The Journal. - The Trial of Crypto’s Golden Boy: Where Did The Money Go?

Episode Date: October 19, 2023

Over the course of Sam Bankman-Fried’s trial, the jury has seen evidence and heard testimony about the money circulating through FTX and Alameda. Rachel Humphreys and Caitlin Ostroff break down the prosecution’s case, and trace where the government says the money was coming from and where it went. 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

I can't believe I'm saying this. We're closing in on the end of week three, Caitlin. So that's kind of the halfway point, as we know it at the moment in this trial. And already we've heard testimony from three of Sam Bankman Freed's closest allies, Gary Wong, Dishart Singh, and Caroline Ellison. But also over the past few weeks, we've heard from a bunch of other witnesses, haven't we?

Yeah, we've heard from FTX customers. We've heard from one of its lenders, and we've heard from one of its investors. witnesses, prosecutors have really been trying to paint a clear picture to the jury of what happened to customer money and how Bankman Freed allegedly spent it. These are questions that we've been trying to figure out for the better part of a year. Yes. And at this trial, the flow of money in and out of FTX is becoming really clear. And the prosecution is now getting really close to resting their case. So it's kind of now or never for the jury to understand just how FTX and Bankman Freed

allegedly stole customer funds. From The Journal, this is the trial of crypto's golden boy. I'm Caitlin Ostroth. And I'm Rachel Humphries. This is the trial of crypto's golden boy. I'm Caitlin Ostroth. And I'm Rachel Humphries.

Coming up, where did the money go? Your teen requested a ride, but this time, not from you. It's through their Uber Teen account. It's an Uber account that allows your teen to request a ride under your supervision with live trip tracking and highly rated drivers. Add your teen to your Uber account today. Today was the day in court that I remembered why I'm a journalist and not a lawyer, because we're really getting into the nitty gritty of very detailed and sometimes some would say quite boring pieces of evidence. detailed and sometimes some would say quite boring pieces of evidence. But today felt like the prosecution succeeded in clearly explaining to the jury how money flowed in and out of FTX. And they did this through a witness who, I've got to say, Caitlin, I was not that excited to hear

from. No, I mean, you know, when you hear expert witness, expert testimony, you usually kind of think, oh, this isn't going to be as dramatic as some of the other witnesses. And this, you know, as an expert witness, this wasn't someone who's close to Bankman Freed. They didn't work for FTX or Alameda or do business with them. They were a professor of accounting. Which maybe this is someone that you find interesting. But yeah, a professor of accounting. Which maybe this is someone that you find interesting. But yeah, professor of accounting might not get everybody excited. I do love his spreadsheet, but I'm unusual. Yes, this was Professor Peter Easton. And if I had to provide a visual of him, I'd describe him as kind of an Australian Father Christmas or Santa Claus, whichever way you say

it. And he's actually been an expert witness in a few financial fraud trials, including Enron. So he does know how to explain complicated spreadsheets. And when you're sitting in the courtroom, you have these little TV screens in front of you. And, you know, usually we're often kind of squinting, like I'm hunched over trying to see like, you know, what's being presented in evidence. But today, Easton gave the jury a break from the many, many spreadsheets that they've seen. And instead, he showed them flowcharts, line charts, and a pie chart, which again, I thought were very fascinating. And the flowcharts were actually very easy to read. Yeah, they clearly had been designed to be easy to understand.

Yeah, they clearly had been designed to be easy to understand. But before we talk about what Easton said about where the money went, let's talk about what we've heard so far at this trial about where the money came from. Yeah, so the money that the prosecutors say was misappropriated was a combination of money from FTX customers, but also investors in FTX and all of these kind of other companies that loaned money to Alameda Research. And in week one of the trial, we heard from one of those investors, Matthew Huang, the co-founder of an investment firm that gave tens of millions of dollars to FTX. Yeah, he testified that he saw FTX as this growing company. And Huang said that he thought the general expectation was that FTX held on to customer deposits and didn't spend them.

And he testified he didn't know they did that and that if he and his company had done, they likely wouldn't have invested if they'd known. And someone else that we heard from at this trial who shared a similar sentiment to him was Zach Prince, who was on the witness stand last Friday. Yeah, Prince was the CEO of a company called BlockFi. It was this big crypto lending company

that gave loans to firms like Alameda Research. We previously heard testimony from Caroline Ellison in which she said that she doctored some spreadsheets to show Alameda's financial health as being better than it was at Bankman Freed's direction. And those spreadsheets were actually some of the financial information shared with BlockFi when Alameda asked them for money. And Prince said that, you know, based on seeing those spreadsheets, that's why they decided to give Alameda more money. And if they had known the actual truth of their financial state, they wouldn't have done that. And Prince said that, you know, it was because of FTX and Alameda's

collapse that BlockFi itself also collapsed. They filed for bankruptcy last year. And so far at this trial, we've heard from two customers, people who deposited money on FTX. It could be cash, it could be crypto, it could be a combination. And both of these customers testified that they trusted the platform with hundreds of thousands of dollars. And they both kind of shared a similar story. They both said that they believed in Bankman Freed. They thought that they could withdraw money from FTX at any time. And they said that when the collapse happened or was happening,

that they saw tweets from Bankman Freed reassuring them that their money was safe. And they believed it. But, you know, hours or sometimes a day or so later, they would try to take their money out and they just couldn't. Yeah, and that was a lot of money that they put into FTX. And next, we'll talk about where that money and the rest of the billions of dollars of customer funds allegedly went. funds allegedly won.

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He's going to hear this and be like... I don't think it's an unflattering thing. Father Christmas, I believe, is a widely liked figure. But you're right. He may listen. I'm talking about the professor of accounting we heard from today, Peter Easton. He and a team have been poring over bank statements, he testified today, of FTXs and Alamedas and looking at all their accounting to try and figure out where customer money and investor money went.

I mean, honestly, to me, the whole thing sounded like a total headache, but they've done, by the sounds of things, a lot of work on it. Yes, and a lot of work to make it fairly simplistic. As a reminder, FTX's business model was that customers would give them either money or crypto, that FTX would store that money and investments they made with it on the platform, and if they traded, FTX took a small fee from that trading. And that was basically the FTX business model. But Easton said on the witness stand today that most of the money Bankman Freed and his colleagues used for spending came from

customer funds. And looking at the flow charts, you could see that the customer money dwarfed any other money that was being used for these different portions of spending. Yeah. And he basically said that they were also spending way beyond their means, didn't he? Yeah. As you mentioned, Caitlin, we did look at a lot of flow charts, and I wondered what jumped out to you today from those. Yeah, the flow charts gave us a really clear visual showing of how money allegedly was taken from FTX customers and used for whatever Bankman Freed and his co-conspirators wanted to spend it on. Easton had made sense of some really confusing financial documents, and we're talking about money being moved around between a bunch of different bank accounts,

and he kind of condensed that to show in these simple charts where money went. For example, we saw one flow chart which showed that money went from FTX customers to Alameda bank accounts and then eventually was given to that company BlockFi that we talked about earlier to repay some loans that Alameda owed it. Yeah, and Easton identified four key areas, right, where he said customer funds were being invested. Those were real estate, political contributions, charitable foundations and investments in business and financial funds. And we went through what some of those were. And something that jumped out to me is that some of Sam Bankman-Fried's own family members popped

up in this conversation. For example, one of the charitable foundations that received customer funds, according to Easton, was run by Bankman-Fried's brother, Gabe Bankman-Fried. So Caitlin, on the one hand, this evidence we saw today aimed to show clearly where customer money was being spent, and that can be quite incriminating. But will it be enough to convince a jury? I mean, I think today was the first time we've really seen clearly where money was going in, what bank accounts it was kind of being moved through, where it was going out. And we've seen a lot of evidence in this trial, which can be honestly just really confusing, even to reporters who've covered this story for almost a year. And I think Easton's visual aids, you know, really did kind of show how money was being moved from Alameda to FTX and to other places.

And the thing that will really potentially be an aid to the jury is that because this is now in evidence, they can take these flowcharts with them into the deliberation room when they are deciding whether Bankman Freed is guilty or not guilty. It's just a question of, you know, will they view this as proof or evidence that, you know, this was misappropriation of that money? Yeah. And the jury are getting ever closer to having to make their decision

because the prosecution is going to rest in this case soon. And after that, the big question is, will Sam Bankman-Fried testify? It's all the reporters are talking about, I would say, in the lines. It's the main thing we all now care about. It's the main thing that everyone is focusing on. We think if he does, that may happen as early as next week. But first, the trial goes on a break for Monday to Wednesday,

which I think after these weeks of evidence, the jury's going to need. Yeah, us too. That's all for today, Thursday, October 19th. 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 Astroff. And I'm Rachel Humphries. Thanks for listening. Check back here for trial updates.