Takeaways from Sam Bankman-Fried’s second day in front of a jury

Prosecutors grilled former crypto king Sam Bankman-Fried on Monday as his criminal fraud trial entered its third week. He stands accused of orchestrating a multibillion-dollar fraud in a seismic event that has left the industry reeling.

While prosecutors have cast SBF as a Bernie Madoff-like mastermind, Bankman-Fried’s lawyers argue that “it’s not a crime to be the CEO of a company that later files for bankruptcy.”

For his own part, Bankman-Fried has largely offered vague responses on cross-examination so far, saying he does not recall conversations or statements he made in the past. Judge Lewis Kaplan has at least twice interjected to instruct Bankman-Fried to simply answer yes or no and stop trying to infer intentions from those questioning him.

Monday’s testimony kicked off with the former billionaire describing the days leading up to FTX’s bankruptcy filing on November 11 last year.

On November 6, FTX saw about $1 billion of net withdrawals in response to a tweet from the CEO of FTX’s bigger rival, Binance. The pace of withdrawals then increased further, with about $4 billion in net withdrawals the following day, or 100 times more than a typical day.

“I was concerned,” Bankman-Fried testified Monday. “It signaled a potential run on the bank and a risk of a liquidity crisis.”

That led him to send the tweet that has been central to the government’s argument that he lied to customers and investors about the state of his companies.

The tweet — which said FTX and its assets were both “fine” — was accurate at the time he posted it on the morning of November 7, he told jurors. But as the market crashed further that evening and into the following morning, “we were risking a solvency crisis,” Bankman-Fried said.

A market downturn meant that assets associated with FTX’s sister company, the hedge fund Alameda Research, “declined massively in value,” he said. The approximately 50% crash in Alameda’s assets drove the firm’s net asset value from around $10 billion to a little bit above zero, SBF testified.

At that time, he said, he deleted his earlier tweet.

Bankman-Fried on Monday recalled a conversation he had with Caroline Ellison, his ex-girlfriend and then-CEO of Alameda Research. He was worried, he said, that if the market decreased another 50% then Alameda would become insolvent.

“She started crying,” he said. “She agreed…that Alameda should have hedged.” He added that she “offered to step down,” which he said was her decision alone.

According to SBF, the two agreed that the “focus should be urgently putting on the hedges” to prevent Alameda from going bankrupt.

Ellison, who pleaded guilty in cooperation with the government, testified earlier that she wanted to quit but that Bankman-Fried told her she was “too important” to Alameda.

US Assistant Attorney Danielle Sassoon called up multiple instances of Bankman-Fried stating publicly that Alameda Research did not have special privileges and that the two firms operated independently of one another.

Bankman-Fried repeatedly pushed back, stating that he didn’t recall what he told reporters in various interviews. Asked to answer “yes” or “no,” Bankman-Fried equivocated and parsed the prosecutor’s wording.

“Do you recall saying FTX and Alameda acted separately?” Sassoon asked.

“I’m not sure about the exact phrasing,” he replied.

Just before the court broke for lunch, Sassoon pressed Bankman-Fried on the issue of Alameda’s special treatment.

Sassoon: “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?”

“That might be right,” he said.

“You don’t deny it?” Sassoon asked.

“I don’t deny it, no,” Bankman-Fried replied.

While Bankman-Fried publicly advocated for crypto regulation, Sassoon suggested Monday that this support was “just for PR.”

“No.” Bankman-Fried replied.

Sassoon then referenced an exchange SBF had with a reporter in which he said “f*ck regulators” and that his advocacy was “just PR.”

Another private conversation showed SBF calling some customers “dumb m*therf**kers.”

SBF pushed back on the question, saying that comment referred only to a “specific subset” of customers.

SBF is expected back for another full day of questioning on Tuesday, at which point the defense will redirect. The entire trial is nearing the finish line, with closing arguments likely to be presented on Thursday.

Thirty-one-year-old Bankman-Fried faces the rest of his life in prison if found guilty on all seven federal criminal charges of fraud and conspiracy.