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SBF confronted with his own words during cross-examination in FTX trial

Prosecutors in the criminal trial of Sam Bankman-Fried attempted to use the words of the defendant to undermine his credibility as they began their cross-examination of the 31-year-old entrepreneur, citing a series of his public and private statements.

These included his own tweets about protecting customers, a document about FTX’s core principles that he submitted to Congress and shared on a company website, a podcast interview, an appearance at a DealBook Summit in November 2022, as well as several other exchanges with journalists.

“When you spoke about FTX, you understood it as important to be accurate,” Assistant US Attorney Danielle Sassoon asked Bankman-Fried Monday.

“Yes,” he said.

Prosecutors allege that Bankman-Fried stole billions from FTX and spent it on investments, political donations, and real estate.

On Monday, Sassoon attempted to use Bankman-Fried’s public statements, as well as conflicting private statements, to discredit his earlier testimony that he was walled off from the trading decisions of FTX’s sister crypto trading firm Alameda Research; that Alameda played by the same rules as other traders on the FTX platform; and that FTX kept its customers’ assets available to withdraw.

One private message she cited was sent on Twitter in October 2022, several weeks before FTX collapsed into bankruptcy, when Bankman-Fried wrote “f*** regulators” to a reporter.

Sassoon said Bankman-Fried had testified before Congress in support of crypto exchange regulation and maintaining adequate financial, bookkeeping, wallet protections, and risk management, in the interest of safeguarding customer assets.

“[I]n private you said things like, ‘f*** regulators?'” Sassoon said. Bankman-Fried responded: “I said that once.”

“In fact, over and over again you described FTX’s platform as safe?” Sassoon said.

“I don’t remember,” Bankman-Fried said, after Sassoon pressed for a clearer answer.

Bankman-Fried said he probably made a “general statement to that effect.”

Another key exchange had to do with Alameda’s special treatment as a customer and market maker on FTX.

“Before November 2022, isn’t it true you assured customers [that] Alameda played by the same rules as other customers on FTX?” Sassoon asks.

“I said something to that extent. I remember saying that Alameda had the same access as other customers,” Bankman-Fried replied.

Other former executives testified that Alameda was allowed to hold a negative, un-collateralized, $65 billion balance at FTX without having its account liquidated — a feature not available to other users. A typical customer, Bankman-Fried admitted, was not permitted to hold for days a net asset balance with liabilities that exceeded assets.

“They would be liquidated, in most cases, yes,” Bankman-Fried said, adding that one exception was made for Three Arrows Capital to carry what he believed was roughly a $100 million negative balance on the platform without being liquidated.

Sassoon asked, “Do you deny that Alameda could withdraw billions of dollars from the FTX exchange using a line of credit without being subject to the auto liquidation protocol?”

Bankman-Fried said: “That might be right.” Sassoon: “You don’t deny it?”

“I don’t deny it, no.” he said.

‘I disagree’

During the afternoon session, prosecutors questioned Bankman-Fried about what he knew about Alameda’s debt to FTX and when he knew it.

Sassoon pressed Bankman-Fried on Alameda’s venture investments, its line of credit, and the decision to repay lenders after cryptocurrency values crashed, depleting the company’s balance sheet between May and June 2022.

In April 2021, Sassoon said, Bankman-Fried failed to tell FTX investors that Alameda assets were used to cover FTX asset losses caused by FTX customers who had exploited loopholes in the exchange’s code.

“I had screwed up there as well,” Bankman-Fried testified.

Sassoon implied that by May 2022 Bankman-Fried understood that Alameda’s line of credit allowed it the special privilege to borrow from FTX without collateral, and that it used this privilege to saddle Alameda with billions of dollars in debt owed to FTX.

“I had the view that it potentially could,” he said, adding that at the time he thought Alameda’s balance was roughly negative $2 billion.

The FTX founder said he approved or directed venture investments in small media companies, SkyBridge capital, Modulo, K5, and his favorite video game, “Storybook Brawl.” Those investments, he said, he knew in May and June 2022 were causing Alameda to be leveraged.

Though he disagreed that he considered the investments too large, especially if Alameda’s trading positions were properly hedged.

When he directed Alameda CEO Caroline Ellison to repay Alameda’s lenders in June 2022, he did not know that the repayment funds would involve FTX. Bankman-Fried also disputed Sassoon’s claim that Alameda’s use of FTX funds did not qualify as a margin trade.

“It’s my testimony that it depends on the details, but that that very well could be a margin trade. I’m sorry. It’s a hypothetical. I’m speculating here,” Bankman-Fried said.

To contrast Alameda’s $65 billion line of credit with limits for other FTX market makers, the government showed a contract with Alameda’s second-largest line-of-credit holder.

That holder had a $150 million maximum credit line, and the agreement stated that the market maker could not withdraw funds from the platform.

“[Y]ou agree, don’t you, that Alameda could never have accumulated a multibillion dollar negative balance in FTX if it had been a regular customer of the exchange, right?” Sasson asked.

“I disagree,” Bankman-Fried said.

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