Comments on Crypto-Cryptanalysis: Bankman-Fried’s Testimony on FTX and the Anomalies of the Alameda Co-conspirator
A number of questions were asked about whether Bankman-Fried recalled specific things. Did he recall saying that FTX had reformed how crypto exchanges worked? That he had built a responsible system? That exchange was thoughtful? That FTX was providing clarity and transparency to the crypto system?
The cross-examination exposed cracks in Mr. Bankman-Fried’s claims, dealing a potentially serious blow to his credibility with the jury of nine women and three men who will decide his fate. Ms. Sassoon displayed statements that appeared to show Mr. Bankman-Fried saying something to a crowd and then changing his behavior in private. Ms. Sassoon asked him to repeat his private messages in which he dismissed regulators as useless, after he had briefed government officials in Washington.
The trial has shined a spotlight on risk-taking and arrogance amongst the people in the industry, and Mr. Bankman-Fried’s testimony was the most anticipated moment. Mr. Bankman- Fried is now seen as a type of fraud similar to the founder of the failed blood-testing start-up Theranos.
Bankman- Fried reacted differently to the software bug that underestimated the amount of money owed to FTX by about $8 billion. Nor is it how he reacted to finding out that even after fixing the bug, Alameda still owed FTX about $8 billion. Instead, the alleged co-conspirator was instructed by Bankman-Fried to make investments and repay loans.
But Sasson didn’t leave it there. The loss occurred because someone had exploited several loopholes on FTX in order to make the trade, she noted. Did Bankman-Fried tell investors about this exploit? He didn’t. Did he tell customers? Nope.
The meat of the cross was moved by Sassoon once that was accomplished. Multiple statements, from multiple interviews, featured Bankman-Fried saying that Alameda had some special privileges — which was, of course, something Bankman-Fried had also denied to customers.
The Fine is Fine. Assets are fine: Bankman-Fried Explains his “Fake Explanation” to Sassoon
FTX fell in a way that was very childish: a nerd posse ran away with a bunch of other people’s money.
Sassoon followed this with a series of direct messages from Bankman-Fried in which he said the whole thing was just public relations and “fuck regulators.”
Still, he hadn’t made any of those statements under legal oath, had he? Well… that remained true until we reached his Congressional testimony. The testimony Bankman-Fried had submitted to Congress showed that trading platforms had obligations to keep sufficient liquid assets. That platforms should ensure appropriate bookkeeping to prevent misuse of customer assets. Ensuring appropriate management of risks. There should be no conflicts of interest.
Bankman-Fried told us about Japanese government bonds. Bankman- Fried had just testified about giving Ellison instructions on hedging, a form of trading. We heard that Bankman-Fried had been at Alameda for years, and wasn’t involved in the trading. “I was intentionally not getting involved in it” because of possible conflicts of interest. Also in an interview with the Financial Times, Bankman-Fried said he’d walled himself off from trading.
Then we got what I had been waiting for: the cross examination. The cross was not used because Bankman-Fried’s testimony was short on evidence. Bankman- Fried was baited by a matador before she drove her sword through his shoulders.
Bankman-Fried’s other major task was figuring out how to explain away the infamous “FTX is fine. Assets are fine.” You can send a letter. At that time, Bankman-Fried said he really believed that. On November 8th, Alameda was still solvent, he said. Almost all of the other events occurred exactly as others had described them, except that Bankman-Fried sounded more heroic in this telling, if only because he was not doing any crimes this time.
I pondered how smart the average person is when Danielle Sassoon asked a brutal line of questioning midway throughBankman-Fried’s cross examination. Maybe they don’t know calculus. Maybe they’ll never read Ulysses. They might not be able to code. They know how to spot bullshit.
Sam Bankman-Fried: What Do You Have to Tell Us About His Preparation for His Crucial Trial? An Empirical Analysis
So if you, like Bankman-Fried, have moved into the Clintonian territory of “it depends on how you define ‘trading’’” you done fucked up, son. Make whatever “sophisticated” argument you like; even the stupid will see through it.
At various points during Sam Bankman-Fried’s cross examination, I saw jurors shake their heads, frown so hard their lips disappeared, and make prolonged eye contact with each other. I fear the phrase “Is it your testimony that…” because of its similarity to a fear tactic.
The day did not start like a disaster. In fact, Bankman-Fried’s direct testimony was the strongest he’d given so far: clear, coherent, believable. On his home territory of direct examination rather than cross-examining the prosecutors’ witnesses, defense lawyer Mark Cohen improved his ability to order a simple chronological narrative, even if he once instructed us to move forward in time from November 7th to… November 7th.
Bankman-Fried was supported by very little other evidence. Gary Wang, Caroline Ellison, and Nishad Singh all had text messages, documents, code snippets, and so on to corroborate their versions of events. Bankman-Fried had a lot of that, but what little it did has been thin.
A client-funds fraud trial at the age of eight: Sam Bankman-Fried nailed the $8 billion, but kept the mind on it
Let’s say I am the owner of a hedge fund, and one fine June day, my employees come to me and say, “Hey, Liz, we have an accounting problem. We are missing a lot of money. What would I do?
Alameda’s balance sheet of June 13th, 2022, shows that it was taking money from FTX. Bankman-Fried seemed pretty hazy on this, too.
If you are wondering how Bankman-Fried’s parents reacted to this, I can’t tell you — they weren’t there. I couldn’t really blame them. I wouldn’t want to watch my child be vivisected, either. The jurors, however, watched the operation attentively. I suppose the $8 billion has something to do with focusing the mind.
Source: Sam Bankman-Fried [didn’t ask where the $8 billion went](https://www.theverge.com/2023/10/31/23940814/sam-bankman-fried-ftx-alameda-customer-funds-fraud-trial)
What do I need to say about Bankman-Fried’s relationships to Bahamian power? A test before the jury on misplacing $8 billion
Saying phrases like “hole isn’t really the word I would use” and being sarcastic when asked about it bode well for your believability. This will win a lot of nerd arguments. But this is a courtroom, and I have come to believe that if you know the meaning of the word “epistemology,” you absolutely should not testify in your own defense.
Establishing that would have been enough, but Sassoon also managed to get in some flourishes about Bankman-Fried’s relationships to Bahamian power. She asked if he had made comments about paying off the debt. (You will be shocked, shocked to discover he didn’t recall.) An internal FTX group chat, called “Project Chinchilla Chatter” asked who in the government they needed to talk to for the project. “His name is Ryan Salame :p,” Bankman-Fried replied. Salame was one of FTX’s executives.
We would be more than happy to open up withdrawals for all Bahamian customers on FTX, so that they can, tomorrow, fully withdraw all of their assets, making them fully whole. It’s your call whether you want us to do this, but we are more than happy to and would consider it the very least of our duty to the country, and could open it up immediately if you reply saying you want us to. If we don’t hear back from you, we are going to go ahead and do it tomorrow.
Bankman- Fried opened withdrawals for customers in the Bahamas. The upshot of this testimony seemed to be that Bankman-Fried had a cozy, perhaps even inappropriately cozy, relationship with the Bahamian government — which isn’t what he’s on trial for but probably doesn’t make him look any better to a jury.
Closing arguments start tomorrow, and then the case will be handed to the jury. In the meantime, I will continue to ponder the appropriate response to misplacing $8 billion. Crying? Was it shalting? Maybe it actually is padel tennis — I wouldn’t know. I have never received $8 billion to misplace, and net sports are not my area.
Taking the stand was always going to be a risky move — one few criminal defendants make. Less than a minute into the prosecution’s cross-examination, it was clear why.
An Empirical Investigation of a Collapsing Physicist’s E-mail Database and the Management of Risk in the United States
For Bankman-Fried, the stakes are high. He’s been charged with seven criminal counts, including securities fraud, and if he is found guilty, he could spend the rest of his life in prison.
Veteran prosecutor Danielle Sassoon, a former clerk with the late Justice Antonin Scalia, is known to be an effective litigator, and in her cross-examination of the defendant, she delivered.
For almost eight hours, the assistant U.S. Attorney for the Southern District of New York asked Bankman-Fried a litany of incisive questions. She moved quickly and dug in when the guy didn’t like it.
And with each passing hour, Bankman-Fried seemed to get more and more irritated. He disagreed with how he characterized his past comments, but also in media reports.
At times, he seemed resigned. When the prosecutor asked him to read his statements aloud, Bankman- Fried was hesitant and slumped in front of the microphone.
Bankman- Fried was indicted but did media interviews even after his companies collapsed. He thought about X, a formerly known social networking site. His own e-mail newsletter was something he tried to start.
Bankman- Fried claimed that he was someone who struggled to keep up with FTX’s growth and failed to realize the extent of its troubles.
Above all, Sassoon was prepared. When Bankman-Fried said he couldn’t remember something, she would confront him with the evidence in the form of an email, or a tweet, or an excerpt from an interview.
While he was being questioned by Mark Cohen, Bankman-Fried was able to lay out his defense.
Bankman-Fried admitted to the court that he made a number of small and large mistakes. He said that the biggest problem was that there was not a dedicated risk management team.
“We didn’t have a chief risk officer,” Bankman-Fried said. “We had a number of people who were involved to some extent in managing risk, but no one dedicated to it, and there were significant oversights.”
He blamed his top lieutenants at FTX and Alameda for mismanaging things, including Caroline Ellison, a former girlfriend and CEO of Alameda, who had testified he had directed her to commit crimes.
Bankman-Fried, for example, said that when Ellison led Alameda, she failed to hedge the firm’s investments adequately, which made it vulnerable to steep market downturns.
The Trial of John Bankman-Fried in the Overflow Room of the Old Bailey Insight Series (Revisited) by Michael Lewis and Tiffany Fong
The testimony also attracted an array of celebrities including actor Ben McKenzie. The former star of “The O.C.” and “Gotham” is now a “crypto skeptic” and the co-author of a bestseller about cryptocurrency.
Michael Lewis, the best-selling author who has just penned a book about Bankman-Fried, was also there. Wearing Hoka running shoes and a down jacket, he followed the proceedings in one of the overflow rooms before he snagged a seat in the courtroom itself — not in the rows of reporters, but in a seat near Bankman-Fried’s friends and family.
Tiffany Fong, who gained some fame during the trial after interviewingBankman-Fried for hours under house arrest, has summarized each day of the proceedings in video digests.