Gary Wang, a former top executive at failed cryptocurrency exchange FTX, testified that Sam Bankman-Fried, the company’s founder, was the ultimate decision-maker at the company and directed a closely-connected hedge fund to misuse billions of dollars in funds from FTX clients.
Over more than six hours of testimony in federal court in Manhattan on Thursday and Friday, Mr. Wang said that Mr. Bankman-Fried was fully aware that its sister cryptocurrency trading firm, Alameda Research, had embezzled $8 billion in client funds from FTX. He said Mr. Bankman-Fried lied in his public statements in November about the safety of FTX clients’ assets.
Mr. Wang told the jury of nine women and three men that Mr. Bankman-Fried is the decider in major cases at FTX. “In the end, it was Sam’s decision,” he said.
Mr. Wang, 30, who was also a founder of FTX and programmed its codebase, is a crucial witness in Mr. Bankman-Fried’s trial in a high-profile criminal fraud case. Mr. Wang is one of three close advisers to Mr. Bankman-Fried who have pleaded guilty and agreed to cooperate against the businessman, who has been accused of masterminding a conspiracy to use up to $10 billion of FTX client funds for all kinds of personal ventures.
The saga of FTX’s rise and fall has captivated audiences for months with its mix of corporate arrogance and personal intrigue. Since the stock market crash in November, Mr. Bankman-Fried has become a symbol of the excesses of the cryptocurrency industry, and his trial is seen by some as a test of the cryptocurrency industry’s credibility.
Last year’s deposit scramble exposed an $8 billion hole in FTX’s accounts, which prosecutors allege stemmed in large part from “special privileges” that allowed Alameda to profit from FTX customers’ funds. FTX filed for bankruptcy, and Mr. Bankman-Fried was indicted a month later on wire fraud, securities fraud, money laundering and related conspiracy charges. He has pleaded not guilty and faces up to life in prison if convicted.
Within weeks of FTX’s collapse, Mr. Wang, a friend of Mr. Bankman’s Fred from high school math camp, pleaded guilty to aiding in that conspiracy. Nishad Singh and Carolyn Ellison, two other senior executives in Mr. Bankman-Fried’s business empire, have also pleaded guilty and are cooperating with prosecutors.
Mr. Wang and Mr. Singh, who also programmed the code underpinning FTX’s operation, admitted to creating a secret backdoor that allowed Alameda to borrow an almost unlimited amount of money from the exchange. This backdoor was one of the primary drivers of the scheme to steal customer accounts, prosecutors said.
Mr. Bankman-Fried’s legal team argued that FTX and Alameda had an appropriate business relationship and “were not set up to create a significant fraudulent scheme.”
In court on Thursday and Friday, Mr. Wang led the jury through FTX’s early days in 2019 until its stunning collapse last year.
Mr. Wang said he and Mr. Singh wrote FTX’s computer code to grant special privileges to Alameda at Mr. Bankman-Fried’s direction starting in 2019. “He asked us to do it, and we told him we did it,” Mr. Wang said. Wang said.
This effectively allowed the trading platform to make unlimited withdrawals from the exchange, he said. He added that none of this was disclosed to clients, investors or corporate lenders.
“We have granted special privileges to Alameda Research on FTX,” Mr. Wang said. “And we lied about this to the public.”
Alameda was initially allowed to get the same amount of revenue as FTX from trading fees, which was about $300 million at the time, Mr. Wang said. But he added that this line of credit has increased over time, reaching tens of billions of dollars. Mr. Bankman Fried said he had no problems with this, Mr. Wang said.
Since FTX’s collapse, Mr. Bankman-Fried has repeatedly said he was only vaguely aware of how much Alameda was borrowing from the exchange. But Mr. Wang testified that Mr. Bankman-Fried made Alameda’s credit visible on one of his computer screens in the office. Mr. Wang said he, Mr. Bankman-Fried, Mr. Singh and Ms. Ellison discussed the money owed by Alameda at a meeting in June 2022.
At the end of the meeting at FTX’s office in the Bahamas, Mr. Wang said, Mr. Bankman-Fried approached Ms. Ellison and told her she could use more client money to pay off Alameda’s creditors.
During questioning, Mr. Wang said that some of the special privileges enjoyed by Alameda were part of its role as a business partner to enable FTX clients to freely buy and sell cryptocurrencies. He is scheduled to answer more questions from defense attorneys when the trial resumes on Tuesday.
Mr. Wang and Mr. Bankman-Fried were colleagues at MIT before founding FTX together in 2019.
Like Mr. Bankman-Fried, Mr. Wang has become extremely wealthy, with enormous wealth estimated His net worth is approximately $5 billion. Within FTX, he and Mr. Bankman-Fried were viewed as opposites. While Mr. Bankman-Fried was the talkative businessman, Mr. Wang was the shy programmer who came to work in the middle of the afternoon and worked all night.
They were also close friends who lived with eight other colleagues in a luxury penthouse in the Bahamas, where FTX is based. That relationship ended in December when Wang pleaded guilty to federal fraud charges, saying he knew “what I was doing was wrong.”
Before Mr. Wang took the stand, the lawyers questioned a witness who was one of Mr. Bankman-Fried’s colleagues at MIT, Adam Yedediah. Mr. Yedidia, who worked as a developer at FTX, recounted a conversation he had with Mr. Bankman-Fried in mid-2022, months before FTX failed, in which the founder admitted his company was on shaky footing.
“Sam said something like, ‘We were bulletproof last year, but we’re not bulletproof this year,’” Mr. Yedidia said. Mr. Bankman-Fried explained that it could take six months to three years to make the company “bulletproof again,” he said.
Mr. Yedidia was followed on the witness stand by Matt Huang, founder of Paradigm, a venture capital firm that has been one of FTX’s largest backers. Mr. Huang said he would have been concerned about allowing investment in FTX if he had known the full extent of the exchange’s relationship with Alameda.
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