FTX co-founder admits multibillion-dollar fraud

FTX co-founder Gary Wang said he and Sam Bankman-Fried committed a multibillion-dollar fraud with customer funds that led to the cryptocurrency exchange’s collapse, shortly after taking the stand against his onetime math camp buddy and MIT roommate.

Dressed in a gray suit and red tie, Wang didn’t make eye contact with Bankman-Fried as he entered the Manhattan courtroom Thursday afternoon to testify as a government witness. At one point, Assistant U.S. Attorney Nicolas Roos asked Wang, 30, to identify his former colleague. Wang craned his neck, looking around the courtroom before pointing toward Bankman-Fried, who was seated between his lawyers.

Prosecutors claim Bankman-Fried orchestrated a scheme in which billions of dollars in FTX customer funds were secretly transferred to affiliated hedge fund Alameda Research. 

The testimony by Wang, who pleaded guilty to fraud and agreed to cooperate against his onetime friend in December, promises to be among the most powerful the government puts on against Bankman-Fried. Wang, also FTX’s chief technology officer, said Bankman-Fried directed him to alter the cryptocurrency exchange’s code so that Alameda was able to draw a $65 billion line of credit. 

“It withdrew so much that FTX was not able to pay customers who tried to withdraw,” Wang said.

Wang initially appeared nervous and spoke quickly on the stand, though he seemed to become more at ease as questioning continued. His testimony on Thursday was relatively brief, but he’s expected to return to the stand on Friday. 

UNEQUAL RELATIONSHIP

As an FTX co-founder, Wang was once a billionaire, though he said his wealth never matched that of Bankman-Fried, who was estimated to be worth $26 billion before the exchange’s collapse. The unequal relationship extended to Alameda, Wang said, where he owned 10% of the firm and Bankman-Fried had 90%. And when there was a conflict, Bankman-Fried had the final say.

In 2017, Bankman-Fried asked Wang, who was working for Google at the time, to start a cryptocurrency trading firm with him. Bankman-Fried chose the name Alameda Research, Wang testified, because it sounded “prestigious.”

“He said that it makes it easier to do business if the name doesn’t mention trading with cryptocurrency, that it would be easier to get bank accounts or to get office leases and things like that,” Wang said.

Wang said Bankman-Fried oversaw the process by which FTX’s top brass were able to borrow hundreds of millions of dollars from Alameda. “He told us what things to implement,” such as how much collateral was needed for certain positions and limits on how much people can deposit or withdraw, Wang testified.

Wang’s testimony potentially undercuts Bankman-Fried’s contention that he was not closely involved with the running of Alameda and relied instead on its chief executive officer, Caroline Ellison, who is also his ex-girlfriend. Bankman-Fried’s lawyers are arguing that he made mistakes but had no ill intent.

Ellison has also pleaded guilty to fraud and her testimony was touted by prosecutors in opening statements on Wednesday.

Earlier on Thursday, Adam Yedidia, another Massachusetts Institute of Technology classmate who went to work at FTX, testified that Bankman-Fried was aware and concerned about a potential $8 billion shortfall at FTX from loans to Alameda five months before both companies collapsed. Yedidia told jurors he was testifying under a grant of immunity from prosecution.

Yedidia said he discovered Alameda’s massive liability to FTX in June 2022 while working on an internal accounting program and decided to discuss the matter with Bankman-Fried.

“It concerned me,” Yedidia testified. “It seemed like a lot of money for Alameda to be owing FTX. And I wanted to be certain that Alameda could repay that debt.” Pressed by Assistant US Attorney Danielle Sassoon on why he was concerned, Yedidia said, “It was possible that FTX customers might need that $8 billion.”

Yedidia said he raised the issue with Bankman-Fried in a conversation outside the $35 million luxury Bahamas penthouse that they shared with eight other people. “Are things okay?” he said he asked.

NOT ‘BULLETPROOF’

“In response, Sam said said something like, ‘We were bulletproof last year. We’re not bulletproof this year,’” Yedidia testified, adding that Bankman-Fried appeared nervous and worried. Yedidia said that was atypical of the friend he’d known for many years.

Yedidia testified that he received a $6 million cash bonus at the end of 2021, which he immediately invested in FTX stock. Though his base salary was between $175,000 and $200,000, Yedidia said he received several million dollars in cash bonuses and stock options.

In its cross-examination of Yedidia, the defense tried to downplay Bankman-Fried’s own wealth, once estimated at $26 billion, comparing the Bahamas penthouse to a dorm and asking Yedidia if he ever witnessed his friend buying watches, sports cars, yachts or fancy clothes. Yedidia said he did not.

“I didn’t see him wearing any fancy clothes,” he testified.

Prosecutors sought to highlight the close friendship between Yedidia and Bankman-Fried, asking the former about a conversation in which the FTX co-founder sought advice on his relationship with Ellison.

Yedidia testified that sometime in 2019 Bankman-Fried told him he and Ellison, who was not yet Alameda CEO, had had sex and asked whether it would be a good idea for them to date.

“I said no,” Yedidia said, without elaborating.

Later, as customers were rapidly pulling out of FTX in November 2022, Yedidia and Bankman-Fried were texting each other. 

“I said ‘I love you, Sam, I am not going anywhere, don’t worry,’” Yedidia said on the stand.

But he said he wound up resigning shortly afterward, when he learned that Alameda Research had been using FTX customer funds to repay its creditors. 

Yedidia said he hasn’t spoken to Bankman-Fried since resigning. Unlike with Wang, the two of them made eye contact when Yedidia entered the courtroom, and they nodded at each other in acknowledgment.

Related Topics: FTX