FTX founder Gary Wang says Sam Bankman-Fried steered misuse of funds
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GARY Wang, a former top executive of the failed FTX cryptocurrency exchange, testified that Sam Bankman-Fried, the company’s founder, was the final decision-maker at the firm and directed a closely related hedge fund to misuse as it pleased billions of dollars in money from FTX customers.
Over more than six hours of testimony in federal court in Manhattan on Thursday and Friday, Wang said Bankman-Fried was fully aware that a sister cryptocurrency trading firm, Alameda Research, had siphoned off US$8 billion in customer money from FTX.
He said Bankman-Fried had lied in his public statements in November about FTX customer assets being safe and secure.
Bankman-Fried called the shots on big issues at FTX, Wang told the jury of nine women and three men. “In the end, it was Sam’s decision,” he said.
Wang, 30, who was also a founder of FTX and programmed its code base, is a crucial witness in Bankman-Fried’s high-profile criminal fraud trial.
Wang is one of Bankman-Fried’s three close advisers who have pleaded guilty and agreed to cooperate against the entrepreneur, who has been charged with orchestrating a conspiracy to use as much as US$10 billion of FTX customer money for all manner of personal projects.
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The saga of FTX’s rise and fall has gripped the public for months with its mixture of corporate hubris and personal intrigue.
Since the exchange collapsed in November, Bankman-Fried has become a symbol of the crypto industry’s excesses, and his trial is seen by some as a credibility test for the digital currency industry.
A run on deposits last year exposed an US$8 billion hole in FTX’s accounts, which prosecutors allege stems in large part from “special privileges” that allowed Alameda to tap into FTX customer money.
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FTX filed for bankruptcy and Bankman-Fried was charged a month later with wire fraud, securities fraud, money laundering and related conspiracy charges. He has pleaded not guilty and faces what could amount to a life sentence if convicted.
Within weeks of FTX’s implosion, Wang, a friend of Bankman-Fried’s from high school math camp, pleaded guilty to aiding him in that conspiracy. Nishad Singh and Caroline Ellison, two other top executives in Bankman-Fried’s business empire, have also pleaded guilty and are cooperating with prosecutors.
Wang and Singh, who also programmed the code underlying FTX’s business, have admitted to creating a secret backdoor that allowed Alameda to borrow a virtually unlimited amount of money from the exchange.
Prosecutors have argued that this backdoor was one of the primary engines of the scheme to pilfer customer accounts.
Bankman-Fried’s legal team has argued that FTX and Alameda had an appropriate business relationship and “were not set up to create some grand fraudulent scheme.”
In court Thursday and Friday, Wang walked the jury through FTX’s early days in 2019 to its stunning collapse last year.
Wang said he and Singh had written FTX’s computer code to grant Alameda special privileges at Bankman-Fried’s direction beginning in 2019. “He asked us to do it, and we told him we did it,” Wang said.
That effectively allowed the trading platform to make unlimited withdrawals from the exchange, he said. None of that was disclosed to customers, investors or lenders to the firms, he added.
“We gave special privileges to Alameda Research on FTX,” Wang said. “And we lied about this to the public.”
Alameda at first was allowed to take out only as much as FTX’s revenue from trading fees, which was about US$300 million at the time, Wang said. But that credit line increased over time, growing to tens of billions of dollars, he said. Bankman-Fried said he had no issues with this, Wang said.
Since FTX imploded, Bankman-Fried has repeatedly said he was only vaguely aware of the amount that Alameda was borrowing from the exchange. But Wang testified that Bankman-Fried had Alameda’s balance visible on one of his computer screens at the office.
Wang said he, Bankman-Fried, Singh and Ellison discussed the money that Alameda owed at a meeting in June 2022.
At the end of the meeting in FTX’s office in the Bahamas, Wang said, Bankman-Fried turned to Ellison and told her she could use more customer funds to pay back Alameda’s creditors.
Under cross-examination, Wang said some special privileges that Alameda had were part of its role as a trading partner to enable FTX customers to freely buy and sell cryptocurrencies. He is scheduled to answer more questions from defence lawyers when the trial resumes Tuesday.
Wang and Bankman-Fried were classmates at the Massachusetts Institute of Technology before founding FTX together in 2019.
Like Bankman-Fried, Wang became enormously rich, with an estimated net worth of nearly US$5 billion. Within FTX, he and Bankman-Fried were regarded as opposites. While Bankman-Fried was the garrulous pitchman, Wang was the shy coder who showed up for work in the middle of the afternoon and laboured through the night.
They were also close friends who lived together with eight other roommates in a luxury penthouse in the Bahamas, where FTX was based. That relationship ended in December when Wang pleaded guilty to federal fraud charges, saying he knew “what I was doing was wrong.”
Before Wang took the stand, lawyers questioned a witness who was one of Bankman-Fried’s MIT classmates, Adam Yedidia. Yedidia, who worked as a developer at FTX, recounted a conversation he had with Bankman-Fried in mid-2022, months before FTX failed, in which the founder admitted that his firm was on shaky footing.
“Sam said something like, ‘We were bulletproof last year, but we’re not bulletproof this year,’” Yedidia said. He said Bankman-Fried explained that it could take six months to three years to make the company “bulletproof again.”
Yedidia was followed on the witness stand by Matt Huang, a founder of Paradigm, a venture capital firm that was one of FTX’s biggest backers. Huang said he would have had qualms about authorising investments in FTX if he had known the full extent of the exchange’s relationship with Alameda. NYTIMES
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