but relative to my standard, yes. Okay, so we're now at the end of week four, Caitlin. What happens next? What are we looking at next week? Well, what we heard today was most of the defense team's questioning of Bankman-Fried. They're not quite finished yet. It's going to go weeks packed into late Monday morning.

But then after that, the prosecution gets to take its turn at cross-examining Bankman-Fried. And that's going to be the real challenge for him. From what we saw on Thursday, their questioning is going to be really incisive and sharp. And it could be long. Judge Kaplan asked prosecutor Danielle Sassoon today just how long cross-examination might last. And she said it would be, quote, significant. Yeah, it sounds like it's going to be a very long week. That's all for today, Saturday, October 28th. The Trial of Crypto's Gordon Boy is part of The Journal, which is a co-production of Spotify and The Wall Street Journal.

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