Bombshell Testimony from SBF Trial - Week 1
OPJ was in the Courtroom
Quick Note: I will be interviewing Raoul Pal live at the Seaport in NYC this Wednesday October 11th 6-8pm for the final Overpriced Happy Hour. We’ll have cocktails supplied by Beam Suntory and light bites (likely pizza from one of my favorite places 🍕🍕).
Limited spots are available to OPJ subscribers - register here! Can’t wait to see you there!
SBF’s Bad Week
It’s been a tough week in court for Samuel Bankman-Fried and I would know. I’ve been at the courthouse every day - lining up at 7:30am to ensure I get a good enough seat to watch his parents whisper sweet nothings to each other and pass a legal pad back and forth.
For a slightly more detailed breakdown of what’s happened so far, check out Overpriced JPEG’s daily updates (linked below) which have been going out on YouTube, podcast apps, and Twitter.
Here’s who’s testified so far and the most important take-aways from each:
Witness #1: FTX customer Marc Antoine Julliard testified that he lost $100,000 after believing FTX would keep his deposits safe
Witness #2: SBF’s close college friend and former FTX + Alameda employee, Adam Yedidia testified that he had a convo with SBF in June 2022 (on a luxury paddle tennis court in the Bahamas, no less) where Sam said FTX + Alameda were “bulletproof last year but we aren’t this year” - specifically when asked about the large debt Alameda owed to FTX customers
Witness #3: Paradigm MD, Matt Huang, testified that before Paradigm invested $287 million in FTX’ series B + C rounds, he was told:
Alameda had no special privileges on FTX
FTX was expecting annual profits of $322 million in 2021 (suggesting profits of ~$80 million in Q1 2021)
Neither things, it turns out, were true. Witness #4 even came with receipts (screenshots of computer code) demonstrating just how some of those special privileges for Alameda actually worked…
Witness #4: In addition to code snippets, testimony from FTX + Alameda co-founder Gary Wang, offered us an interesting timeline of events…
July 31, 2019: Gary + Nishad made changes to the FTX code base, at SBF’s behest, allowing Alameda to hold an infinitely negative balance with FTX - aka withdraw as much money as it wanted/needed, regardless of how much money or collateral it had posted on the platform.
February 14, 2021: the FTX official Twitter account said there was $100M in the FTX insurance fund - designed to protect customers of FTX + FTX itself - but this was a lie.
In fact, the insurance pool had much less. Even worse? that $100M number was pulled from literal thin air (generated from code that did random multiplication and division to generate a random number…)
June 2022: Gary, Nishad, Caroline, + Sam did a full accounting of FTX’ + Alameda’s financial situations and determined Alameda was $11 BILLION in the hole. Despite this, Sam allegedly said “you can go ahead and return the borrows.”
As in, Alameda could pay back its creditors (like Genesis) despite knowing that that would mean spending customer money to do so.
September 2022: Sam considered shutting down Alameda, circulating a document to Gary + Nishad in which he listed his reasons, including: “Alameda is a PR hit to FTX” and its “leadership are strong but not strong enough.” In the end, the team realized that Alameda + FTX were far too intertwined. Alameda owed FTX $14 billion. If it shut down, FTX would also go down.
November 2022: Everything implodes, FTX declares bankruptcy, leaving customers $8 billion in the hole. In the aftermath, Sam told Gary to send FTX’s remaining assets to Bahamian regulators (instead of FTX’ US bankruptcy lawyers, who were asking for them) because he believed Bahamian regulators would let him stay in charge of the company.
And while all of this looks… not… good for Sam… we are only on week 1. The defense hasn’t really been able to make their case yet and isn’t expected to for another 3 weeks.
Speaking of the defense, their cross examinations have been pretty… uninteresting - aside from the fact that keep getting scolded like school children by the judge for repeating too many basic questions that the prosecution already asked and getting objected to a lot. Like a non-normal amount of sustained objections (according to other regular court reporters I asked).
The biggest counterargument the defense has managed to land so far, in my opinion, is demonstrating that all of the special privileges Alameda was granted did, at one point, also serve to help Alameda’s market-making role on FTX. These special privileges were not solely a byproduct of greed and ineptitude, though they may have facilitated both by the end.
Of course, the defense’ job is not necessarily to tell a compelling counterstory. It’s simply to sew reasonable doubt in the minds of the jurors. Time will tell if they’re pulling it off.
Until next time!
xxCarly