Sam “SBF” Bankman-Fried took the stand this week to testify in his ongoing legal trial within the Southern District Courtroom of New York, denying any wrongdoing between FTX and Alameda Analysis, whereas acknowledging making “massive errors” in the course of the firms’ fast-paced progress. 

His official testimony began on Oct. 27, after a listening to on the day before today with out the jurors current. Through the listening to, Bankman-Fried struggled to reply questions raised by authorities attorneys, whereas he appeared significantly better ready the next day to face the jury.

A number of highlights of Bankman-Fried’s testimony this week embody denying directing his interior circle to make millionaire political donations in 2021, in addition to claims that FTX’s Time period of Makes use of lined transactions between Alameda and the crypto alternate. Furthermore, the previous CEO acknowledged that he had requested further hedging methods for Alameda all through 2021 and 2022, however they have been by no means carried out.

The protection is anticipated to conclude Bankman-Fried’s examination on Oct. 30, adopted by the prosecution’s cross-examinations and shutting arguments from each side. Prosecutors additionally hinted a few doable rebuttal witness subsequent week — somebody who is named to show that the testimony of one other witness is fake or inaccurate.

Bankman-Fried could possibly be jailed for 115 years if discovered responsible of all fraud and conspiracy counts. Cointelegraph’s on-the-ground protection of his testimony is summarized under.

SBF refutes claims over political donations

Bankman-Fried denied in courtroom having directing Ryan Salame, former co-CEO of FTX Digital Markets, and Nishad Singh, former director of engineering, to funnel thousands and thousands of {dollars} in contributions to political campaigns.

In keeping with information accessible on OpenSecret, Singh gave $8 million to federal campaigns within the 2022 election cycle. Salame additionally donated $10 million to politicians by way of loans from Alameda Analysis.

Although Bankman-Fried denied instructing each to make political contributions, he acknowledged that lobbying in Washington, D.C. performed a key function in his efforts to push a regulatory framework for crypto corporations in the US throughout 2021.

“I got here to imagine that I might affect the world.”

In keeping with prosecutors, Bankman-Fried used funds from prospects’ deposits on FTX to make greater than $100 million in political marketing campaign contributions forward of the 2022 midterm elections.

Bankman-Fried denied any wrongdoing throughout his testimony, asserting that FTX had greater than $1 billion in income in 2021 and that political donations have been produced from the alternate’s personal funds.

Maxine Waters is chairing the investigation into FTX https://t.co/oFMctH4rRh pic.twitter.com/Ox6O5w4nOl

— Jordan Schachtel @ file.at this time (@JordanSchachtel) November 17, 2022

The New York Instances take a look at

Bankman-Fried had a tenet for workers’ communication at FTX and Alameda Analysis: The New York Instances take a look at. 

Based mostly on the casual take a look at, staff mustn’t write something they would not be snug seeing on the entrance web page of the newspaper. In keeping with Bankman-Fried, even innocent issues might “look fairly dangerous out of context,” so staff ought to make sure you all the time present adequate context in written messages.

Bankman-Fried described the take a look at as a part of his clarification of why greater than 200 channels on Sign had an autodelete coverage that completely deleted messages after per week.

Prosecutors used proof of the autodelete characteristic within the earlier days to counsel that any wrongdoing between the businesses was being lined up. In keeping with Bankman-Fried, official communications and regulatory paperwork have been dealt with via different channels, corresponding to Slack or e-mail, however Sign was the selection for every day communication inside the firms.

Alameda’s distinctive function on FTX 

Bankman-Fried supplied particulars about Alameda’s billionaire line of credit score with FTX. In keeping with his testimony, Alameda served as FTX’s cost supplier for wire transactions whereas the alternate was unable to have its personal account. 

Apart from being a cost processor, Alameda was additionally the first liquidity supplier, market maker and a shopper of FTX.

As liquidity supplier and market maker, Alameda must step in and canopy buyer losses if FTX’s threat engine failed. Throughout his testimony, Bankman-Fried supplied an instance of a failure of the danger engine that resulted in Alameda masking thousands and thousands of {dollars} in losses in 2021.

The character of Alameda’s function within the alternate’s operations prompted customized options in FTX’s code, corresponding to the flexibility to go unfavourable by way of a line of credit score with out activating the danger engine. In keeping with Bankman-Fried, the exemption was crucial to forestall Alameda’s potential liquidation, which might negatively affect the crypto markets.

As a shopper of FTX, Alameda was additionally in a position to borrow funds by depositing collateral within the alternate. The phrases of use of FTX enable debtors to make use of funds for any function, which suggests Alameda might commerce with the borrowed funds.

Alameda’s line of credit score with FTX grew together with the crypto business in the course of the bull market.

Alameda fails to hedge

Bankman-Fried mentioned hedging methods with Caroline Ellison, former CEO of Alameda Analysis, in 2021 and 2022 whereas in search of to defend the buying and selling platform from a doable market downturn.

In keeping with his testimony, Bankman-Fried requested Ellison to hedge $2 billion in Bitcoin (BTC) in opposition to a doable value decline in 2021. The technique was by no means carried out, he advised jurors.

Notes of Ellison shared as proof by prosecutors reveal that Bankman-Fried was “freaking out” about hedging in early 2022. The protection used the proof for example that hedging was one in every of Bankman-Fried’s highest considerations and mentioned with Ellison ceaselessly.

With out acceptable hedging in place, Alameda was considerably harmed by the Terra ecosystem collapse and decline in crypto costs. In September 2022, Bankman-Fried discovered the legal responsibility between the businesses had grown from $2 billion a 12 months earlier than to over $8 billion.

“I used to be very shocked,” he claimed in courtroom, stating that he believed Alameda’s property outweighed its liabilities by practically $10 billion.

Clawback provision in Phrases of Use

In keeping with Bankman-Fried, FTX’s phrases of use embody a clawback provision that will socialize losses amongst prospects utilizing margin commerce and futures contracts within the occasion that the alternate’s threat engine fails.

The doc offered in courtroom states that:

“[…] your account steadiness could also be topic to clawback resulting from losses suffered by different customers.”

If FTX couldn’t cowl losses associated to identify margins and futures, damages could be shared amongst all prospects. Protection attorneys used the supply to argue that prospects buying and selling on FTX have been conscious of the dangers concerned.