Sam Bankman-Fried was not surprised by $8bn FTX shortfall, key witness says

Sam Bankman-Fried was not surprised by FTX’s $8bn shortfall in the days before its collapse, saying “that sounds correct” when his co-founder Gary Wang ran the numbers and uncovered its startling deficit.

“He had a neutral demeanor,” Wang testified in Manhattan federal court on Friday, his second day as a prosecution witness in Bankman-Fried’s crypto trial.

Bankman-Fried is facing seven counts of conspiracy and fraud over the dramatic collapse of his crypto exchange FTX and its associated hedge fund, Alameda Research.

Wang, under questioning from prosecutor Nicolas Roos, walked jurors through conversations among Bankman-Fried’s inner circle in early November 2022, when more and more FTX investors were withdrawing their money.

Nishad Singh, FTX’s top tech executive, knocked on Wang’s door and told him there was a large number of customer withdrawals, and asked if he could speed up the processing.

Roos asked why he wanted processing sped up.

“To make people less worried” about getting their withdrawals processed, Wang said. Wang spoke to Bankman-Fried later that day, at the fallen tech titan’s apartment.

Bankman-Fried put the blame on an article that contained leaked balance sheets for FTX and Alameda, revealing that the two companies were on shaky ground due to being heavily bolstered by FTT, the exchange’s own cryptocurrency.

“The balance sheet said almost all of Alameda’s assets were cryptocurrencies that had been created by you and Sam?”

“Yes.”

Wang said that he calculated customer balances – effectively, how much FTX actually had compared to what customers put in. Wang said he was “surprised”, because there seemed to be enough to cover non-Alameda FTX customers’ deposits.

Bankman-Fried then threw a curveball.

“He asked me if I was including the special Korean accounts,” Wang said. “He said, ‘Are you including our Korean friend?’”

“I asked him what he was talking about.”

He was sent an ID associated with an email thatWang told jurors he had never heard of.

When he re-ran the numbers considering this account, Wang said, it turned out that FTX balance was, in fact, “negative 8bn”. This suggested that the money Alameda owed FTX had just been moved into another account, so that the hedge fund could save money on interest payments to its lenders.

Roos then asked Wang about a series of tweets that Bankman-Fried fired off hours after their conversation, in which his ex-boss said: “FTX is fine. Assets are fine.”

Were they fine? Roos asked.

“No, FTX was not fine,” Wang said.

Why not?

“FTX did not, in fact, have those assets to cover all client holdings.”

Wang also testified that Bankman-Fried duped FTX customers into thinking their money was protected by an internal insurance fund, when in fact there was not enough money in the fund to cover their deposits.

Wang was also questioned about an internal spreadsheet detailing FTX’s financials. Near an entry about billions of FTX funds that were entangled in the ailing Alameda, a note read: “Oops, this sounds like not a thing we should be counting?”

Wang, the fourth witness called by the prosecution, took the stand late on Thursday and quickly implicated Bankman-Fried, identifying him as one of the people with whom he committed financial crimes.

In early questioning on Thursday, Roos asked Wang directly if he committed financial crimes while at FTX.

“Yes,” Wang replied, explaining that these crimes included wire fraud.

“Who are the main people you committed these crimes with?”

“Sam Bankman-Fried, Nishad Singh and Caroline Ellison,” Wang answered.

Wang pleaded guilty to his role in FTX’s collapse. He is testifying under a plea agreement, court proceedings have revealed.

Earlier on Thursday, jurors heard from Bankman-Fried’s former friend-turned-FTX colleague, Adam Yedidia. It was Yedidia’s second day on the stand.

His testimony put Bankman-Fried at the center of FTX’s operations – which bolstered the prosecution’s argument that he was responsible for its function and culpable for wrongdoing.

“He was the CEO – so, sort of in charge of everything,” Yedidia said Thursday, responding to prosecutor Danielle Sassoon’s question on Bankman-Fried’s role at FTX.

Yedidia also discussed Bankman-Fried’s relationship with Caroline Ellison, his on again, off-again girlfriend and Alameda Research head. Ellison, who pleaded guilty to her role in the companies’ implosion, is poised to be prosecutors’ star witness.

“Sometime in early 2019, the defendant told me that he and Caroline had had sex, and asked if it was a good idea to date,” Yedidia recalled, responding to Sassoon’s inquiry about what Bankman-Fried had said about Ellison.

“I said ‘no.’”

“How did he respond to that?” Sassoon said.

“He said he figured it was what [he] thought I would say.”

Matt Huang, co-founder of the crypto investment fund Paradigm, was the third prosecution witness. Paradigm was among the highest profile investors in FTX.

Bankman-Fried has pleaded not guilty. His team has repeatedly said that Bankman-Fried was trying to do the right thing but couldn’t quite keep his head above water.

During the defense opening, lawyer Mark Cohen said: “Sam didn’t defraud anyone. Sam didn’t intend to defraud anyone. Sam acted in good faith.

“There was no theft.”