Sam Bankman-Fried refutes witnesses’ statements in the FTX collapse case

Testimony by the former FTX Sam Bankman-Fried (SBF) before jurors in the case of the collapse of the exchange on a number of fundamental points contradicted the positions of key witnesses. This is reported by CoinDesk.

Journalists noted that the entrepreneur used far more words than were necessary to answer the questions. For this, the judge repeatedly rebuked him.

SBF explained the collapse of FTX and Alameda Research as the result of staff misjudgments and mistakes, not intentional fraud.

Who is to blame? Bankman-Fried’s version

According to the former CEO, he did not deceive anyone and did not misappropriate client funds — he built a company that turned out to be largely the opposite of his original conception.

“The biggest mistake was the absence of a dedicated risk-management team […]. We had several people involved to varying degrees, but no one was fully dedicated. There were significant omissions”, Bankman-Fried said.

Testimony echoed the arguments of his lawyers. The latter argued that the co-founder of FTX could not keep track of all processes in the fast-developing company at a time when the industry faced a series of market shocks.

From Bankman-Fried’s remarks it followed that all key witnesses in the case gave false testimony.

In particular, regarding the insurance fund’s operating algorithm of the platform, the former head of FTX said he was not the author of the idea and did not deal with this issue.

Also he refuted involvement in the “demonstration” of revenue for 2021 in the amount of $1 bln. The former head of the crypto exchange stressed that he did not discuss such a proposal.

Regarding hedging risks at Alameda Research, SBF said he discussed the matter with former head Caroline Ellison on a regular basis, which led nowhere.

Earlier, Ellison stated that at Bankman-Fried’s instruction she developed seven different variants of investor reporting that obscured the true state of affairs. SBF claimed that the idea originated with Ellison herself.

According to the entrepreneur, the $8 bln hole he had no idea about until October 2022.

Regarding donations, SBF said he did not give concrete instructions to subordinates, taking responsibility only for the Guarding Against Pandemics initiative, which was led by his brother.

According to CoinDesk, the version of events thus described appeared “plausible” to some jurors.

Binance’s role

The former CEO testified that FTX was created to serve a niche that would later attract Binance. Journalists at Decrypt noted this.

In 2019, SBF and co-founder Gary Wang conceived a crypto exchange focused on margin trading and the ability to execute large trades. At the time, the niche was unfilled, which could have attracted Binance.

The competitor indeed expressed willingness to acquire FTX, but this happened only in November 2022. However Changpeng Zhao’s company declined the deal, citing “uncontrollable” issues with the platform.

According to SBF, attracting customers at an early stage was a difficult task. Word of mouth helped turn the startup into a viable business. In 2019, the exchange’s revenue reached $20 million. By 2021, daily revenue exceeded $3 million.

One of FTX’s advantages was its risk-management mechanism. Compared with peers of the time, the system responsible for liquidating traders’ positions was more sophisticated, Bankman-Fried noted.

Wang was the code’s architect, while SBF said he did not write or read it, contributing from a conceptual standpoint.

Another attractive feature of the platform was cross-margin trading — an option that allowed traders to use excess margin in one trade to satisfy requirements in others.

Rather than absorbing FTX, Binance developers replicated the mentioned functionality.

According to SBF, his inspiration to launch the utility token FTT came from Binance’s BNB experience. He also intended to implement a burn feature to reward holders of the asset.

Binance became the first investor in FTX, providing BNB to the exchange worth $80 million as seed capital. Subsequently, Bankman-Fried’s organisation bought back this stake for $2.1 billion in FTT and other digital assets.

Binance’s decision to sell its utility tokens in November 2022 set off a chain of events that culminated in FTX’s bankruptcy.

Bankman-Fried’s continued testimony is scheduled for 30 and possibly 31 October.

Earlier in court, SBF’s inner circle testified — former FTX CTO Nishad Singh and former Alameda CEO Caroline Ellison .

In October, new management and creditors approved a plan to compensate clients. By mid-2024, users could receive $9.2 billion in claims.

It was also disclosed that FTX is considering whether to reorganize the platform with a partner, on its own, or to find a buyer.

As reported, U.S. prosecutors indicted SBF on seven criminal counts. He has not entered a plea to any of them.