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Sam Bankman-Fried says he didn’t know about hedge fund spending $8B

Witthaya Prasongsin/Getty Images

(NEW YORK) — Sam Bankman-Fried testified Tuesday at his federal fraud and conspiracy trial he was unaware that while he was chief executive of Alameda Research, employees at the hedge fund were spending $8 billion of FTX customer funds.

“When you claim you learned in September and October [2022] that $8 billion had been spent, what, if anything, did you know about who had spent it?” Assistant U.S. Attorney Danielle Sassoon asked.

“I don’t recall,” Bankman-Fried responded as he was cross-examined for a second day.

“So your testimony is when you were CEO of Alameda, you don’t know who spent $8 billion?” Sassoon said. “You testified this was news to you?”

Bankman-Fried answered, “Uh, yeah.”

Bankman-Fried is on trial for what federal prosecutors have described as “one of the biggest financial frauds in American history.” He faces seven counts of fraud, conspiracy and money laundering centered on his alleged use of customer deposits on the crypto trading platform FTX to cover losses at his hedge fund, pay off loans and buy lavish real estate, among other personal expenses.

He has pleaded not guilty to all counts. If convicted, he could face a sentence of up to 110 years in prison.

Bankman-Fried stepped down as Alameda chief executive in 2021 so he could focus on FTX and said Tuesday he only learned two months before FTX collapsed into bankruptcy that Alameda had spent $8 billion in customer funds.

“Did you fire anyone for spending $8 billion of FTX customer deposits?” Sassoon asked. “No,” Bankman-Fried responded.

Following cross-examination, Bankman-Fried explained during re-direct how he “had grown to be frustrated” by regulators and “skeptical” whether his encouragement of regulators had resulted in “bad regulation as much as good regulation.”

After FTX collapsed, Bankman-Fried said he conducted 50 interviews, preparing at most an hour and at least about 30 seconds for each interview. He said he did not remember every response he gave to every question. Nor could he remember every paragraph of testimony he submitted to Congress.

Bankman-Fried stepped down from his role at FTX in November 2022 amid a rapid collapse that ended with the company declaring bankruptcy. Prosecutors charged Bankman-Fried the following month with an array of alleged crimes focused on a scheme to defraud investors.

During this testimony Monday, Bankman-Fried told the jury he confronted then-colleague Caroline Ellison four months before FTX collapsed into bankruptcy with concerns Alameda could become insolvent.

He testified that he told Ellison, who was then co-chief executive of Alameda and is Bankman-Fried’s ex-girlfriend, that the hedge fund should have hedged against some of its risky investments.

“She started crying,” Bankman-Fried said. “She also offered to step down.”

Part of Bankman-Fried’s defense strategy is to deflect blame for the FTX collapse. Ellison pleaded guilty to criminal charges and testified under a cooperation agreement with federal prosecutors in New York. She has testified that she committed fraud with Bankman-Fried and at his direction.

She also testified earlier this month that Bankman-Fried thought there was a “5% chance he would become president,” and that he believed in utilitarianism and thought rules against lying or stealing inhibited his ability to maximize the greatest benefit for the most people.

Bankman-Fried conceded on the witness stand Monday he made mistakes but testified that he committed no fraud.

During cross-examination Monday, prosecutors portrayed Bankman-Fried as a hypocrite out for good publicity and confronted him with tweets, emails and interview responses in which he insisted the FTX account for Alameda Research — his companion hedge fund — was just like everyone else’s with no special access, privileges or rules.

 

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