Good day everyone,

I hope you are all well and having excellent day, welcome to CryptoGod-1’s blog on all things crypto. In this post I will be going back over the fascinating events which unfolded during the second week of the Sam Bankman-Fried trial for his alleged wrongdoings as CEO of cryptocurrency exchange FTX. The week saw some major players of the crypto space take the stand to testify against Bankman-Fried, including former FTX and Alameda employees Gary Wang and Caroline Ellison take the stand, along with Zac Prince of BlockFi.

Gary Wang

On Tuesday the 10th of October 2023 FTX co-founder Gary Wang took to the witness stand, during which he outlined the 'special privileges' which were created within the coding for FTX's dealing with sister company Alameda Research. Having agreed to testify as part of a cooperation agreement with the U.S. government, the defence lawyers for Bankman-Fried pushed their argument that Wang could quite easily be 'biased' in any answers given, with the likelihood of a reduced sentence for his cooperation during his cross-examination. The prosecution hit back by noting Wang provided them with information before he even obtained a cooperation agreement. 

While on the witness stand both the prosecution and defence made frequent reference to a spreadsheet of assets that the FTX and Alameda teams had prepared in June 2022. Wang informed the court how the financial balance for the exchange were much worse than first feared, with approximately $4 billion of assets shown which were purely FTT. The native token of the exchange, removing it from the spreadsheet of assets would have increased FTX's deficit to $16 billion. 

As the questioning continued, the prosecution asked Wang to confirm he had aided in an analysis which showed the net asset value of FTX and Alameda as positive. While Wang did confirm his participation, he also noted how the positive value was only attained by looking at the totality of Alameda's assets. This included investments in items such as real estate, assets which were 'not necessarily liquid or could be deposited on FTX.' 

FTX and Alameda Research co-founder Gary Wang testifying in court on the 10th of October 2023. Drawing: Brady Dale/Axios

Caroline Ellison

Following the cross-examination of Wang, former Alameda CEO Caroline Ellison took the stand as the prosecution's star witness. As she testified, Caroline revealed how Bankman-Fried had directed her to falsify a number of balance sheets to make FTX and Alameda more attractive to investors. This was done without revealing that customer funds were included and stolen, while both Ellison and Bankman-Fried put together a number of spreadsheets that attempted to predict the chances of Alameda and FTX's collapse. Ellison went on to note how she felt unexperienced when she became CEO of Alameda, and that she had tried to leave her position months prior to the collapse of both Alameda and FTX. However, she claims Bankman-Fried would not allow her to leave as he claimed she was 'too important.' 

Her next piece of evidence as part of her testimony should be considered shattering for the defence, as Ellison claimed Bankman-Fried had stooped as low as generating fake accounts seemingly belonging to Thai prostitutes on OKX and Huboi. These were created in an attempt to gain control of their frozen accounts worth $1 billion, however the plan failed and Bankman-Fried was therefore force to resort to an alternative option. This consisted of bribing Chinese government officials, before Bankman-Fried shouted "shut the f--k up!" at a then employee of FTX who was concerned about the bribery scheme.

To continue the explosive revelations, Ellison claimed that Bankman-Fried then attempted to raise funds from the Crown Prince of Saudi Arabia, Mohammed bin Salman Al Saud, when he realised the dire straights his crypto empire had wound up in around mind-2022. These attempts were unsuccessful, and due to the state of affairs at the cryptocurrency exchange it collapse in November 2022.

As Ellison continued to testify she described the 'sloppily' dressed Bankman-Fried as hyper-focused, with his wild and unkempt hair an important part of FTX's narrative and image. She noted he attributed his hairstyle as the reasoning behind 'higher bonuses' during his prior employment at proprietary trading firm, Jane Street Capital. She also claimed Twitter was "a valuable way to cultivate customer customers and to help control the narrative around FTX."

Ellison also claimed Bankman-Fried renamed several different related venture investing entities during 2022 in an attempt to separate them from being "associated with Alameda" due to a Bloomberg article criticizing the close ties between Alameda Research and FTX.

Once the narrative moved onto Ellison's romantic relationship with Bankman-Fried she noted it was an on-again, off-again relationship for a number of years. Ellison had shared her her feelings of  "personal writings" with her then-boyfriend, which were published in a reveal in the months leading up to the trial. Ellison discussed feelings of "unhappiness" regarding the two's relationship in her diary, where she claimed she had concerns over their personal and professional relationship intersecting. She felt like an 'unequal partner' in their relationship and they separated for the final time in mid 2022.

In a message to Bankman-Fried around the 7th of November 2022, Ellison wrote she had "an increasing dread of this day," claiming it had been "weighing" on her. "...It just feels great to get it all over with." While she noted "it was the worst week" of her life, she was consoled that she "didn't have to lie anymore" and "could start taking responsibility" for her crimes.

Caroline Ellison testifying in court on the on Thursday the 12th of October 2023. Drawing: Brady Dale/Axios

Zac Prince

The CEO of BlockFi, Zac Prince, testified on Friday the 13th of October 2023 regarding loans to Alameda Research which were a major part of the crypto lenders own bankruptcy, resulting in over $1 billion in losses.  Prince went on to outline BlockFi’s turbulent relationship as a creditor to Alameda, stating their first lending began in late 2020 with “robust” agreements.

He went on to note that loans were expected to exceed $1 billion by May 2022 and that during the Terra Luna collapse, Alameda repaid amid BlockFi’s liquidity and agreed to extend $850 million in new financing. This was based off of seemingly healthy balance sheets which indicated Alameda could repay. Due to the FTX collapse in 2021, Alameda was unable to return $650 million in outstanding loans while BlockFi also lost $350 million in customer funds on FTX itself. 

Prince went on to note that these impaired assets ultimately forced BlockFi into bankruptcy in the weeks following the collapse of FTX. Defence lawyers questioned BlockFi’s due diligence, with Prince stating that loans appeared safe given solid collateral and financials. The prosecution went on to note how the devastation from links with Bankman-Fried led to the direct fall of BlockFi. Prince made it clear his firm only fell after nursing hidden risks in its relationship with Bankman-Fried entities, and stated had BlockFi known the truth about FTX and Alameda's funds they "probably wouldn't have lent to them in the first place."

The CEO's account bolstered the prosecution’s claim that Bankman-Fried’s alleged deceit in handling customer funds also betrayed the trust of those considered part of high level and sophisticated institutions within the crypto space.

Sketch of BlockFi's Zac Prince testifying at the trial of Sam Bankman-Fried. Drawing: Nik De/CoinDesk

A hectic week which saw shock revelations and evidence shared with the jury. Bankman-Fried is certainly up against it and next week will certainly reveal more fascinating insights into the trial.

Have a great day.

Peace. CryptoGod-1.

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