Prosecutors turn FTX founder Bankman-Fried’s own words against him

NEW YORK - When the cryptocurrency exchange FTX was riding high, company founder Sam Bankman-Fried communicated with the public in a relentless torrent of tweets, TV interviews and pronouncements in front of Congress.

Now, as Bankman-Fried testifies at his fraud trial in Manhattan, those words have come back to haunt him.

On Monday, a federal prosecutor

bombarded the disgraced crypto mogul with questions

as he took the stand for a second day of testimony in federal court. Over four hours, Ms Danielle Sassoon, the prosecutor, grilled Bankman-Fried about inconsistencies between his public statements and how he ran his crypto empire before it collapsed spectacularly in November last year.

Bankman-Fried, 31, answered in curt “yeps” and “nos”, eschewing the sometimes-winding statements he gave at other points in the trial. Sometimes rocking back and forth in his chair, he insisted he could not remember much of what he had said publicly, including about FTX’s handling of customers deposits and the conflicts of interest that plagued his businesses.

“I’m not sure,” Bankman-Fried responded over and over, as Ms Sassoon asked about statements he had made when he was chief executive of FTX. “I can’t recall,” he said at other points.

The cross-examination exposed cracks in Bankman-Fried’s claims, dealing a potentially serious blow to his credibility with the jury of nine women and three men who will decide his fate. On a large projector screen, Ms Sassoon displayed statements that appeared to show Bankman-Fried saying one thing in public, then acting differently in private. After having him recount FTX’s outreach to government officials in Washington, Ms Sassoon asked him to repeat private messages in which he used an expletive to dismiss regulators as useless.

Bankman-Fried’s testimony was the most anticipated moment of the trial, which has shined a spotlight on hubris and rampant risk-taking across the crypto industry. Once the face of crypto’s efforts to woo the public, Bankman-Fried is now widely compared to some of the most notorious fraudsters in recent history, including

Elizabeth Holmes

, founder of the failed blood-testing start-up Theranos.

Taking the stand was risky. Criminal defendants usually avoid testifying so that prosecutors do not have a chance to question them. But the first few weeks of the trial were so damaging for Bankman-Fried, as a procession of government witnesses testified that he lied to the public and stole from FTX customers, that he was left with few other options to salvage the case.

In December, federal prosecutors charged Bankman-Fried with orchestrating a sweeping scheme to steal as much as US$10 billion (S$13.6 billion) from FTX’s customers. He was also accused of creating a secret back door in FTX’s code that allowed a hedge fund he founded, Alameda Research, to seize billions of dollars in customer funds.

He has pleaded not guilty to seven counts of fraud, conspiracy and money laundering, and could face what amounts to a life sentence if convicted.

Not long after FTX imploded, three of Bankman-Fried’s closest associates – Caroline Ellison, Nishad Singh and Gary Wang – pleaded guilty to fraud and agreed to cooperate with the government, hoping for lenient sentences. All three have testified against Bankman-Fried at the trial, telling the jury that they lied and stole for years at his behest.

Bankman-Fried took the stand on Friday to tell his side of the story. Under questioning from his own lawyer, he cast himself as a hard-working founder who was overwhelmed by his responsibilities and let major business issues go unaddressed. He denied that he had committed fraud and blamed his colleagues for many of the problems that led to FTX’s collapse.

Ms Sassoon grilled him about interviews he gave before FTX collapsed, in which he insisted that Alameda had no special privileges as a customer trading on the exchange. Over the first three weeks of the trial, the prosecution’s witnesses testified that the opposite had been true and that Bankman-Fried had channelled billions of dollars to Alameda.

Eventually, Bankman-Fried acknowledged that Alameda had a US$65 billion line of credit with FTX, essentially allowing it to borrow unlimited funds.

At one point, Ms Sassoon asked Bankman-Fried whether he recalled making statements about the importance of safeguarding customer funds. He hemmed and hawed, eventually saying he could not remember.

“I made a lot of public statements,” he said.

Then Ms Sassoon showed the jury a tweet that Bankman-Fried had posted about that exact issue.

“And, as always, our users’ funds and safety come first,” he had written. NYTIMES