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FTX Co-Founder Gary Wang Says Bankman-Fried Was Financial Crimes Mastermind

With friends like these, who needs enemies?

It is just the second day of witness testimony for Sam Bankman-Fried’s criminal trial, and already two of his longtime friends have sung like canaries. 

And they may be feeling more than little bit jilted by the curly-haired accused crypto scammer themselves — having been caught up in what is alleged to be one of the greatest financial frauds in American history. 

“Did you commit crimes at FTX?” the assistant U.S. attorney prosecuting the case asked Gary Wang, FTX’s former chief technology officer and co-founder turned government witness, during his Thursday’s (Oct. 5) court appearance. 

“Yes. With Nishad Singh, Caroline Ellison and Sam Bankman-Fried,” Wang replied, pointing to Bankman-Fried when asked to identify his one-time co-founder. 

Singh, Ellison and Wang himself have all pleaded guilty to the dozen or so crimes they are collectively accused of acting out while participating in a multibillion-dollar fraud at the crypto firms FTX and Alameda Research. 

They are cooperating with federal prosecutors in the criminal case against Bankman-Fried, their former boss and the only remaining member of the formerly close-knit FTX leadership group who maintains innocence. 

When asked by the prosecution what the executive trio each pled guilty to, Wang replied, “We allowed Alameda to withdraw unlimited funds … and lied about it.”

The special privileges existed “in the code” he added. 

When asked by the prosecution if he had been a billionaire thanks to his ownership stake in FTX, Wang replied, “Yes.” 

Read alsoFTX Crypto Execs Plead Guilty, Flip on Founder, Look for Leniency

FTX-Alameda Backdoor

Per a report published Thursday, employees at FTX uncovered the backdoor referenced by Wang months before the crypto exchange collapsed, but FTX’s senior leadership brushed the problem off. 

In their opening statement Wednesday (Oct. 4), the defense’s opening statement posited that the permissionless backdoor software code allowing Alameda Research to borrow from exchange customers was not a secret, and that any “senior developer at FTX” could see it. 

It appears to have been a little bit of both. 

Nishad Singh, FTX’s director of engineering and a member of Bankman-Fried’s inner circle, was reportedly responsible for ignoring the warnings about the line of code allowing Alameda to have a negative balance of as much as $65 billion. He has since pleaded guilty, is participating with the prosecution, and will likely be called as a witness in the case. 

The backdoor is a central element in the case against Bankman-Fried. 

The fallen crypto founder’s defense Lawyer, Mark Cohen, used his opening statement Wednesday to tell the 12 jurors that the co-conspirator witnesses being brought out by the prosecution will be “testifying against Sam in a way that supports the government case. It overhangs everything they will say to you.”

Read alsoBankman-Fried Trial: Defense Paints ‘Normal Guy’ Image

Nothing Is Ever Bulletproof

The day in court began with the continuation of testimony from Adam Yedidia, Bankman-Fried’s college friend from MIT and a former developer at FTX, whose time on the stand was cut off Wednesday. 

Per Yedidia’s testimony, Bankman-Fried told him in June 2022 that FTX was “bulletproof last year, but we’re not this year.”

The conversation came on a padel court in the Bahamas after Yedidia uncovered an $8 billion hole in the exchange’s balance sheet. 

Yedidia told the court that Bankman-Fried said it would take “six months to three years” for FTX to become “bulletproof” again. 

Five months later, the exchange collapsed into bankruptcy. 

“’I love you, Sam. I’m not going anywhere, don’t worry,’” Yedidia told the court he texted the defendant at the same. A few days later, he resigned. 

When asked by the federal prosecutor what changed, Yedidia replied that he “learned that Alameda had used FTX customer deposits to repay its loans to creditors. … What Alameda did seemed like a flagrantly wrong thing to have done.”

Other testimony from Yedidia included him telling Bankman-Fried not to date Caroline Ellison, the government’s star witness and the former co-CEO and eventually CEO of Alameda Research.  

After Yedidia left the stand, Matt Huang from crypto-centric venture capital firm Paradigm took the stand for a brief testimony. 

Paradigm was an early investor in FTX, and Huang’s firm marked down its $278 million investment to zero, he told the jury. 

Gary Wang will take the stand again Friday (Oct. 6), to resume his testimony.