Enigma - Main Street Health - September 2023 Banner

Friends Become Foes: Prosecution Wraps Second Week of Bankman-Fried Trial

Sam Bankman-Fried

The government is creating a clear narrative in the Sam Bankman-Fried case: He ran the ship, he called shots, and he is responsible for stealing and losing the money.

At the end of the second week of the 31-year-old accused fraudster’s criminal trial, the prosecution has called on insiders, lovers and friends as witnesses to paint a tale of Bankman-Fried’s actions while at the top of his over $30 billion FTX crypto empire.

They are the same actions that would see the implosion of billions of dollars of allegedly stolen customer funds in what federal prosecutors have described as “one of the biggest financial frauds in American history.”

Bankman-Fried’s defense team, for its part, is struggling so far to prove otherwise. It has gotten to the point where Bankman-Fried’s mother, law professor Barbara Fried, has been seen conversing with her son’s defense lawyer Christian Everdell in between breaks in witness testimony.

The criminal case has pitted friend against friend, and Bankman-Fried’s allies have nearly all turned against him and agreed to cooperate with the government after either pleading guilty or receiving immunity from prosecution.

Caroline Ellison, the 28-year-old ex-girlfriend of Bankman-Fried and former CEO of Alameda Research, the trading firm that took and lost billions of dollars of FTX customer funds, gave direct and damning evidence during her own three days of testimony this week.

The government’s star witness detailed fake balance sheets, linked Bankman-Fried to the alleged conspiracy to take customer funds, and painted a simple picture for the jury: Bankman-Fried was her boss, she did what he said, and “Alameda was taking and putting FTX customers’ funds at risk.”

“He directed me to commit these crimes with Gary Wang and Nishad Singh,” Ellison told the jury on her first day of testimony Tuesday (Oct. 10).

Read also: Ellison’s Closing Testimony — FTX Was ‘a Bad Idea’

From Billions to Bankrupt

Wang, FTX’s former chief technology officer and co-founder, was the first close friend of Bankman-Fried to testify against him, describing to the jury the backdoor created to allow Alameda a nearly unlimited bankroll to trade with.

The funds deposited by FTX’s customers were the source of that bankroll, testified Wang.

Bankman-Fried has so far maintained his innocence in the seven counts of fraud and conspiracy he is on trial for.

The prosecution played a recording Thursday (Oct. 12) of an all-hands meeting where Ellison alleged that “Sam” authorized the use of FTX’s customer funds to repay Alameda’s lenders.

During Friday’s (Oct. 13) truncated court hearing, Zac Prince, the founder and former CEO of crypto lender BlockFi, took the witness stand long enough to lay the blame for his company’s bankruptcy on FTX’s own failures.

Prince testified that from May 2021 to May 2022, BlockFi’s loans to Alameda increased from $50 million to $1.1 billion.

From July to early November 2022, BlockFi loaned another $850 million to Alameda.

The company was only loaning out $5 billion to $10 billion overall, Prince said.

When federal prosecutors asked if BlockFi would have still extended credit if he had known about the loans between FTX and Alameda, Prince replied no and said they would have been insolvent.

When asked if BlockFi would have extended the same credit to the firm if it had been aware of the loans to insiders including Bankman-Fried, Prince noted that it isn’t generally done, and the company would have been concerned.

Prince said BlockFi would not have lent Alameda money if it had known the trading firm was using FTX customer money. He also said Blockfi declared bankruptcy because of Alameda and FTX.

It was also revealed that Alameda and FTX posted as collateral for the loans the 55 million shares Bankman-Fried was reported to own as a minority stake in retail trading platform Robinhood.

Robinhood has since bought back the shares.

The trial will resume next week, its third, with FTX insider and Director of Engineering Nishad Singh slated to provide witness testimony.

The prosecution plans to rest its case in the next two weeks, by Oct. 26 or 27.

Then, Bankman-Fried’s defense will have the opportunity to present its side in full.

For all PYMNTS crypto coverage, subscribe to the daily Crypto Newsletter.