FTX Co-Founder Testifies in Sam Bankman-Fried Trial, Exposing False Claims

In a courtroom drama, a co-founder of FTX, Gary Wang, testified that a tweet sent by Sam Bankman-Fried, assuring the cryptocurrency exchange’s stability, was indeed false. This revelation came to light during the trial in New York, where Mr. Bankman-Fried is facing charges of fraud. Gary Wang, who had already pleaded guilty, shared insights into the inner workings of FTX during his second day on the witness stand.

The co-founder disclosed that when Mr. Bankman-Fried made the reassuring tweet, he was fully aware that the company had an $8 billion deficit, a fact he deliberately concealed. Shortly after that tweet, FTX declared bankruptcy, sending shockwaves through the crypto industry.

As the prosecutors probed the disparity between FTX’s public image and its actual financial state, Mr. Wang stated that Mr. Bankman-Fried consistently made public claims about the firm’s financial health that were far from the truth. “FTX was not fine,” Mr. Wang emphasized. “Assets were not fine, because FTX did not have enough assets for customer withdrawals.”

The catastrophic downfall of FTX occurred in November of the previous year when a massive wave of customers attempted to withdraw their funds. Subsequently, Mr. Bankman-Fried faced a slew of charges, including fraud, money laundering, and accusations of misappropriating customer funds, as well as lying to investors and lenders. He vehemently denied these allegations.

The Department of Justice alleged that Mr. Bankman-Fried had diverted customer funds into various expenditures, including property purchases, political donations, and marketing, through his crypto trading firm, Alameda, which he had founded a few years prior. Mr. Wang stressed that such actions were in direct contradiction to their public promises not to use customer funds in this manner.

Before FTX’s bankruptcy, Mr. Wang revealed that he and Mr. Bankman-Fried had discussions regarding the ever-increasing hole in the company’s balance sheet. This hole was primarily caused by Alameda’s massive withdrawals of customer funds. As early as the end of 2019, Alameda was withdrawing more funds than FTX was earning in fees from customer trading on its platform.

The court also learned that by June 2022, Mr. Bankman-Fried had requested a review of Alameda’s debts to FTX, prompting intensive debates among top executives on how to accurately calculate the sum. Mr. Wang estimated this figure to be around $11 billion.

Mr. Wang further highlighted that Alameda’s account had unique features, including a $65 billion line of credit at FTX and the ability to run a negative balance, contrary to public claims. These features made it distinct from other accounts on the platform.

The trial is expected to span six weeks, with Mr. Wang continuing his testimony next week. Caroline Ellison, Mr. Bankman-Fried’s former girlfriend and the former chief executive of Alameda, who has also pleaded guilty, is slated to testify as well. This high-profile trial sheds light on the inner workings of the cryptocurrency world and the legal repercussions that arise when individuals in positions of authority make false claims regarding financial matters.