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Sam Bankman-Fried said he consulted with lawyers about critical decisions around passing client money from his FTX exchange to his private trading firm Alameda, in a preview of the former billionaire’s planned defence in the criminal trial over the collapse of his cryptocurrency empire.
Taking the witness stand in Manhattan federal court on Thursday afternoon, Bankman-Fried, 31, repeatedly asserted that he had followed the counsel of former FTX lawyer Dan Friedberg and California law firm Fenwick & West when deciding on whether to retain internal documents, fund venture capital investments via loans to executives, or allow Alameda to receive FTX customer deposits.
The testimony was heard without the jury present. Judge Lewis Kaplan, who is overseeing the case, will decide on Friday morning what evidence can be repeated in front of jurors when they return.
The former entrepreneur stands accused of defrauding customers by dipping into $10bn of their deposits without permission, leaving an $8bn hole in FTX’s balance sheet at the time of its collapse last November.
He faces the prospect of a lifetime behind bars if convicted on charges including wire fraud and money laundering. He has pleaded not guilty.
Defence lawyer Mark Cohen said that the defence wants to show jurors that the FTX founder “consulted with counsel” and “took comfort” from those conversations.
But prosecutors tried to show that lawyers the FTX founder consulted did not have the full picture, including knowing about the source of money, which would make their advice less relevant as a potential defence.
Thursday’s testimony foreshadowed a difficult cross examination, unless he can leverage the unusual opportunity for a dry run to improve his performance. Kaplan at times appeared exasperated by his long, convoluted and caveated answers to questions from prosecutor Danielle Sassoon.
The judge also pressed him several times to give more direct answers and commented that he had “an interesting way of responding to questions”.
Bankman-Fried took long pauses and bowed his head as he appeared to struggle for answers at times, such as when Sassoon asked him to point to the section in a contract between Alameda and FTX that allowed the trading firm to spend customer money deposited to its accounts.
Sassoon asked him whether his understanding of “safeguarding” customer funds would include “not embezzling” the money.
“Yes, it would include that,” he replied, even though his lawyers had objected to the question. “I felt the need to answer that one,” he added.
Although Cohen said his client would not ultimately seek to invoke a “formal” advice of counsel defence, he suggested that the defence would elicit from the defendant how he reasonably relied on legal advice.
However, the legal avenue for such an argument is narrow, as relying on advice of counsel “requires a high degree of specificity” about the specific counsel sought, according to Brendan Quigley, a former prosecutor who is now a partner at Baker Botts.
“It would be difficult for SBF to say, ‘I asked my attorney about . . . every one of these theories of fraud’,” he added.
Bankman-Fried also testified that he believed he managed FTX in accordance with the exchange’s terms of service, and that those terms allowed Alameda to borrow FTX customer money “in many circumstances”.
Fenwick & West did not immediately respond to a request for comment. A lawyer for Friedberg, who was sued by the FTX debtors in June over his role as an alleged “fixer” for Bankman-Fried and his associates, also did not immediately respond.
The testimony from the crypto exchange founder comes after a New York jury heard several days’ worth of damning testimony from his former colleagues and friends, as well as from his ex-girlfriend Caroline Ellison, who pleaded guilty last year and agreed to co-operate with the government.
Defence attorneys tend to advise clients against testifying, fearful of direct questioning from prosecutors.
But Bankman-Fried has been keen to present his side of the story ever since FTX collapsed last November with a multibillion-dollar hole in its balance sheet. He had granted multiple interviews to journalists and the author Michael Lewis from his parents’ California home before he was jailed for breaching his bail conditions this summer.
Earlier on Thursday, the jury heard from the government’s final witness — an FBI agent who testified that several Signal group chats within FTX had been set to auto-delete, before hearing from two defence witnesses, including a Bahamian lawyer for Bankman-Fried and a coding expert.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
