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Sam Bankman-Fried’s trading firm Alameda Research began secretly dipping into FTX customer funds just months after the crypto exchange was founded, the company’s co-founder testified.
Gary Wang, a former college roommate of Bankman-Fried’s who became one of his closest friends and colleagues, told the jury in Manhattan federal court on Friday that he had been instructed in 2019 to let Alameda have a negative balance on FTX. Along with a “large line of credit” from the crypto exchange, that meant Alameda was soon in effect “taking customers’ money”, Wang said.
“The money belonged to customers, and the customers did not give us permission to use [it] for other things,” he said of the deposits used to fund Alameda’s negative balance, allowing the trading firm to in effect withdraw unlimited amounts from FTX.
Wang added that a secret and unique borrowing facility for Alameda was activated the same day — July 31, 2019 — that Bankman-Fried took to Twitter to assure FTX users that the trading firm’s accounts were treated “just like everyone else’s” on the crypto exchange.
That facility was only available to Alameda’s accounts from that date until FTX imploded in 2022, Wang said, during which time the trading firm’s line of credit was raised several times, eventually to as much as $65bn.
When Wang asked Bankman-Fried about the final credit raising, “he said he was fine with that”, the co-founder said.
The testimony by Wang, who pleaded guilty to fraud soon after FTX’s collapse and agreed to co-operate with prosecutors, is the most damning so far for the 31-year-old Bankman-Fried, who this week went on trial defending charges including wire fraud and money laundering.
If convicted, he could face decades in prison. He has pleaded not guilty, and his lawyers have argued he was acting in “good faith” and never intended to defraud anyone.
Wang described how Bankman-Fried and his inner circle scrambled to calculate exactly how much Alameda owed to FTX customers as the crypto price collapsed in the spring of 2022.
Despite knowing that Alameda owed about $11bn to FTX, Bankman-Fried told the trading firm’s chief executive, Caroline Ellison, to make loan repayments that were being demanded by its third-party lenders, Wang testified.
Ellison is expected to take the stand on Tuesday, after Wang’s testimony is complete.
On Thursday, another former FTX employee, Adam Yedidia, described a conversation with Bankman-Fried on the grounds of the luxurious Bahamian resort where they both lived, in which he said the FTX founder admitted that the exchange was “not bulletproof anymore”.
The court also heard from an investor into FTX who said he had been assured that Alameda received no special access to the exchange, and from an FTX customer who said he had traded on the platform only because he believed his deposits were safe.
Born in China, Wang moved to the US at the age of seven and grew up in Minnesota. He left a job at Google to join Bankman-Fried in founding Alameda in 2017, working by his friend’s side until their business empire collapsed in late 2022.
On Thursday, he described how the pair had met in high school at a summer maths camp, and lived together at MIT. He also said he would defer to Bankman-Fried if they disagreed about business decisions. “In the end it’s Sam’s decision to make,” he said.
Wang had stared straight ahead, ignoring his former friend, as he walked swiftly past the defence table on his way out of the courtroom. Bankman-Fried remained impassive, not even turning his head to look at Wang. The two rarely met each other’s gaze throughout the testimony.
He also testified on Friday that Bankman-Fried had told him to allocate “several hundred million dollars” worth of losses made by a prominent FTX customer to Alameda’s account, because the trading firm’s finances were less public.
Wang said his co-founder told him that “investors have access to FTX’s balance sheet but not to Alameda’s balance sheet”.
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