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SBF girds for week three after damaging testimony from FTX and Alameda insiders

SBF girds for week three after damaging testimony from FTX and Alameda insiders
Sam Bankman-Fried's trial delivered devastating blows to the defence in its second week, legal experts say. Credit: Rita Fortunato/DL News
  • Sam Bankman-Fried used FTX customer funds to repay Alameda loans, Caroline Ellison testified last week.
  • He tried to raise capital from Saudi Crown Prince Mohammed bin Salman to shore up FTX customer accounts, she said.
  • The testimony marked a devastating blow in a bad week for Bankman-Fried's defence.
  • The week also saw testimonies from FTX co-founder Gary Wang, and the CEO of BlockFi Zac Prince.
  • Now crypto's former golden boy braces for the third week of the trial.

A version of this story appeared in our The Roundup newsletter. Sign up here.

Happy Monday!

Tom here with this special edition of the Roundup where we focus on Sam Bankman-Fried’s ongoing trial.

Things are not looking great for the former crypto king as the second week of the proceedings came to an end, according to the legal experts we’ve spoken with.

Last week, the prosecution not so much chiselled at the Bankman-Fried’s credibility as much as it took a sledgehammer at it.

The government kicked off the week by completing the testimony of crypto exchange FTX co-founder and former CTO Gary Wang before putting Caroline Ellison, crypto investment firm Alameda Research’s former CEO, on the stand.

Alameda was co-founded by Bankman-Fried.

Ellison delivered some massive blows to Bankman-Fried’s defence by describing for the jury in vivid detail how he instructed her to doctor the firm’s books to cover losses.

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”He directed me to commit these crimes,” Ellison told the court.

Despite being the CEO of Alameda, she said she deferred to Bankman-Fried on major decisions.

”Her testimony is devastating,” a former prosecutor, who has held senior positions within the US Attorney’s Office in the Southern District of New York and asked not to be identified, told Aleks Gilbert.

”You have an eye witness to the crime, someone who participated in the crime, who’s committing the crime with the guy and who can give a blow-by-blow account of what happened,” the former prosecutor continued. “It’s the best testimony you want [as a prosecutor].”

In a key exchange, Ellison said how crypto lenders, including Genesis and BlockFi, had begun recalling loans in June 2022 following a market crash.

As a reminder, this is the market downturn that saw the implosion of Do Kwon’s Terra empire and Alex Mashinky’s Celsius, which caused legal woes for both those crypto tycoons as well.

At around that time, Bankman-Fried started to plunder customer accounts at the crypto exchange FTX to cover losses at Alameda, prosecutors allege.

Bankman-Fried didn’t want Alameda creditors to know the crypto hedge fund was using FTX customer funds, Ellison testified on Wednesday.

“He suggested I should prepare some alternative ways of presenting the information and send it to him,” she said.

“I understood him to be directing me to come up with ways to conceal things in our balance sheet we both agreed would look bad.”

Ellison said she had doctored seven alternative company balance sheets to hide the use of FTX funds.

In an effort to top up those depleted customer accounts, Bankman-Fried solicited emergency funding from Saudi Crown Prince Mohammed bin Salman in a meeting in the Middle East sometime that summer, to refund FTX customer accounts, Ellison said on Wednesday.

Ellison also testified about a scheme in which Bankman-Fried paid a $100 million bribe to Chinese officials to unlock $1 billion in funds stuck on a Chinese exchange.

Judge Lewis Kaplan instructed the jury that Bankman-Fried wasn’t charged with being tried for bribery.

How effective Ellison’s testimony will end up being depends on how credible as a witness she is to the jury.

The defence’ strategy, of course, it so portray her as a cooperating witness who will say anything to save her own skin, as Ari Redbord, the global head of policy and government affairs at TRM Labs, the blockchain intelligence company, wrote for us.

Ellison has pleaded guilty to multiple fraud and conspiracy charges.

Bankman-Fried has pleaded not guilty to criminal charges including fraud and money-laundering conspiracy.

Last week’s courtroom drama was rounded off by a testimony from Zac Prince, CEO of BlockFi, who said his defunct crypto lender would not have imploded if it wasn’t for the fact that it had loaned hundreds of millions to Alameda.

Thomas Carreras

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