6.Samuel Bankman-Fried — Direct/Cross (Part 1)
1,071 linesDIRECT EXAMINATION BY MR. COHEN:
MR. COHEN: Good afternoon, Mr. Bankman-Fried.
SAMUEL BANKMAN-FRIED: Good afternoon.
MR. COHEN: You heard his Honor. We're only going to cover certain topics today. So let me start with one topic.
What communications platforms did employees at FTX use?
SAMUEL BANKMAN-FRIED: Internally, the primary platforms used were Slack, Signal, and to some extent Telegram; externally, email and to some extent Telegram, in addition to Slack and Signal.
MR. COHEN: What are Slack and Signal?
SAMUEL BANKMAN-FRIED: Slack is a workplace communications software where basically employees can post threads, comment on those threads, post files, react; there are various other channels that you can use for whatever purpose, but we generally use them for different topics.
Signal, it's a——it's a secure, encrypted peer-to-peer communication platform that is one of the more used platforms in the cryptocurrency industry, where you can form groups to have conversations.
MR. COHEN: And why were they used at FTX?
SAMUEL BANKMAN-FRIED: Both of them had advantages, especially for internal conversations over email, for instance. With email, it's easy to have a single message sent to a group of people, but threaded conversations with multiple topics, each of which expand into subtopics with comments on those, files uploaded, are not displayed or sort of maintained nearly as clearly. So we wanted something that involved more interactivity. Slack and Signal both had that.
MR. COHEN: Have you ever heard the term "encryption"?
MR. COHEN: How did that relate, if at all, to Slack and Signal?
SAMUEL BANKMAN-FRIED: So the——almost all internet access is encrypted at this point. Signal in particular was encrypted in a stronger way, which is to say that there was no third party that stored unencrypted or raw versions of messages. Instead, the participants had access to the raw versions of messages but would only send the——what's called the encrypted version to each other, you know, online or through the platform.
MR. COHEN: What about Slack?
SAMUEL BANKMAN-FRIED: Slack was accessed via encryption in terms of the internet access that people had, but the platform stored the raw text that was sent.
MR. COHEN: Was encryption important to FTX?
SAMUEL BANKMAN-FRIED: It was.
MR. COHEN: Why?
SAMUEL BANKMAN-FRIED: There were a number of reasons, in different occasions. One concern was always security threats from the outside. There were constant hacking attempts on FTX from third parties. And any unencrypted data was potentially vulnerable. So, you know, one standard example of this, which we had concerns about, was confidential user information. We didn't want any breaches of our systems. We certainly didn't want information like Social Security numbers of our customers that we had to collect via the new customer process to be accessible by any security breach, so we had, you know, more stringent securities, including storing only encrypted versions of some pieces of data and storing them in more secure locations.
There were also foreign policy concerns, for lack of a better word. For most of FTX's existence, we were headquartered in Hong Kong. There were some, you know, political occurrences during our period there, which meant that there was concern with employees about unauthorized access to their devices.
And, you know, finally, there were concerns about former employees, you know, having access to data that they could sell to a competitor, for instance.
MR. COHEN: You mentioned the risk of hacking.
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: Did FTX ever get hacked?
SAMUEL BANKMAN-FRIED: Well, there were constant attempts to hack FTX. There was never a core breach, I would say, of FTX's systems themselves, but a number of the third-party services that it used had breaches or what appeared to us at the time as being breaches, of various sorts. Sometimes we weren't sure what caused them exactly, but we could see the effect, and they would leak out confidential information associated with FTX to the world.
MR. COHEN: Have you ever heard the term "document retention policy"?
MR. COHEN: What did it mean to you?
SAMUEL BANKMAN-FRIED: It's a policy that a company keeps that specifies which sorts of data have, you know——are retained, that is to say stored in a company's files, for what periods of time, which sorts of data are not stored, and sort of other related things.
MR. COHEN: Did there come a time that FTX had put into place a document retention policy?
SAMUEL BANKMAN-FRIED: Yes, it did.
MR. COHEN: Can you tell his Honor how that came about.
SAMUEL BANKMAN-FRIED: Yeah. In short, in response to a number of things, one of which was just the company growing and becoming relatively more mature, at least, it began time for us to formalize a number of the policies that we had. There were also constant regulatory inquiries from regulators across the world. We were interfacing with, you know, regulatory infrastructure in dozens of countries, and those each had associated document retention requirements in various cases, and so the chief——chief regulatory officer, Dan Friedberg, along with Fenwick & West, one of our external law firms, put together a document retention policy which described in what circumstances FTX was to have, you know, various forms or lack thereof of retention or deletion of data and then worked with employees at FTX to implement that.
MR. COHEN: You described Mr. Friedberg as a chief regulatory officer. Was he also an attorney?
SAMUEL BANKMAN-FRIED: Yes, he was.
MR. COHEN: And he worked with Fenwick & West, which was an outside law firm?
SAMUEL BANKMAN-FRIED: Yes, when I first met him, he was a——an attorney and later a partner at Fenwick & West and one of our outside counsel that we used. Subsequent to that, we hired him internally as a in-house lawyer.
MR. COHEN: Did Mr. Friedberg and the lawyers from Fenwick communicate with you about what they were going to do with regard to this policy?
SAMUEL BANKMAN-FRIED: Yeah. They came up with drafts, they communicated that to myself, to other members of management, and discussed what the details of an implementation of it might look like.
MR. COHEN: In big picture, what was your understanding; what was your takeaway?
SAMUEL BANKMAN-FRIED: My big-picture takeaway was that there were certain classes of data that we had very clear retention requirements around. Those tended to be regulatory. So a few subsidiaries had particular regulatory requirements on them, and those had particular document retention policies trying that out.
In addition, often when we had specific interactions with the regulator, they would request that we retain a particular class of documents or data, and so there were topics that we had a duty to retain. Those topics tended to concern compliance-related things, "Know Your Customer" policies being an example of that. So that was one class of data for which there were effectively mandates that we retain corporate records related to it.
Separately, there were classes of data for which we had requirements not to retain, at least not to retain beyond a particular time or without particular sorts of security or encryption. Those tended to be sensitive pieces of customer information, customer passwords, customer Social Security numbers, things like that.
And then beyond that, there were just broad topics that, you know, I think for various channels on Slack——for instance, we——the document retention policy, even if not specifically mandated to by regulation, you know, said that we would not have auto-delete features on, you know, channels related to compliance to formal accounting records and other things like that.
MR. COHEN: If a category was not in one of the ones you described as requiring deletion, what was your understanding of what the participants could do?
SAMUEL BANKMAN-FRIED: Sorry. To be clear, if it was not in the required deletion category.
MR. COHEN: Like regulatory, for example.
SAMUEL BANKMAN-FRIED: Right. So for documents that were in the required retention category, the answer was that any——at least any formal business communications, anything memorialized, any business policy, any decisions made or records thereof, would be——would not be deleted. They would be, you know, in email or Slack channel without any auto-deletion turned on.
For, I would say, informal chatter, obviously a lot of that would happen verbally, a lot of questions would be asked via that manner, and if we weren't in person, Signal was a standard chat app to use for sort of informal questions, but not for company policies or for decisions concerning them or for, you know, formal document releases or anything like that.
MR. COHEN: Coming back to the policy, did there come a time that Mr. Friedberg and Fenwick completed the policy?
MR. COHEN: Okay. And did you understand they had completed it?
MR. COHEN: And what did it mean to you as CEO of FTX?
JUDGE KAPLAN: This would be a lot more helpful to you if I was not getting just vague generalities about what he understood, if you understand where I'm going with that.
MR. COHEN: Sure. I'm just trying to give your Honor all the context. Obviously the defense's position that this is presented in sort of snippets, so I'm trying to give your Honor context.
BY MR. COHEN:
MR. COHEN: Mr. Bankman-Fried, did you discuss with Mr. Friedberg the policy?
MR. COHEN: Tell us what you discussed with him.
SAMUEL BANKMAN-FRIED: He presented to myself and a few other people at the company drafts of this policy. He talked about it with us in person and sent us documents drafting it. He had meetings with myself and others to discuss which channels would fall under various categories within this document retention policy. He sent us a finalized version of it, and that was then implemented.
MR. COHEN: Okay. And after it was implemented did you believe you acted in accordance with the policy?
SAMUEL BANKMAN-FRIED: To my knowledge, yes.
MR. COHEN: Okay. Now when you communicated with the attorneys and compliance people at FTX——
MR. COHEN: ——what form did you communicate over?
SAMUEL BANKMAN-FRIED: It depended on what the message was. To give some examples, if we were——if I had, for instance, an announcement, if there was a company policy, that would generally be in a Slack channel. It would generally be either in a general Slack channel if it was intended for broad consumption or in a compliance- or regulatory-deemed Slack channel. Those would not have any auto-deletion set on them. They would be retained forever.
If it was an informal question, like, you know, describe to me what your off-the-cuff impression is of the regulatory environment in some country we're not currently operating in so that we can decide whether to allocate more time into investigating whether to operate there, that could be in person, it could be over Signal, it could be in a Slack channel.
MR. COHEN: Now the government has introduced——I don't want to give the count, but——about half a dozen exhibits in which you were the person who put auto-delete onto a message. Do you recall that, sir?
MR. COHEN: When you did that, did you believe you were acting in accordance with the policy?
MR. COHEN: Tell us why.
SAMUEL BANKMAN-FRIED: So as a general matter, those were not channels where there would be formal business records or, for that matter, even informal business records. Those were not channels in which decisions would be made or announced, or enacted. And those were not channels in which documents relevant to regulatory inquiries or potential or otherwise were intended to be discussed. Those would be for——for chatter, for conversation, the types of, you know, workplace communications that would often just be someone wandering over to my desk and saying: Hey, Sam, you know, do you have any thoughts about the Japanese regulatory environment right now?
MR. COHEN: Okay. Can we put up——it was introduced this morning—-Government Exhibit 1083, please.
MR. COHEN: Okay. Mr. Bankman-Fried, if you could look at the first page, and you see the entry for item 1 is hashtag organization?
MR. COHEN: Item 5 is direct messages between you and Ms. Ellison, and item 6 is messages between you and Gary Wang.
MR. COHEN: And then the far right-hand corner, it says, "auto-deletion turned off SBF."
MR. COHEN: Do you recall doing that, sir?
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: And can you explain to us what happened.
SAMUEL BANKMAN-FRIED: Yeah. So these were Signal channels for which there had previously been an auto-deletion policy, generally one week. In November 2022, for a variety of reasons but including because what had been communicated to me, what I understood to be coming from regulators, I took an effort to disable auto-deletion on, you know, any place that I found it, and so I went through Signal's chats generally as they were used as people messaged in them that I was a part of, and if I received a message, saw that auto-delete was set, I would disable that, and I also went through the ones that I could think of and, you know, proactively disabled auto-delete on them.
MR. COHEN: Moving in the document to the next page, if you could go to item——one page after, Brian. I'm sorry. Item 29. The heading is Sensitive Chatter, and there's a number of folks on that, description in the middle.
MR. COHEN: Can you identify for us——it says——Gary Wang, we know. Who is Can?
SAMUEL BANKMAN-FRIED: That was Can Sun, the general counsel of FTX International.
MR. COHEN: Who was Ryne Miller?
SAMUEL BANKMAN-FRIED: That was the general counsel of FTX.US.
MR. COHEN: Okay. And who was Brett Harrison?
SAMUEL BANKMAN-FRIED: Brett Harrison was the president of FTX.US at the time.
MR. COHEN: And dropping down to the next entry, Small Group Chat, can you explain who Rahul Sharma was, at the very bottom.
SAMUEL BANKMAN-FRIED: Rahul Sharma was——I actually don't know for sure who he was employed by.
MR. COHEN: Let me rephrase.
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: Were there folks in this who were either in the legal group or the compliance group?
SAMUEL BANKMAN-FRIED: Yes. Absolutely.
MR. COHEN: Can you identify them for the Court.
SAMUEL BANKMAN-FRIED: Yeah. Ryne Miller, again, general counsel, FTX.US; Ryan Mendel was——you could classify him as compliance; Kumanan——this is a group that was created in November 2022 during the crisis period. Kumanan was an employee of a consultant who was brought in by the FTX debtor entity to work, my understanding is, on compliance matters. And my understanding is that Rahul was also a compliance specialist, I believe with FTX US Derivatives, but I'm not a hundred percent sure on that.
MR. COHEN: Okay. And if we could continue to entry 252 on this exhibit.
MR. COHEN: Mr. Bankman-Fried, the entry on 252 refers to Privileged/Confidential CFTC. Do you see that?
SAMUEL BANKMAN-FRIED: I do.
MR. COHEN: Who was on that?
SAMUEL BANKMAN-FRIED: Gary Wang, CTO; Nishad Singh, head of engineering; myself; Ryne Miller, the general counsel of FTX.US; and Can Sun, the general counsel of FTX International.
MR. COHEN: And what was your understanding of what that referred to, that entry?
SAMUEL BANKMAN-FRIED: That entry was for privileged communications between management and the heads of the legal departments around our interactions with the CFTC, the Commodities Futures Trading Commission, with respect to regulatory applications and inquiries that we had there.
MR. COHEN: And for that entry, just to complete your testimony, auto-deletion had been turned off, correct?
SAMUEL BANKMAN-FRIED: That's right, in the same November period.
JUDGE KAPLAN: By someone else.
SAMUEL BANKMAN-FRIED: That's right, by Gary Wang.
JUDGE KAPLAN: Long after you received the message, yes?
SAMUEL BANKMAN-FRIED: I'm not sure what message you're referring to.
JUDGE KAPLAN: The one we're talking about.
SAMUEL BANKMAN-FRIED: That's correct. I was in many Signal channels. There was no way to turn off auto-delete on all of them at once, so I did that on any channel for which I received a message or had a recent message that would have been deleted otherwise, or for the channels I thought of. I'm guessing this channel had not been used for a while prior to that, but I don't recall for certain.
JUDGE KAPLAN: Thank you.
MR. COHEN: Let me move, your Honor——if your Honor is fine with this, I'll move to another topic, or——
JUDGE KAPLAN: You're moving to another topic now?
MR. COHEN: Yes. Unless you want me to ask any more questions on this.
JUDGE KAPLAN: It's up to you.
MR. COHEN: All right. Let me——
JUDGE KAPLAN: One thought that readily occurs: Where is this policy?
Let's move on.
BY MR. COHEN:
MR. COHEN: All right. Let me move to another topic, Mr. Bankman-Fried.
Do you recall hearing about a company called North Dimension?
MR. COHEN: Okay. What do you recall about that?
SAMUEL BANKMAN-FRIED: North Dimension was a subsidiary of Alameda Research, which was incorporated for payment processing purposes. I believe it was around 2020 that this happened.
MR. COHEN: And how did it get set up?
SAMUEL BANKMAN-FRIED: Dan Friedberg, the chief regulatory officer of FTX International, in combination with Fenwick & West, one of our outside law firms, was——were the ones who drafted the incorporation documents, had incorporated and also corresponded with banks about opening up bank accounts for it. I believe there were a few other employees who were involved as well.
MR. COHEN: Do you recall whether the banks required North Dimension to fill out any forms?
SAMUEL BANKMAN-FRIED: Yes. They had bank account opening forms.
MR. COHEN: Okay. And who filled those out?
SAMUEL BANKMAN-FRIED: Dan Friedberg did, or at least he was the one who presented them to me.
MR. COHEN: And when Mr. Friedberg presented them to you, what did you do?
SAMUEL BANKMAN-FRIED: I signed them.
MR. COHEN: Why did you do that?
SAMUEL BANKMAN-FRIED: I had a lot of things that passed my desk each day to sign. I trusted that they were proper forms. And they were necessary for opening up a bank account. I also briefly reviewed them and didn't see anything that looked obviously wrong to me.
MR. COHEN: Did there come a time when the topic of an agreement for Alameda to process FTX customer deposits came up?
MR. COHEN: Okay. What do you recall about that?
SAMUEL BANKMAN-FRIED: There is a payment agent agreement between Alameda and FTX related to the payment processing.
MR. COHEN: Can we call up DX 245 for identification, please.
MR. COHEN: Mr. Bankman-Fried, why don't you go through this document.
MR. COHEN: And Brian, if you could scroll so he can see the whole thing.
MR. COHEN: Okay. Let's go to the first page. What is this document, Mr. Bankman-Fried?
SAMUEL BANKMAN-FRIED: This is that payment agent agreement.
MR. COHEN: And do you recall how it was presented to you?
SAMUEL BANKMAN-FRIED: Yeah. Dan Friedberg presented it to me.
MR. COHEN: Okay. And what was your understanding of who had drafted it?
SAMUEL BANKMAN-FRIED: My understanding is that it was drafted with Fenwick & West, who was our primary external law firm at the time.
MR. COHEN: And what was the purpose of the agreement?
SAMUEL BANKMAN-FRIED: It was to memorialize the ways in which Alameda Research acted as one of the payment agents or payment processors for FTX, which is to say a avenue via which customers could deposit.
MR. COHEN: Okay. If you can go to the last page, Brian.
MR. COHEN: You see the signature page. There's a signature for Alameda, and is that your signature underneath?
MR. COHEN: And there's also a signature for FTX. Is that your signature underneath?
SAMUEL BANKMAN-FRIED: Even though they look a little bit different, yes, those are both mine.
MR. COHEN: Mr. Bankman-Fried, why were you signing both sides of that agreement?
SAMUEL BANKMAN-FRIED: At the time that it was presented to me, I was the CEO of Alameda Research and I was also the CEO of FTX.
MR. COHEN: And you see there there's an entry, effective date?
MR. COHEN: What was your understanding of that?
SAMUEL BANKMAN-FRIED: My understanding is that that was the date that the relationship had started, that this was memorializing that relationship.
MR. COHEN: Okay. So when customers wired funds into the Alameda bank accounts or the North Dimension bank accounts, did you believe that it was covered by this agreement?
MR. COHEN: And how did it work?
SAMUEL BANKMAN-FRIED: How did the——how did that process work?
MR. COHEN: Yes, exactly.
SAMUEL BANKMAN-FRIED: Okay. So this was over the course of 2020 and 2021. This was prior to FTX having its own customer bank accounts. So FTX had attempted from inception to get bank accounts, what are called FBO bank accounts, "for benefit of other" bank accounts, that customers could deposit funds into. But it took a couple years to get those bank accounts. In lieu of that, prior to those, it used a number of different payment processors, but the most used is——was Alameda Research. We put on the FTX originally OTC page and eventually on the FTX website wire transfer instructions for Alameda Research, where customers could wire fiat currencies, generally dollars——I think maybe exclusively dollars in——and have balances credited on their FTX account to trade on FTX.
MR. COHEN: Did you believe that this process of transferring or wiring funds into Alameda North Dimension was permitted based upon the payment agent agreement?
MR. COHEN: We would offer it. Before the jury, we'd offer the document, your Honor.
Let me move to another topic, Mr. Bankman-Fried.
You can take that down.
Before we do, if we could pull up Defendant's Exhibit 255.
Take a moment and go through that, all the pages for him, Brian.
BY MR. COHEN:
MR. COHEN: The first question is whether you recognize it.
MS. SASSOON: Your Honor, I believe this is in evidence as Government Exhibit 267.
MR. COHEN: Okay. Then let's use the GX number.
JUDGE KAPLAN: Thank you.
SAMUEL BANKMAN-FRIED: I do recognize that.
MR. COHEN: And what is it, sir?
SAMUEL BANKMAN-FRIED: That is the form that was used to apply for a North Dimension bank account with Silvergate Bank.
MR. COHEN: And the first page, it notes name of compliance contact, and it says Dan Friedberg, General Counsel and Compliance Officer. Do you see that, sir?
MR. COHEN: What was your understanding of that?
SAMUEL BANKMAN-FRIED: This had been compiled and presented by Dan Friedberg, who was the general counsel and the compliance officer of North Dimension and of Alameda.
MR. COHEN: And was this the diligence form that got filled out for Silvergate Bank that you referred to a moment ago?
SAMUEL BANKMAN-FRIED: Yes, this was.
MR. COHEN: Okay. All right. We can take that down.
MR. COHEN: Let me move to another topic, Mr. Bankman-Fried.
Do you recall that you and others made a number of venture investments?
MR. COHEN: Okay. And where did the funds for those investments come from?
SAMUEL BANKMAN-FRIED: They came from Alameda Research.
MR. COHEN: Okay. And how was the transfer of funds structured?
SAMUEL BANKMAN-FRIED: It depended on the investment. There were various entities that did the investing. If it was Alameda Research's core trading entities that invested, then I believe funds were wired straight from Alameda, or sent via the blockchain in the case of investments done in the form of cryptocurrency. If it was done via another entity——for instance, one of the Alameda venture entities——then there would generally be an intercompany loan in which Alameda Research would lend money to the affiliate that was making the investment, and that affiliate would then make the investment. And in some cases there were affiliated entities that had heavily overlapping ownership with Alameda Research, and there would be loans from Alameda to myself and/or the other owners of that entity that would then infuse the capital into that entity for it to make the investment.
(Continued on next page)
MR. COHEN: Let's start with that example. So there would be times where the loans would go first to you?
MR. COHEN: Or Gary or Nishad?
MR. COHEN: Were those loans documented?
MR. COHEN: How were they documented?
SAMUEL BANKMAN-FRIED: There were promissory notes drawn up between us and Alameda Research.
MR. COHEN: Who drafted those?
SAMUEL BANKMAN-FRIED: The legal department drafted those memos, those promissory notes.
MR. COHEN: Do you ever recall -- let me rephrase.
Did you ever recall the issue coming up of whether to denominate those transfers as loans or dividends?
SAMUEL BANKMAN-FRIED: At least in a few cases it did come up, and at the time I remember concerns about risk of double taxation if they were structured improperly. There were also cases where the entities that we were investing in expressed strong preferences about what entity invested in them.
MR. COHEN: Who did you discuss these issues with?
SAMUEL BANKMAN-FRIED: I discussed them with counsel. It depended on the particular instance which counsel. Some of them I discussed with Fenwick & West there and attorneys there. Some of these I discussed with Dan Friedberg and Can Sun, and some with Ryne Miller as well.
MR. COHEN: Based on the conversation with these attorneys, what was your understanding about the loan structure?
SAMUEL BANKMAN-FRIED: My understanding --
JUDGE KAPLAN: I'm sorry, Mr. Cohen. I'll let you get an answer to this, but a better question would be, what did you say to them and what did they say to you on that subject?
MR. COHEN: You are right, your Honor.
MR. COHEN: Let's go with his Honor's question.
SAMUEL BANKMAN-FRIED: In those cases, maybe describing the earlier ones by the later ones, a lot of the context had already been built up, I described to them that ultimately there is an investment that I wanted to make. I described that -- what the investment was, that ultimately funds would be coming from Alameda Research to do it, and gave the reasons why there had been some preference expressed for it to not be Alameda Research itself, the entity that ultimately made the investment, that that is, that was the ultimate acquiring entity of these shares or assets. And I then asked about what structures would be appropriate for doing that. Ultimately, we decided on -- for some of them a personal loan to myself coupled with an investment in the entity that was itself making the ultimate investment.
MR. COHEN: They shared with you their view that it ought to be structured as a loan?
SAMUEL BANKMAN-FRIED: That either it ought to or that it was one of the permissible options, yes.
MR. COHEN: What was your reaction to that?
SAMUEL BANKMAN-FRIED: I had no strong reaction to that. I was thinking about it from a business perspective of trying to find a solution that would check all the boxes. I was glad that we had found one.
MR. COHEN: Did you take comfort from the fact that the lawyers had structured the loans?
SAMUEL BANKMAN-FRIED: Yes, of course.
MR. COHEN: Pull up, I thought it was in evidence, GX-240, please. We can just look at the first page. Maybe you can make that bigger.
MR. COHEN: What is this, Mr. Bankman-Fried?
SAMUEL BANKMAN-FRIED: That is -- can you go to the signature page.
OK.
MR. COHEN: What is that?
SAMUEL BANKMAN-FRIED: That is one of the promissory notes in which Alameda gave a loan to myself.
MR. COHEN: That's an example of one of the documents you were just discussing?
SAMUEL BANKMAN-FRIED: That is correct, yes.
MR. COHEN: We can take that down.
MR. COHEN: Let's go to another topic, Mr. Bankman-Fried.
MR. COHEN: Can we pull up Government Exhibit 558 in evidence.
Take a moment and go through the pages for him.
SAMUEL BANKMAN-FRIED: I think we don't have to go through all the pages of this. That's enough.
MR. COHEN: What is this, sir?
SAMUEL BANKMAN-FRIED: That is the May 2022 updated version of the FTX International terms of service.
MR. COHEN: Did you ever see this document before?
MR. COHEN: About when did you see it?
SAMUEL BANKMAN-FRIED: I first was presented with drafts of it in, I believe, early 2022, possibly late 2021, and I was presented with a completed version of it around May of 2022.
MR. COHEN: If you know, who worked on this document?
SAMUEL BANKMAN-FRIED: I know that Can Sun, who is the general counsel of FTX International, was heavily involved in working on it and interfacing with me on it. I know he worked with outside law firms. I am not sure which ones.
MR. COHEN: Did you speak with Mr. Sun about the terms of service?
MR. COHEN: Tell us what you discussed.
SAMUEL BANKMAN-FRIED: We discussed the fact that, at least in part because of the Bahamian entity, FTX Digital Markets, which is regulated by the Securities Commission of the Bahamas, we wanted to have an updated terms of service and that he was working on drafting and ultimately releasing one.
MR. COHEN: Did you believe that the terms of service addressed margin trading?
MR. COHEN: Can we go to section 16, please, Brian. Page 16. I'm sorry. If we can call out section 16.
MR. COHEN: Mr. Bankman-Fried, based on your review of that document and your discussions with Mr. Sun, what was your understanding of what it provided for?
SAMUEL BANKMAN-FRIED: My understanding is that this section provided for various terms and disclosures related to customers engaging in margin trading on FTX.
MR. COHEN: If we go to the next page --
JUDGE KAPLAN: Mr. Bankman-Fried, did you read this entire document before it was promulgated?
SAMUEL BANKMAN-FRIED: I read parts in depth, parts I skimmed over.
JUDGE KAPLAN: Go ahead.
MR. COHEN: Turning to 16.4, Mr. Bankman-Fried.
MR. COHEN: Can we call that out. Brian, can you call that out, 16.4.
MR. COHEN: Turning to the last two sentences, no need for me to read them, can you tell us what your understanding was of these provisions?
SAMUEL BANKMAN-FRIED: Yeah. Those provisions referred to a few different potential -- features isn't quite the right word -- properties of FTX.
The first is referring to liquidations, to the fact that if a user engaged in margin trading and their collateral fell below a certain level, their positions might be forcibly shut down in order to mitigate risk associated with their account.
The second was what's called clawbacks or socialized losses, which is that if another margin trading user suffered losses, if the value of their collateral fell or their obligations rose, to the point where the net value of their assets minus liabilities, which is to say their net asset value became negative, that if FTX itself was not able to cover that shortfall, it could be effectively socialized on other users. That was something we always hoped to avoid, but that was always a risk.
MR. COHEN: Based on this and other parts of the terms of service, did you believe that Alameda borrowing funds from FTX exchange was permitted under the terms of service?
SAMUEL BANKMAN-FRIED: Yes, in many circumstances.
MR. COHEN: Now, let's turn to schedule 5 of that document and page 35.
MR. COHEN: That's a service schedule. At the top it's entitled futures market.
Do you see that, sir?
MR. COHEN: We don't have to go through it in detail, but what is your understanding of what this provided?
SAMUEL BANKMAN-FRIED: My understanding is that it provided for various terms that only applied to futures trading and not to spot markets on FTX.
MR. COHEN: And based on the terms of service, did you believe Alameda was permitted to engage in futures trading?
MR. COHEN: We can take that down.
MR. COHEN: Any other conversations about the terms of service that I have not covered today?
SAMUEL BANKMAN-FRIED: Around --
MS. SASSOON: Objection, your Honor.
JUDGE KAPLAN: Sustained.
MR. COHEN: Let me ask a better question. Other than the conversations you relayed with Mr. Sun, did you have any other conversations with him about the terms of service?
SAMUEL BANKMAN-FRIED: About these particular terms of service?
MR. COHEN: Yes.
SAMUEL BANKMAN-FRIED: We had conversations in which I authorized him to move forward with the new terms of service so long as the exchange infrastructure was prepared for them. I know there were requirements in terms of going back through old users and reaffirming some of their know-your-customer status in order to release the new terms of service.
MR. COHEN: The terms of service we were just looking at were issued on May 13, 2022?
MR. COHEN: To your knowledge, sir, were there versions of the terms of service before that?
MR. COHEN: What is your basis for saying that?
SAMUEL BANKMAN-FRIED: I mean, FTX always had a terms of service. I believe from day one I remember posting a terms of service on the website.
MR. COHEN: How many versions were there prior to the May 13 version?
SAMUEL BANKMAN-FRIED: I know that there were a few main versions and likely a number of edits. I am not sure exactly how many.
MR. COHEN: Did you review those?
SAMUEL BANKMAN-FRIED: I reviewed the initial terms of service and would occasionally skim through updated ones. I don't know that I reviewed every single edit to them.
MR. COHEN: Who prepared those?
SAMUEL BANKMAN-FRIED: They were originally prepared by Dan Friedberg and Fenwick & West.
MR. COHEN: Did you believe that you were managing FTX in accordance with the earlier terms of service?
MR. COHEN: Let's move to another topic, sir.
JUDGE KAPLAN: Are you going to put the earlier terms into evidence?
MR. COHEN: We are. We are just getting them, your Honor.
JUDGE KAPLAN: Go ahead.
MR. COHEN: Let me move to another topic, Mr. Bankman-Fried.
While you were CEO of FTX, did you attempt to safeguard customer assets?
MR. COHEN: How did you do that?
SAMUEL BANKMAN-FRIED: There were a variety of ways. The single biggest was the physical security of the assets that FTX custodied. And in terms of their physical security, one potential threat, obviously, was a hacking attempt on FTX's core servers. That, in practice, was not the most frequent attack that we faced, however.
By far more frequent was fishing attacks on FTX customers. In short, a fishing attack --
MR. COHEN: Mr. Bankman-Fried, let me focus this more. I want to take up the issue that the Court is concerned with.
MR. COHEN: I apologize.
Did you ever hear the term segregation of assets?
MR. COHEN: What did it mean to you?
SAMUEL BANKMAN-FRIED: What it meant to me in the context of FTX was segregating FTX's corporate assets, which is to say the roughly $1 billion of profit that it had accumulated versus the omnibus wallets that stored net customer assets in them.
MR. COHEN: How were individual customer assets stored?
SAMUEL BANKMAN-FRIED: There was no particular wallet for each individual customer. We had millions of customers. And if we tried to keep each customer's Bitcoin in a wallet specifically for that customer, then every time there was a trade we would have needed to do a transfer of that physical Bitcoin. It would have been millions to tens of millions of dollars per day in fees charged to users to cover those transfers. It would have been completely impractical from a business perspective.
So what we had were what are called omnibus wallets and omnibus bank accounts, which effectively mean one wallet where we put all of the net customer Bitcoins in.
MR. COHEN: All the customer Bitcoins were in one omnibus account?
SAMUEL BANKMAN-FRIED: That's right.
MR. COHEN: Was that separated from the FTX operational account?
MR. COHEN: You got into the crypto industry in 2017?
SAMUEL BANKMAN-FRIED: Um-hum.
MR. COHEN: And you worked in there through 2022?
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: You traded on other exchanges?
MR. COHEN: You interacted with other leaders in the industry?
MR. COHEN: Based on your exposure to that, did you form a view about whether other exchanges used these omnibus wallets?
SAMUEL BANKMAN-FRIED: Yes, I did. Nearly all of them used omnibus wallets. In fact, to my knowledge, every centralized exchange did.
JUDGE KAPLAN: Mr. Cohen, I'll let you do whatever you want here, but this degree of persuasiveness to personal knowledge that is not present when somebody says my view based on everything I have heard in my life was X.
MR. COHEN: This last piece was just an industry practice point, your Honor.
JUDGE KAPLAN: Similar point.
MR. COHEN: Let me break it down to his Honor's question: How did you get your knowledge that other exchanges used omnibus wallets?
SAMUEL BANKMAN-FRIED: A variety of means. I traded on, more or less, every large exchange in the industry, on dozens of exchanges. In doing so, I would deposit funds into accounts that I owned or controlled on those exchanges. I would watch Blockchain explorers to see where those funds originally went and where they ultimately were pooled, and in doing so it became clear that there were wallets generally identified explicitly by Blockchain explorers in which all or at least a large segment of customer Bitcoins would end up being pooled, the same with other cryptocurrencies.
For instance, if you're depositing to Huobi, which was one of the larger cryptocurrency exchanges, and you deposited -- when I deposited Bitcoin into accounts that I operated there, I would originally send it to a Bitcoin address that was specifically associated with my account, hoping it was me that was sending the deposit, but immediately thereafter it would be forwarded on to a wallet that was marked on a Blockchain explorer as Huobi wallet number 3. I would see many different deposit addresses for many different customers, all being pooled in that omnibus wallet. And when I requested a withdrawal from my Huobi account, it would be sent from one of these omnibus wallets.
Later on, as I became more involved in the industry and the people in the industry, especially after I moved to Hong Kong, I had discussions with the leaders of other exchanges about how we operated our platform, how they operated their platform, and talked about how they managed their wallet infrastructure. And every one of them that I talked to confirmed that they used omnibus wallets, with the exception of decentralized exchanges and of custodians that might have some exchange-like qualities but were primarily not exchanges.
MR. COHEN: What did you mean by decentralized exchanges?
SAMUEL BANKMAN-FRIED: So there was a variety of platforms, still is, in the crypto industry called a DEX, a decentralized exchange. That means it is sort of like a traditional exchange where you can buy and sell assets. But rather than being run by a company and maintained in a cloud-computing service, like Amazon Web Services, in the way that FTX was, it was hosted directly on a Blockchain. SushiSwap was an Ethereum Blockchain based decentralized exchange, Uniswap was another Ethereum Blockchain based decentralized exchange.
On decentralized exchanges, there was no central custody of assets. Instead, you would interact with them directly from your own wallets. What this meant was, there is no intermediary. It also meant, though, that any time you did a trade on one of those decentralized exchanges, there was a fixed cost of whatever the blockchain gas fees were at the time, generally a few dollars per transaction, because they did have to do an actual blockchain transfer for every trade, and chiefly, because of that, decentralized exchanges had a far smaller volume than centralized exchanges.
JUDGE KAPLAN: One other question. You used the phrase Blockchain explorer.
JUDGE KAPLAN: What is that?
SAMUEL BANKMAN-FRIED: A Blockchain explorer -- the Blockchain itself is a ledger of all transfers that have ever happened, so there is an Ethereum Blockchain, which is a ledger involving Ethereum transfers. It is formally maintained in a decentralized manner, which is to say, a lot of different validators for the network all agree, come to consensus on what that Blockchain is.
However, for almost all purposes you don't want to have to be running a sophisticated computer system to be able to ask the question, did someone send an Ethereum token on this day to this address. So there are a variety of providers that created websites that listed out in a centralized but easy-to-view fashion all of the transfers on the Blockchains, and there are a variety of these. For each of the major block chains Etherscan was, by far, the most used for the Ethereum Blockchain.
JUDGE KAPLAN: Etherscan?
JUDGE KAPLAN: Thank you.
Go ahead, Mr. Cohen.
MR. COHEN: Thank you.
MR. COHEN: The larger exchanges, like FTX, used omnibus wallets, correct?
MR. COHEN: Let me just go back to a point his Honor made before.
MR. COHEN: If we can pull up DX-165, please.
MR. COHEN: Take a look and we can go through it, if you would like.
My question, sir, is whether you recognize this.
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: Let's go to the last page.
MR. COHEN: What is this, Mr. Bankman-Fried?
SAMUEL BANKMAN-FRIED: That is an older version of the FTX terms of service.
MR. COHEN: DX-179, same question.
SAMUEL BANKMAN-FRIED: Same answer. It's an older version of the FTX terms of service.
MR. COHEN: And DX-434. Same question.
SAMUEL BANKMAN-FRIED: Same answer, an older version of the FTX terms of service.
MR. COHEN: Mr. Bankman-Fried, one more topic.
I want to move now to November. Did there come a time that you met with the securities commission of the Bahamas at their offices?
SAMUEL BANKMAN-FRIED: A number of times, yes.
MR. COHEN: How did this come about?
SAMUEL BANKMAN-FRIED: This was immediately following the bankruptcy filing of FTX International and just before that the joint provisional liquidators being appointed for FTX Digital Markets, the Bahamian entity.
MR. COHEN: For these next questions, Mr. Bankman-Fried, I want you to answer yes or no. OK?
MR. COHEN: Did you attend the meeting?
MR. COHEN: You said there were a number of meetings. Do you recall when the first one was?
SAMUEL BANKMAN-FRIED: I believe that it was November 12, 2022.
MR. COHEN: Did anyone attend with you?
MR. COHEN: Who was that?
SAMUEL BANKMAN-FRIED: So in the meeting itself that I was part of, there is myself; Krystal Rolle, Bahamian counsel; my father; then there was Christina Rolle, the head of the securities commission of the Bahamas; Brian Simms, one of the joint provisional liquidators; and staff for both of them. In addition, Gary Wang, the CTO of FTX, was in the building at the time but not present in the meeting itself.
MR. COHEN: For these questions I do not want you to reveal any conversations between yourself and Krystal Rolle. OK?
SAMUEL BANKMAN-FRIED: Understood.
MR. COHEN: How long did that meeting you just described last?
SAMUEL BANKMAN-FRIED: It took a few hours.
MR. COHEN: Were you asked questions?
MR. COHEN: After the meeting, where did you go?
SAMUEL BANKMAN-FRIED: After the meeting, the group of us, roughly the same group of people as had been at that meeting, but also including Gary Wang and consultants from PricewaterhouseCoopers who had been with Gary in the outer office, all drove to the FTX headquarters in Nassau, Bahamas.
MR. COHEN: What happened there?
SAMUEL BANKMAN-FRIED: At the FTX headquarters, I don't know whether this will have already been covered, but the day prior to that, there was a hack on FTX's assets. This was immediately following the transfer of control and bankruptcy filing. In response to that there had been urgings to move FTX's assets.
MR. COHEN: Let me move on, Mr. Bankman-Fried.
MR. COHEN: When you came to the office, this was Christina Rolle, the SCB commissioner there?
MR. COHEN: Do you recall if she read anything?
SAMUEL BANKMAN-FRIED: She did, yes.
MR. COHEN: What did she read?
SAMUEL BANKMAN-FRIED: She read an order that Gary and I assist her in transferring assets that we had access to through FTX's systems to the custody solution that they had set up.
MR. COHEN: Did you and Gary comply with that order?
SAMUEL BANKMAN-FRIED: Yes, we did.
MR. COHEN: That same night did the Bahamian Police come to your office?
MR. COHEN: What happened then?
SAMUEL BANKMAN-FRIED: The officers showed up, they had conversations with Christina Rolle, the head of the SCB; with Krystal Rolle; my counsel; and with myself.
We agreed that I would voluntarily attend meetings with them that following week and that in the interim I and Gary would surrender our passports.
Sorry. Just to clarify, we agreed that Gary and I would both voluntarily attend meetings with them that following week.
MR. COHEN: Did you surrender your passport?
MR. COHEN: Did you ultimately go to those meetings?
SAMUEL BANKMAN-FRIED: No. Prior to those meetings, prior to when they were to have been had, I was informed that they were no longer necessary.
MR. COHEN: One moment, your Honor.
Nothing further, your Honor.
JUDGE KAPLAN: Thank you.
Ms. Sassoon.
MS. SASSOON: May we have a short break, your Honor?
JUDGE KAPLAN: Sure.
MS. SASSOON: Fifteen minutes, your Honor. Is that reasonable?
JUDGE KAPLAN: Yes.
(Recess)
JUDGE KAPLAN: You may proceed.
MS. SASSOON: Thank you, your Honor.
CROSS-EXAMINATION BY MS. SASSOON:
MS. SASSOON: Mr. Bankman-Fried, I want to begin by talking to you about Signal. I want to drill down a little bit more on your testimony.
MS. SASSOON: Did you discuss your use of Signal with lawyers?
MS. SASSOON: When did you first discuss your use of Signal with lawyers?
SAMUEL BANKMAN-FRIED: More or less as soon as I began using Signal. I think this was sometime around 2020 or so. And there were lawyers who were involved in some of the original Signal chats.
MS. SASSOON: Which lawyers?
SAMUEL BANKMAN-FRIED: At the beginning, Dan Friedberg, who was the general counsel at the time, and then ultimately with most of the lawyers who joined the company.
MS. SASSOON: Did you discuss with lawyers auto deletion of Signal messages?
SAMUEL BANKMAN-FRIED: I discussed with them the fact that there was auto deletion, and it was a topic that had come up in connection with the various data-retention policies. I don't know if there is something more specific you are asking about.
MS. SASSOON: When did you first discuss with lawyers that you were going to be auto deleting your Signal messages?
SAMUEL BANKMAN-FRIED: The earliest memories that I have of it were about particular channels, particular channels that lawyers were added to somewhat early on. I am not sure if you are referring to -- sorry. I think the answer was, you know, shortly after I started using Signal, although not originally in the context of a formal policy.
MS. SASSOON: Let me ask you this. When, as a general practice, did you start setting your Signal messages to auto delete?
SAMUEL BANKMAN-FRIED: I can't recall the exact date.
MS. SASSOON: Was it around the spring of 2021?
SAMUEL BANKMAN-FRIED: That sounds pretty plausible to me.
MS. SASSOON: And before you started doing that, as a matter of general practice, did you discuss doing that with any attorneys at FTX?
SAMUEL BANKMAN-FRIED: I mentioned it. I don't know that we had formal discussions about it.
MS. SASSOON: When you say you mentioned it, what does that mean?
SAMUEL BANKMAN-FRIED: It means that I mentioned that I was going to be -- I think -- at least what I remember is at some point changing the default toggle on my Signal app. I am not sure there is another incident there, but that toggle I think I changed to one week for chats -- for new chats that were created at some point in time. The spring of 2021 sounds like it may have been the right period for that to me.
MS. SASSOON: Before you changed that setting for your Signal chats to be set to auto delete, did you seek approval of that decision from a lawyer?
SAMUEL BANKMAN-FRIED: I don't know that I sought specific approval for that, no.
MS. SASSOON: So you mentioned a document-retention policy?
MS. SASSOON: Was that a written policy?
MS. SASSOON: When did that go into effect?
SAMUEL BANKMAN-FRIED: I believe that went into effect around late 2021.
MS. SASSOON: Whose idea was it to enact a document-retention policy?
SAMUEL BANKMAN-FRIED: Originally, it was Dan Friedberg's idea.
MS. SASSOON: What was the scope of that policy?
SAMUEL BANKMAN-FRIED: The scope of that policy was for official workplace communications for FTX.
MS. SASSOON: Did that written policy include any provisions specifically about the use of Signal?
SAMUEL BANKMAN-FRIED: I don't remember whether it was mentioned by name.
MS. SASSOON: Did that policy, as far as you recall, have any provisions specifically about auto deletion of Signal messages?
SAMUEL BANKMAN-FRIED: It had various policies that would have applied to Signal, but I don't know that it had any that specified -- that singled out Signal as a platform.
MS. SASSOON: What about any policies in this written document that you can recall that pertained to the destruction or deletion of company communications?
SAMUEL BANKMAN-FRIED: There were -- I mean, there were a number of parts of it that discussed the time periods at which it was or it wasn't appropriate for some subsets of communications to do so. There were also conversations -- I am not sure whether or not they are in connection with that -- around mandates that we had from various regulators for specific pieces of data to have no longer than a particular shelf life.
MS. SASSOON: I think you said something like there was some subset of communications to do so. I didn't understand what that means. Did the policy specifically say anything about the permissibility of deleting or destroying company documents?
SAMUEL BANKMAN-FRIED: Yeah. It said that in various circumstances it was not permissible and in other circumstances it was permissible.
MS. SASSOON: What do you recall the policy saying about when it was permissible to destroy company communications?
SAMUEL BANKMAN-FRIED: So I remember -- my memory of the policy is that it laid out various circumstances in which it was not permissible to do so or in which there needed to be a lengthy retention period for company communications, and that outside of those sets of topics or forums, there was permissibility to have effectively whatever data-retention link or setting felt appropriate.
MS. SASSOON: Do you recall that policy --
JUDGE KAPLAN: Excuse me a minute, Ms. Sassoon. What does it mean that there was permissibility about that? Does that mean you could do whatever you wanted?
SAMUEL BANKMAN-FRIED: Sorry.
JUDGE KAPLAN: Yes. That was from me.
SAMUEL BANKMAN-FRIED: So long as there was no particular reason that you didn't do a particular thing, yes.
MS. SASSOON: Is it your recollection that the policy expressly authorized deleting company communications that did not fall within the regulated categories?
SAMUEL BANKMAN-FRIED: That is my memory, yes.
MS. SASSOON: Where is this written policy?
SAMUEL BANKMAN-FRIED: I'm not sure if my answer is admissible.
JUDGE KAPLAN: Don't worry about that. You worry about Blockchain explorers. I will worry about what's admissible. A. When I was a member of the company, I remember interacting with the policy and discussing it. As part of this case I think we have been unable to serve the subpoenas we have requested asking for it.
MS. SASSOON: You said that Signal was not expressly mentioned in the policy. Did you talk to lawyers about whether Signal was covered by the policy?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: And what were those conversations?
SAMUEL BANKMAN-FRIED: That Signal was treated in many ways like the other communication platforms that we used. There were a few cases where specific platforms were mentioned. I think there were provisions specifically referring to email, for instance, in the policy, but, otherwise, that it depends not on the app that was used but on the nature of the communication.
MS. SASSOON: I think you said you mentioned in passing that you set this auto-delete feature on Signal. Did you ever discuss with a lawyer whether that was covered by this policy?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: With who?
SAMUEL BANKMAN-FRIED: With Dan Friedberg.
MS. SASSOON: When?
SAMUEL BANKMAN-FRIED: This was around the time that he was discussing the auto deletion and data-retention policy with us, which my memory was late 2021.
MS. SASSOON: So which is it? Did you just mention that you were putting on this setting or did you seek approval from Dan Friedberg?
SAMUEL BANKMAN-FRIED: I think -- I apologize. I may have misinterpreted. I interpreted your early question as what conversations I had contemporaneous with when I originally changed that setting, which my memory it was prior to the discussions around the auto-deletion policy. So there is no formal policy around it when I had initially changed the default settings on my Signal app to one week, but we did have formal discussions about it in connection with the data-retention policy which happened some number of months later.
MS. SASSOON: Just to make sure I follow your testimony, you implemented this setting and later this policy was put into place?
SAMUEL BANKMAN-FRIED: I believe that is correct, yes.
MS. SASSOON: Did you discuss with lawyers the retention period that you were placing on your auto-delete feature?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: How was the retention period decided upon?
SAMUEL BANKMAN-FRIED: The retention period from my particular Signal -- like the default on my particular Signal was just what it had been. That was not meant to represent what the companies for official communications or for memorializing business decisions or for storing business documents would set on channels for which retention was important or mandated.
MS. SASSOON: Did any lawyer authorize you to set auto delete for your communications with Caroline Ellison, Nishad Singh, and Gary Wang?
SAMUEL BANKMAN-FRIED: Via -- my memory is that, via the data-retention policy, for communications that were not otherwise protected or required to be retained that we were authorized to use whatever retention period we felt like was appropriate.
MS. SASSOON: So you never sought out specific authorization for that?
SAMUEL BANKMAN-FRIED: It was, I think, explicitly authorized, although not singled out by the data-retention policy. It was also something that the lawyers were aware of.
MS. SASSOON: I think you testified that documents related to formal business decisions, it was your understanding that those had to be preserved based on your conversations with lawyers. Is that accurate?
SAMUEL BANKMAN-FRIED: Documents that memorialized formal business decisions were sort of finalized versions of those that were distributed to the company or externally. That was my understanding.
MS. SASSOON: Can you explain what you mean by that.
SAMUEL BANKMAN-FRIED: So effectively -- I apologize. I wish I had that policy now. I am working off my memory of it -- is that the policy considered communications which, as an example, we're sending to the company, here is our policy on a particular topic or that were compliance decisions that were made and communicated to a department of the company, or that were us storing know-your-customer related information or that were formal discussions of accounting documents would be, but that, for instance, there is not, to my knowledge, any requirement that every rough draft of documents and the conversation around those, especially informal conversations, be preserved.
(Continued on next page)
BY MS. SASSOON:
MS. SASSOON: What about the decision, for example, to repay Alameda's lenders, do you consider that a formal business decision?
SAMUEL BANKMAN-FRIED: So I would consider formal business document to be the balance sheets that were sent out to Alameda's lenders. To the extent that there was a communication to Alameda's employees that there was some policy decision, I would expect that that would be. Now I——
MS. SASSOON: Let me make this concrete. Do you recall Caroline Ellison testified that she sent to you Government Exhibit 44, the spreadsheet with seven alternative tabs via Signal?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: Do you recall that testimony?
SAMUEL BANKMAN-FRIED: I do, yes.
MS. SASSOON: And do you consider that document a formal business document?
MR. COHEN: Objection. Beyond the scope of this hearing.
JUDGE KAPLAN: Overruled.
SAMUEL BANKMAN-FRIED: I——to be clear, to the extent that there was a document that was sent out or intended to be directly sent out to lenders, I would have thought of that as the type of document that, had it been an FTX document, I would have, you know, posted in a semiformal way in Slack. I can't speak for certain about what practices Caroline followed with respect to Alameda. However, a rough draft of that that was still being workshopped I would not have yet considered a formal business document that had to be separately memorialized, nor would I have considered the sending of that to one other person so they could look over it to be a formal business decision.
MS. SASSOON: So just to be clear, I want to make sure I understand that.
MS. SASSOON: It's your view that receiving that seven-tab spreadsheet over Signal and that message getting deleted was consistent with the company's policy?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: And what specific conversations do you recall with counsel that informed that understanding?
SAMUEL BANKMAN-FRIED: We had conversations that effectively——I had conversations with counsel that conversations that people had internally were not in general required to be recorded; for instance, verbal conversations were not required to be recorded, generally messages between two specific people at the company were not required to be recorded because those would generally not be, you know, formal business decisions that were being communicated to the company more generally as there were only two people involved in that and——
MS. SASSOON: You were CEO of FTX, right?
MS. SASSOON: And Caroline Ellison for a time was CEO of Alameda?
MS. SASSOON: And it was your view that no one-on-one communications with Caroline Ellison had to be preserved.
SAMUEL BANKMAN-FRIED: I don't know that I would make a statement quite that strong. I would say in general that was the case, but I——I, you know——one could probably come up with such a communication that would make sense to preserve.
MS. SASSOON: Well, give me an example.
SAMUEL BANKMAN-FRIED: I don't actually have any examples. I can try and think of one.
MS. SASSOON: Do you think you ever violated this policy by communicating with Caroline Ellison in messages that were later deleted?
SAMUEL BANKMAN-FRIED: Not to my knowledge.
MS. SASSOON: So am I correct that all your messages with Caroline from I believe around May 2021 onward until November 2022 over Signal were auto-deleted, right?
SAMUEL BANKMAN-FRIED: I think that was for Signal communications, yes, not necessarily communications via other methods.
MS. SASSOON: So it's your testimony that there were no communications over that period that would have violated the policy by being auto-deleted?
SAMUEL BANKMAN-FRIED: I can't think of any that I believe would have. I obviously don't remember every message that was sent and don't have, unfortunately, copies of that policy in front of me right now.
MS. SASSOON: What about conversations over Signal with Gary Wang, Nishad Singh, and Caroline Ellison about shutting down Alameda because of a hole in the FTX balance sheet?
SAMUEL BANKMAN-FRIED: I'm not sure that's how I would characterize the conversations that I think you're referring to there. If you're referring to the——are you referring to the "we came, we saw, we researched" document, or are you referring to something else? Sorry. I may be misunderstanding.
MS. SASSOON: Did you have conversations over Signal with Gary, Nishad, and Caroline about an approximately $13 billion hole at FTX?
SAMUEL BANKMAN-FRIED: I don't specifically recall such conversations. I wouldn't be surprised that they had sent a Signal message about it at some point.
MS. SASSOON: And so that type of Signal message, do you think that was covered by the retention policy?
SAMUEL BANKMAN-FRIED: I would expect that it would be. I would, but again, it's a little——I can't be confident with a hypothetical message.
MS. SASSOON: Meaning that you would expect that it should be preserved or that it could be deleted?
SAMUEL BANKMAN-FRIED: No, no. So it depends on the exact nature of the message. It's hard to give a definitive general answer to it, because for instance, they would communicate an official vetted company number that action was to be taken based on, and that was to be——you know, that would be different than a conversation in which people were trying to hash out what a number was based on various approximations, so it's hard for me to answer in the abstract.
MS. SASSOON: Do you recall, were you here for Adam Yedidia's testimony?
SAMUEL BANKMAN-FRIED: Yes, I was.
MS. SASSOON: Do you recall him testifying about a conversation you had with him saying preserving Signal messages would be all downside, or something to that effect?
SAMUEL BANKMAN-FRIED: I recall something that is at least to some extent to that effect. I don't recall the specific things that he said.
MS. SASSOON: Did you have a conversation with him along those lines?
SAMUEL BANKMAN-FRIED: I don't specifically recall that, but I very well may have.
MS. SASSOON: And did you have that view?
SAMUEL BANKMAN-FRIED: Have what view in particular?
MS. SASSOON: That preserving company messages would be all downside with regulators.
SAMUEL BANKMAN-FRIED: I didn't have that view with respect to all company messages. I had that view with respect to particular types. Maybe to——to clarify that a little bit, I thought it was important to memorialize and to store company decisions, official company documents. On the other hand, I was very concerned about what would happen if an employee was careless about how they phrased something, made a statement that was not in fact nefarious but which, taken out of context, could look bad and unfortunately they didn't give the appropriate context and that that in turn could be publicized and be effectively embarrassing for the company.
MS. SASSOON: Did you share that concern with lawyers when crafting your document retention policy?
SAMUEL BANKMAN-FRIED: I shared that conversation, that——sorry——that concern in general with lawyers. I'm not sure whether I specifically shared it in connection with the data retention policy.
MS. SASSOON: So you don't have a recollection of expressing that concern with respect to formulating the data retention policy?
SAMUEL BANKMAN-FRIED: Yeah, I'm not sure either way about whether that was one of the contexts in which we had that conversation, though I know that prior to that and after that, I had had that conversation with lawyers.
MS. SASSOON: What about when you mentioned to lawyers that you turned on the auto-delete function, did you explain that one purpose was to destroy things that could be downside with regulators?
SAMUEL BANKMAN-FRIED: I certainly would not have used that language or described it that way. I don't recall such a conversation.
JUDGE KAPLAN: How would you have described it?
SAMUEL BANKMAN-FRIED: So what I would have said——to give some context on this, the company I worked at prior to joining——well, to founding Alameda and then FTX was Jane Street Capital, and at Jane Street, there was frequent discussion of something called "The New York Times test." Context for this was effectively, anything that you write down might end up on the front page of The New York Times. And so especially if you're describing something which is sensitive, you should make sure that you are considerate about how you write it down, that you think about how it could be interpreted, and that you make sure that it could not be misinterpreted, and this was combined with various stories that were told about cases where there was a very negative public or regulatory reaction to an inoffensive actual behavior because of careless things that people had used to describe it. And so that was the type of concern that I chiefly had.
BY MS. SASSOON:
MS. SASSOON: And did you direct your employees to discuss legally sensitive topics by Signal?
SAMUEL BANKMAN-FRIED: It depends on what sorts of discussions. For, I would say, employees, like, spitballing questions to——to lawyers, I think that often would happen either verbally or over Signal. If this was asking what is our policy on a particular thing or describing that policy or communicating it, that I would not have suggested particularly be over Signal.
MS. SASSOON: Did FTX ever get subpoenas that resulted in a hold on destruction of records?
MS. SASSOON: Did you retain Signal records after you got those holds?
SAMUEL BANKMAN-FRIED: So my understanding was that we retained records that were responsive to those holds. Not all Signal channels had auto-deletion turned on, some of them did not, and many Slack channels did not, and emails in general did not.
MS. SASSOON: Did you ever turn off your auto-delete function on messages with Gary, Caroline, or Nishad in response to such a hold?
SAMUEL BANKMAN-FRIED: Just because——we're talking specifically about a group chat with the three of us or are we talking about broader groups that we may have been in?
MS. SASSOON: Groups that would have included only those individuals.
SAMUEL BANKMAN-FRIED: Got it. So those were some subset of the four of us.
MS. SASSOON: Yes.
SAMUEL BANKMAN-FRIED: I'm not actually sure if I was——what the deletion history was with those chats. I don't recall specifically doing so.
MS. SASSOON: When you got such a hold, did you consult lawyers about which Signal chats you should preserve?
MS. SASSOON: Who did you discuss that with?
SAMUEL BANKMAN-FRIED: I remember discussing that with Ryne Miller and Dan Friedberg.
MS. SASSOON: And what were you told?
SAMUEL BANKMAN-FRIED: I was told that we basically immediately had to come up with a set of channels and forums that should be fully retained, and I believe that we did so.
MS. SASSOON: And who decided which channels those would be?
SAMUEL BANKMAN-FRIED: I mean, there——I want to make sure I answer this correctly. There were a bunch of us——no, a bunch——probably seven or so people involved in that conversation. Ultimately it was Dan and Ryan who made the judgment call on which channels did and didn't fall into that, but with, you know, context given by a few other employees.
MS. SASSOON: Did you tell Ryne Miller or Dan Friedberg that you were discussing company business in Signal chats with, for example, Gary, Nishad, and Caroline?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: And what guidance, if any, did they give you about preservation of those messages?
SAMUEL BANKMAN-FRIED: They did not generally tell me that those had to be preserved so long as they were not, you know, formal business decisions or other similar things.
MS. SASSOON: They used the word "formal business decisions"?
SAMUEL BANKMAN-FRIED: I don't actually recall the specific phrase they used.
MS. SASSOON: So what phrase do you recall them using?
SAMUEL BANKMAN-FRIED: I don't recall a specific one.
MS. SASSOON: Well, what do you recall about the substance of what they said?
SAMUEL BANKMAN-FRIED: I recall that the substance of what they said was that for informal company communications, those were permissible to happen in person or over Signal, but that for things that looked like company records, for instance——
MS. SASSOON: So you're giving that as an example. I want to understand——
MR. COHEN: Please let him finish his answer.
JUDGE KAPLAN: Yes.
SAMUEL BANKMAN-FRIED: But that for things that were like company records or decisions announced to the company that employees were expected to enact, or logs of customer information, that those would not be happening over Signal.
MS. SASSOON: Did anyone use the words "informal business discussions"?
MS. SASSOON: Did any lawyer tell you about sharing company spreadsheets or informal business conversations?
SAMUEL BANKMAN-FRIED: I had conversations with lawyers in which we shared business-related spreadsheets over Signal. I don't know if I'd specifically asked them about that, but they were well aware that that would sometimes happen. I would not use that as a way to distribute a finalized spreadsheet. That was generally a way that I would sometimes send it to a few people to look over and see if I was messing anything up.
MS. SASSOON: And how did this policy you've described apply to anything, any communications related to Alameda?
SAMUEL BANKMAN-FRIED: My understanding is that there was a version of this policy for Alameda as well, although I don't know the details of it.
MS. SASSOON: Were you involved in forming that policy?
SAMUEL BANKMAN-FRIED: Not in any depth.
MS. SASSOON: What does that mean?
SAMUEL BANKMAN-FRIED: I was aware that it was happening. It was mentioned sometimes in the same conversations as the ones that I had with counsel about the FTX policy, but I don't know that I reviewed the Alameda policy and I don't remember learning specifically what channels were——were not going to be preserved at Alameda.
MS. SASSOON: When do you recall that taking place?
SAMUEL BANKMAN-FRIED: I think late 2021. I don't remember the exact time.
MS. SASSOON: And what was your involvement in Alameda at that point?
SAMUEL BANKMAN-FRIED: So this was after the CEO role had transitioned to Caroline Ellison and Sam Trabucco. It was during a period where it was, you know——Trabucco was slowly drifting effectively towards retirement, so it was primarily Caroline. I was involved in a few areas of Alameda. I was particularly involved in venture-related investments, and later on I became involved in hedging decisions. I was not on a day-to-day level involved in other topics that I can recall——there——there may well be one or two I'm forgetting there——although I would get periodic updates from Caroline about it and she would sometimes elicit input from me.
MS. SASSOON: Were you in a Signal group called Vertex?
MS. SASSOON: Was that with Caroline, Sam Trabucco, and Ben Xie?
MS. SASSOON: And were Alameda trade decisions discussed in Vertex?
SAMUEL BANKMAN-FRIED: I——yeah, occasionally.
MS. SASSOON: And was that chat set to auto-delete?
SAMUEL BANKMAN-FRIED: I don't recall. It may have been.
MS. SASSOON: Do you recall consulting with anybody about setting that chat to auto-delete?
SAMUEL BANKMAN-FRIED: Not specifically for that chat.
MS. SASSOON: You've described some consultations with attorneys. Do you have any paper records of these consultations?
SAMUEL BANKMAN-FRIED: I——no, I don't. I believe we've requested some of those but have not been given them.
MS. SASSOON: When you say "requested some of those," what did you request?
SAMUEL BANKMAN-FRIED: I requested both the data retention policy and all communications surrounding that.
MS. SASSOON: Your Honor, permission to approach the witness with a document.
JUDGE KAPLAN: Yes.
MS. SASSOON: I've provided a copy to defense counsel. I'd like to provide one to the Court, and the witness. I don't know if that leaves one for me, but——
BY MS. SASSOON:
MS. SASSOON: Mr. Bankman-Fried, could you just take a look at that and tell me if you recognize this document.
JUDGE KAPLAN: Let's get it marked.
MS. SASSOON: We can mark that as Government Exhibit 3000.
JUDGE KAPLAN: Thank you. For identification.
MS. SASSOON: Yes.
MS. SASSOON: 4000. 4000.
JUDGE KAPLAN: 4000 for identification. A. To be explicit, I do recognize this but not contemporaneously. I'm aware of this, but I don't remember becoming aware of this when it was actually enacted. I am certain that I saw this starting, you know, on or around November 2022.
MS. SASSOON: Is that the document retention policy you've been talking about?
SAMUEL BANKMAN-FRIED: No, this is not.
MS. SASSOON: And does it resemble in substance what was in the retention policy you've been talking about?
SAMUEL BANKMAN-FRIED: No, it does not.
MS. SASSOON: So the supposed policy you've been testifying about, you have no record of it sitting here today.
SAMUEL BANKMAN-FRIED: That's correct. We have requested it numerous times.
MS. SASSOON: Okay. One moment.
I'm going to turn now——before I move on to another topic, I just want to ask if, in your view, you ever violated the document retention policy.
SAMUEL BANKMAN-FRIED: I don't have any knowledge that I did. Although, again, I'm not now looking at a copy of it so I——I don't recall precisely what it said.
MS. SASSOON: Okay. I want to talk to you about North Dimension.
MS. SASSOON: First of all, whose idea was it to incorporate North Dimension?
SAMUEL BANKMAN-FRIED: It was communicated to me by Dan Friedberg. I know there were others involved. I'm not sure whose idea originally North Dimension in particular was.
MS. SASSOON: You've described a couple things now where you've said that something was Dan Friedberg's idea.
SAMUEL BANKMAN-FRIED: Mm-hmm.
MS. SASSOON: Can you explain generally the relationship between you and Dan Friedberg, and generally, were you giving him direction or was he just popping ideas on your desk?
SAMUEL BANKMAN-FRIED: There were some of each. That relationship, it changed a little bit over different periods of time. I can just give an overview. If there's a specific time period you want me to zoom in on, I'm happy to do that as well.
MS. SASSOON: Let's focus first on North Dimension. Did you give Dan Friedberg any direction about North Dimension?
SAMUEL BANKMAN-FRIED: I don't recall giving specific direction to him about it. Yeah, no, I don't recall giving a direction to him about it.
MS. SASSOON: And why the name North Dimension for this entity?
SAMUEL BANKMAN-FRIED: I honestly don't know where the name came from.
MS. SASSOON: So is it your testimony you didn't come up with the name?
SAMUEL BANKMAN-FRIED: That is correct.
MS. SASSOON: And do you have any knowledge of why this entity didn't have Alameda in the name?
SAMUEL BANKMAN-FRIED: I——I don't know for sure why it did not.
MS. SASSOON: I think you testified that FTX couldn't get bank accounts?
MS. SASSOON: At first, were FTX customer funds getting wired to a bank account in Alameda's name?
SAMUEL BANKMAN-FRIED: Originally customers were wiring deposits to Alameda Research.
MS. SASSOON: Why did that stop?
SAMUEL BANKMAN-FRIED: Ultimately it stopped because FTX got its own bank accounts, but I'm guessing you're talking about before then, is that——
MS. SASSOON: Why did FTX transition from using bank accounts in the name of Alameda to a bank account in the name of North Dimension?
SAMUEL BANKMAN-FRIED: My understanding from what I was told at the time was that there were cases where various banks had difficulty wiring to an Alameda Research bank account or——and/or various customers did, and that it was smoother to process them using a North Dimension bank account.
MS. SASSOON: Were you told that banks did not want to transfer money to Alameda, a cryptocurrency hedge fund?
SAMUEL BANKMAN-FRIED: I don't know if I was told that explicitly, but I——it wouldn't surprise me.
MS. SASSOON: Did you understand that at the time?
SAMUEL BANKMAN-FRIED: I knew that there were some banks that did not want to do so. I didn't know whether that was the impetus for North Dimension.
MS. SASSOON: Just to be clear, when North Dimension was created, you were CEO of Alameda, right?
SAMUEL BANKMAN-FRIED: I believe that's correct, yes.
MS. SASSOON: And is it your testimony that as CEO of Alameda, you had no insight into why Alameda stopped receiving customer funds into a bank account in Alameda's name?
SAMUEL BANKMAN-FRIED: I——it is correct that I do not know why it incorporated North Dimension. It wasn't a project that I was driving, although it was one that I was made aware of. I had contextual clues that I could try to draw on, but in general, I was——even for companies that I was fully running day to day, there were a lot of things that happened that I was either not informed of or after the fact sort of summarily informed of, and at that point with Alameda, I was still CEO, I was still involved sometimes in the day-to-day operations, but I often was not. I was, you know, about halfway, I would say, through transitioning from running Alameda day to day to running FTX day to day.
MS. SASSOON: So we've looked at, or you looked with Mr. Cohen at a bank account application for North Dimension.
MS. SASSOON: When you signed that, what was your understanding of what you were doing?
SAMUEL BANKMAN-FRIED: My understanding was that Alameda wanted to open up a bank account for North Dimension and this was a form that I had to fill out to do so.
MS. SASSOON: Who told you that?
SAMUEL BANKMAN-FRIED: I knew that Dan Friedberg specifically told me that. I'm not sure if I had conversations with other people about it as well.
MS. SASSOON: What, if anything, did you discuss with Dan Friedberg about the purpose of this bank account?
SAMUEL BANKMAN-FRIED: At the time of the——the form, or later on or——
MS. SASSOON: Before and at the time.
SAMUEL BANKMAN-FRIED: I'm not sure I remember having discussions before or at the time about the purpose of the bank account. I know that there had been——yeah. Sorry. I'm not sure that I did. I'm not sure that I did entirely. I just don't recall any in particular.
MS. SASSOON: When did you learn that the purpose of the bank account was to receive FTX customer funds?
SAMUEL BANKMAN-FRIED: I think I learned that when I saw that it had been——so I think I learned when FTX rolled out North Dimension deposit instructions for customers that at least one of the purposes for it was going to be for customer deposits.
MS. SASSOON: Did that raise any concerns for you at the time?
SAMUEL BANKMAN-FRIED: I don't think it raised any particular concerns.
MS. SASSOON: Did you discuss with counsel that the purpose of the bank account was to receive customer funds?
SAMUEL BANKMAN-FRIED: Sorry. Let me actually amend my previous answer. There was a related thing that did raise a concern to me at the time, that I did raise as a concern with counsel, which was, I saw that one of the North Dimension entities was a US entity, and I was surprised to see that a US entity was being used for——for what seemed like payment processing.
MS. SASSOON: So as far as you understand it, whose decision was that?
SAMUEL BANKMAN-FRIED: Whose decision was it to roll it out for FTX or to open the bank account or——
MS. SASSOON: To use North Dimension to receive FTX customer money.
SAMUEL BANKMAN-FRIED: I'm actually not entirely sure whose decision it originally was. I think Nishad was the one who added it to the code base, but presumably that was after conversations with other people. I'm not sure who sort of made that decision initially.
MS. SASSOON: So it's your testimony you weren't part of that decision.
SAMUEL BANKMAN-FRIED: The original decision related to North Dimension, I don't recall being a part of it. I do know that I became——certainly became aware of it and had conversations with it as it was happening, and I may have been in conversations around difficulties that Alameda was having sometimes receiving wire transfers. I don't recall being conversations around North Dimension in particular until it was being implemented.
MS. SASSOON: What do you mean you may have been in conversations about the account receiving customer money?
SAMUEL BANKMAN-FRIED: Sorry. Conversations——was this referring to the conversations around difficulties with——
MS. SASSOON: Yes. I think you said "I may." So were you——what's your testimony?
SAMUEL BANKMAN-FRIED: So, excuse me. I was in conversations that——in which it was conveyed to me that sometimes people had difficulty wiring to Alameda. I'm not sure if those were related. They may have been.
MS. SASSOON: So what conversations, if any, did you have with lawyers about the permissibility of using North Dimension to receive FTX customer funds?
SAMUEL BANKMAN-FRIED: We had conversations around Alameda generally acting as a payment processor, as a payment agent for FTX, which were, you know, memorialized in a payment agent agreement, and I had conversations with that at a high level with lawyers, and I was at least aware of conversations that were happening with the accountants and auditors around that as well. I know that there were lawyers who were, I mean, involved in and driving the incorporation and usage of North Dimension as part of this payment agent. I'm not sure if I initiated a specific conversation after seeing it around that, the——it was initiated with me. But yeah.
JUDGE KAPLAN: So I take it the answer is you don't remember; is that about it?
SAMUEL BANKMAN-FRIED: I don't remember that specifically. I do know that lawyers were involved in that decision. I don't know that I specifically——
JUDGE KAPLAN: No. The question was about conversations you had.
SAMUEL BANKMAN-FRIED: That's right.
JUDGE KAPLAN: So the answer is you don't remember; is that right or not?
SAMUEL BANKMAN-FRIED: Sorry. I want to make sure I'm answering the right question. Conversations that I had with lawyers around——
JUDGE KAPLAN: The permissibility of using North Dimension to receive FTX customer funds. That was the question.
SAMUEL BANKMAN-FRIED: Right. No, I——not unless you count conversations I had around the permissibility of using Alameda as a payment agent, and North Dimension was a wholly-owned subsidiary of Alameda. I don't know that I had conversations around the permissibility of North Dimension in particular.
JUDGE KAPLAN: Listen to the question and answer the question directly.
BY MS. SASSOON:
MS. SASSOON: When you signed the bank account opening document for the North Dimension bank account, at that time, I believe you testified you did not know the bank account would be used specifically to receive FTX customer funds; that was your testimony?
SAMUEL BANKMAN-FRIED: I believe that's correct.
MS. SASSOON: And so at that time when you signed the account opening document, you had not had any conversations with lawyers about the permissibility of using the North Dimension account to receive customer funds; is that accurate?
SAMUEL BANKMAN-FRIED: I don't recall having any, no.
MS. SASSOON: And is it likely you did, given that you are testifying that you didn't know the purpose of the account?
SAMUEL BANKMAN-FRIED: I don't think that I did, but I can't be certain about the order in conversations here. I'm relying on my memory here, and this was not a thing I was focused on at the time.
MS. SASSOON: Well, let's look at Government Exhibit 267.
Mr. Bianco, if you could pull that up.
MS. SASSOON: This is the bank account application document you signed, right?
MS. SASSOON: And if we could just go to the last page.
MS. SASSOON: That's your signature?
MS. SASSOON: And this is dated December 9, 2020, so you were CEO of Alameda at the time?
MS. SASSOON: And that's a wet signature, right?
SAMUEL BANKMAN-FRIED: I guess it looks like one.
MS. SASSOON: Sometimes you used DocuSign, right?
MS. SASSOON: In this instance you did not?
SAMUEL BANKMAN-FRIED: It doesn't look like I did. I don't recall.
MS. SASSOON: And did you review this document before you signed it?
SAMUEL BANKMAN-FRIED: I reviewed it briefly.
MS. SASSOON: Did you discuss it with a lawyer before you signed it?
SAMUEL BANKMAN-FRIED: I——it was presented to me by a lawyer. I didn't have a lengthy discussion with him about it, though.
MS. SASSOON: Did you have any discussion that you can recall, sitting here today, about this document?
SAMUEL BANKMAN-FRIED: Not other than, I mean, him saying that there's a document for you to sign related to a bank account opening for a subsidiary of Alameda's, and I said, all right. That's all I can recall from the moment of that signing. I'm not entirely sure there isn't something I'm not remembering. I don't recall anything other than that.
MS. SASSOON: Let's go to the first page.
SAMUEL BANKMAN-FRIED: Mm-hmm.
MS. SASSOON: And do you see here under 1, it says "Description of business. Select all that apply"?
SAMUEL BANKMAN-FRIED: Yup, mm-hmm.
MS. SASSOON: And what's checked is "proprietary trading firm" and "over-the-counter trading firm."
MS. SASSOON: As far as you know, was North Dimension either of those things?
SAMUEL BANKMAN-FRIED: I viewed it to be one. It was a wholly-owned subsidiary of Alameda, which was both of those things.
MS. SASSOON: And as far as you understood it, was this bank account used for either of those purposes?
SAMUEL BANKMAN-FRIED: I'm actually not entirely sure all the things that it ended up being used for.
MS. SASSOON: Did you discuss this section of the application with Dan Friedberg?
SAMUEL BANKMAN-FRIED: I don't recall discussing it with him.
MS. SASSOON: In the course of preparing for this trial did you review reports of meetings the government had with Dan Friedberg?
SAMUEL BANKMAN-FRIED: I——I'm not sure. I——I think at least a little bit. I don't know if I did.
MS. SASSOON: Did you review the witness notes and materials provided to you by the government?
SAMUEL BANKMAN-FRIED: I reviewed some of them.
MS. SASSOON: And did you review some of the reports related to Dan Friedberg?
SAMUEL BANKMAN-FRIED: Some, but I believe not all of them.
MS. SASSOON: And did you read in one of those reports that Friedberg says he could not recall who asked for North Dimension to be formed but it would have been either you or Andy Croghan?
SAMUEL BANKMAN-FRIED: I don't specifically recall reading that, no, but it very well may have been in there.
MS. SASSOON: Is it possible that you asked Dan Friedberg to form North Dimension?
SAMUEL BANKMAN-FRIED: I don't recall doing so.
MS. SASSOON: Do you recall reading in the report that Friedberg said he was not part of any discussion of FTX customer funds depositing into Alameda Research accounts?
SAMUEL BANKMAN-FRIED: I remember hearing that that had been there. I'm not sure whether I read it myself or discussed it.
MS. SASSOON: And do you dispute that?
SAMUEL BANKMAN-FRIED: I can't know for sure what is intended by that. All I have is discussion of the notes. That's not how I would have I think described it myself, but I don't want to put words in his mouth, as I don't know exactly what he intended by that.
MS. SASSOON: So I'm not asking you that. I'm asking whether, according to you, Dan Friedberg was in fact part of discussions of FTX customer funds depositing into Alameda Research accounts.
SAMUEL BANKMAN-FRIED: So just to clarify, I do think that Dan Friedberg——I do remember Dan Friedberg being involved in discussions relating to Alameda being——Alameda bank accounts being used as a way to accept deposits from customers of FTX.
MS. SASSOON: And when were those discussions?
SAMUEL BANKMAN-FRIED: Those discussions were happening when we were discussing the payment agent agreement. That was, as I understood it, the primary purpose of the payment agent agreement was to describe that relationship.
MS. SASSOON: And when did you discuss the payment agent agreement with Dan Friedberg?
SAMUEL BANKMAN-FRIED: I don't recall exactly when it was. I think that it was certainly at some points in 2020 and possibly at other times as well.
MS. SASSOON: When did you sign the payment agent agreement?
SAMUEL BANKMAN-FRIED: I don't remember when I signed it.
MS. SASSOON: What's your best recollection of when you signed the agreement?
SAMUEL BANKMAN-FRIED: I——in 2020 is my best guess, but I——that could be wrong.
MS. SASSOON: We looked at the effective date on the document, which was 2019.
MS. SASSOON: Did you sign it on the effective date of the document?
SAMUEL BANKMAN-FRIED: No, I don't think so.
MS. SASSOON: Did you sign it after the effective date of the document?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: Possibly a year later?
SAMUEL BANKMAN-FRIED: It's possible.
MS. SASSOON: Possibly two years later?
SAMUEL BANKMAN-FRIED: Possible. I would have guessed it wasn't that late, but, yeah, it could have been.
MS. SASSOON: Are there any other lawyers you talked to about North Dimension being used to receive FTX customer funds?
SAMUEL BANKMAN-FRIED: I——that I——I personally did not have many discussions around North Dimension. I know that——I'm honestly not entirely sure.
MS. SASSOON: Did you have any conversations with lawyers about Alameda spending FTX customer money that was deposited into its bank accounts?
MR. COHEN: Objection, scope.
JUDGE KAPLAN: Overruled.
SAMUEL BANKMAN-FRIED: Can you repeat the question. Sorry.
MS. SASSOON: Did you have any conversations with lawyers about the permissibility of Alameda spending FTX customer deposits that were deposited into Alameda bank accounts?
SAMUEL BANKMAN-FRIED: I don't recall any conversations that were contemporaneous and phrased that way.
MS. SASSOON: So what do you recall?
SAMUEL BANKMAN-FRIED: So there were certainly conver——I certainly had conversations with lawyers far later about when we were trying to reconcile things in November of 2022, and there were conversations with lawyers around Alameda being used as a payment processor, as a payment agent for FTX. I frankly don't recall conversations with lawyers or otherwise about the details of the funds or of the usage of the North Dimension bank account or what would happen with assets after that. I certainly, in retrospect, wish that I had. I wish I had had conversations, that I myself had been more informed. I'm not sure if other people were involved in conversations.
MS. SASSOON: So any conversations about this prior to November of 2022 with lawyers that you can recall?
SAMUEL BANKMAN-FRIED: Sorry. Give me one second. I just want to think about conversations that may be scoped to be within that.
I recall having conversations with lawyers around some things related to Alameda as a payment agent, including stablecoin creations and redemptions, and I recall conversations with auditors and accountants around it. I'm not sure that I recall. And I was also involved in conversations with lawyers around the general practice of using payment processors and storing funds with payment processors. I'm not sure there were ones specifically around this topic.
MS. SASSOON: Mr. Bankman-Fried, I want to be clear the answer to the question I'm asking you, which is——
MS. SASSOON: ——prior to November of 2022, do you recall conversations with lawyers about the topic of Alameda spending FTX customer deposits that came into Alameda bank accounts?
SAMUEL BANKMAN-FRIED: I don't recall that specifically, no.
MS. SASSOON: And did you have conversations about that with auditors?
SAMUEL BANKMAN-FRIED: There were conversations with auditors around the fact that deposits had gone to Alameda and that it was a liability owed to FTX. I don't know if there were discussions around exactly how Alameda used its——its assets.
MS. SASSOON: So I believe you said in your direct testimony that North Dimension was created for payment processing purposes.
MS. SASSOON: What is that understanding based on?
SAMUEL BANKMAN-FRIED: That understanding is based on, after having created it, the ways in which I observed it being used.
MS. SASSOON: And so you saw directly it was being used for this purpose?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: And the payment agent agreement that we looked at during your direct testimony, does it say anything about Alameda being authorized to spend FTX customer funds?
SAMUEL BANKMAN-FRIED: So I believe that it authorizes——that it gives a fair bit of discretion to Alameda about what it——how it acts in general, clarifying that it has an obligation upon demand to FTX of that amount of money, but not specifying that it has to be——what has to——what Alameda has to do with any of it, of its assets. That is my understanding of it.
MS. SASSOON: So is it your understanding that under the agreement Alameda was permitted to spend FTX customer deposits?
SAMUEL BANKMAN-FRIED: I wouldn't phrase it that way. But I think that the answer to the question I understand you to be trying to ask is yes.
MS. SASSOON: Well, let's look at Defense Exhibit 245.
SAMUEL BANKMAN-FRIED: Mm-hmm.
MS. SASSOON: And I'm happy to scroll for you, but maybe you could point out to us where in this agreement you think Alameda is permitted to spend FTX customer funds. And if you need us to turn the page, just let me know.
SAMUEL BANKMAN-FRIED: So I should preface this by saying I'm not a lawyer. I'm not giving a legal interpretation of this. I'm just giving, as best I can, what my memory is. And the parts of this that jibe with that, I, you know——I'm not trying to give a definitive legal ruling on what this does or doesn't say. The——I'm not sure that I would quite answer yes to the question as you most recently phrased it. I'm going to try as best I can to give the answer that I believe, which is that the——as——at least as I remember understanding it at the time, FTX either itself or I think as actually happened, without FTX as an intermediary, customer's fiat funds would be sent to Alameda bank accounts, FTX would retain a——effectively a debt from Alameda for those and a——in the lien section here, a lien on Alameda's assets as security for that ongoing liability, that it would be repayable on direction from FTX in the return section here, and——and in the payment directive section. And——one second.
And that the provider could hold or transfer the funds as laid out in the FTX assets section unless or until directed to return them to FTX.
All of that being said, I did not do a careful reading of this document at the time contemporaneously, and I would have treated it as effectively, yeah, as a liability from Alameda to FTX, that it had a contractual obligation to——to make whole.
MS. SASSOON: Is there any line in this exhibit you can point me to that in your view authorized Alameda to spend the FTX customer funds?
MR. COHEN: Objection. This has been covered.
MS. SASSOON: He didn't answer my question, your Honor.
JUDGE KAPLAN: I agree. Overruled.
SAMUEL BANKMAN-FRIED: So I——there is the line that the——that FTX may, without notice or demand, without notice to or demand on provider, transfer any crypto or cash asset on hand to the provider, to Alameda, to be held and/or transferred by provider. I would have interpreted that as saying that Alameda had the right to hold or transfer those assets and that——oh, sorry.
MS. SASSOON: Go ahead.
SAMUEL BANKMAN-FRIED: And that the——the——what these represented was, in the return section, a secured liability, and that it was secured, as described in the lien section, by a lien against the provider, in this case Alameda, which would implicitly have access to all of Alameda's assets, which is how I would imagine describing a contractual loan obligation, effectively.
MS. SASSOON: Did any lawyer at FTX tell you that any language in this agreement meant that Alameda could spend FTX customer deposits?
SAMUEL BANKMAN-FRIED: I don't know that I had contemporaneous conversations with lawyers about exactly what this agreement meant.
MS. SASSOON: And any conversations you did have about what it meant were in November of 2022?
SAMUEL BANKMAN-FRIED: With lawyers in particular, yes.
MS. SASSOON: As far as you know, was this agreement ever disclosed to the public?
SAMUEL BANKMAN-FRIED: I'm not sure if it was.
MS. SASSOON: Are you aware of anywhere or any time that it was disclosed to the public?
SAMUEL BANKMAN-FRIED: I'm aware of it being disclosed to auditors. I'm not sure if that in turn turned out to be disclosed to other parties or not. I'm not aware of any specific incidents in which it was.
MS. SASSOON: Your Honor, I apologize. I'm not going to finish at 4:30. I'm happy to continue past 4:30 if the Court would like. I'm going to move to the next topic, which is the terms of service.
JUDGE KAPLAN: Keep going.
MS. SASSOON: Okay.
JUDGE KAPLAN: We're going to finish.
BY MS. SASSOON:
MS. SASSOON: Let's talk about the terms of service.
MS. SASSOON: Mr. Bianco, can you pull up 558.
MS. SASSOON: I think you testified that you saw this as early as late 2021. Do I have that right?
SAMUEL BANKMAN-FRIED: I was sent it. I don't know that I looked through it in detail then.
MS. SASSOON: And I think you said some parts you looked at more closely than others; is that right?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: Can we go to provision 8.2.6, I think it is.
8.2 and 8.2.6. Yeah, that's right. If we could zoom in on 8.2.6.
MS. SASSOON: Is this one of the provisions you looked at closely?
SAMUEL BANKMAN-FRIED: I don't believe I looked at it closely at the time.
MS. SASSOON: What do you recall about your review of this at the time?
SAMUEL BANKMAN-FRIED: I recall at the time that I had interpreted this as referring to purely spot trading on the platform and that this was referencing, you know, omnibus segregated wallet setup for spot assets.
MS. SASSOON: Did you discuss that understanding with any attorney?
SAMUEL BANKMAN-FRIED: I don't recall doing so, no.
MS. SASSOON: Let's look at Section 16. And let's go to 16.4.
MS. SASSOON: Did you discuss 16——I think you talked about your understanding of this provision. Did you discuss the meaning of this provision at the time with any attorneys?
SAMUEL BANKMAN-FRIED: Not at the time, no, I didn't. I don't actually recall discussing specific provisions, any specific provisions with this at the time with attorneys.
MS. SASSOON: And do you know how this provision ended up in the terms of service?
SAMUEL BANKMAN-FRIED: I'm not a hundred percent sure how it did, no. I don't know who drafted which parts of it.
MS. SASSOON: This provision, as you understand it, does it have anything to do with Alameda's fiat liability to FTX?
SAMUEL BANKMAN-FRIED: So as I understand it, this refers to assets of——that users post as collateral for their margin positions, so I think that what it would refer to is on a net basis, that——that set of assets, not purely spot assets.
MS. SASSOON: But you think the fiat liability is encompassed within that for this provision?
SAMUEL BANKMAN-FRIED: So when you discuss the fiat liability, at least as I understand it——but I may be misinterpreting your question——I think of that as being a liability from Alameda to FTX of a particular size, rather than referring to the particular——rather than referring to the nature of other customers' accounts on the platform. So, sorry. Probably be a little bit clearer. I think that this could potentially relate to any liability on the platform, depending on the nature and amount of assets that were posted in various methods to the platform.
MS. SASSOON: When you reviewed and authorized the terms of service, I believe you said to Can Sun——is that right?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: ——did you discuss with him Alameda's line of credit on FTX?
SAMUEL BANKMAN-FRIED: I don't think I discussed it with him then, no.
MS. SASSOON: Did you discuss with him Alameda's "Allow Negative" feature and whether it was consistent with the provisions of the terms of service?
SAMUEL BANKMAN-FRIED: I——this was——you're referring to in May 2022, this is?
MS. SASSOON: Yes.
SAMUEL BANKMAN-FRIED: I don't know that I had any specific conversations with Can when I authorized him to take action if he felt appropriate on new terms of service.
MS. SASSOON: So did you——and I just want to make sure I'm clear on this. Did you have any discussions with Can Sun related to Alameda being exempt from auto-liquidation in connection with authorizing Section 16 of the terms of service?
MR. COHEN: Objection, form.
JUDGE KAPLAN: Overruled.
SAMUEL BANKMAN-FRIED: I——same answer as before. I don't know that I had any specific conversations about anything with Can when I authorized him as general counsel to do what he felt was appropriate with new terms of service.
MS. SASSOON: And at that point in time, May 2022, had you discussed any of those topics I just outlined outside the context of the terms of service with Can Sun?
SAMUEL BANKMAN-FRIED: I——certainly not by me. I'm not sure I was aware of those topics by name at that time.
MS. SASSOON: Which topics were you not aware of by name?
SAMUEL BANKMAN-FRIED: I——you had asked——I was aware of the existence of some of them and not others. I was aware of the existence of lines of credit by name. I'm not sure that I was aware of the other terms used by name.
MS. SASSOON: So "Allow Negative," in May 2022, you were not aware of it by name?
SAMUEL BANKMAN-FRIED: I don't recall being aware of it then, no.
MS. SASSOON: What about Alameda's exemption from auto-liquidation?
SAMUEL BANKMAN-FRIED: I——I recall being aware that there was some form of delay or something like that, or manual check. I don't recall being aware of the specifics at that time.
MS. SASSOON: Can you explain what you mean by that.
SAMUEL BANKMAN-FRIED: What I——what I mean by that is——by——particularly the part about delayed liquidation or more generally?
MS. SASSOON: You said you knew some things but not specifics. So I want to understand what you mean by that.
SAMUEL BANKMAN-FRIED: I apologize. I thought I had gone through that. I can repeat that though. So I don't believe that I was aware of "Allow Negative" by name. I don't believe that I was aware at that time——sorry. I was aware of the existence of lines of credit at that time. And I——
MS. SASSOON: Sorry. I'm asking specifically about exemption from auto-liquidation.
SAMUEL BANKMAN-FRIED: Ah, okay. So at that time I was aware that there were at least some speed bumps in place on Alameda's account. I'm not——I don't remember being aware of the exact nature of them.
MS. SASSOON: So what did you know about the speed bumps?
SAMUEL BANKMAN-FRIED: I knew that some had been put in place in response to events in which Alameda——in which an improper liquidation had been triggered or about to be triggered on Alameda's account, which in turn caused chaos on the platform.
MS. SASSOON: And what was the nature of the speed bump, as you understood it?
MR. COHEN: Objection. Beyond the scope.
JUDGE KAPLAN: Overruled.
SAMUEL BANKMAN-FRIED: I——I don't know that I was aware of any particular nature of it. I——I wish I could tell you more, but thinking back to contemporaneously, at that point in time, I don't particularly recall knowing more specifically about it.
MS. SASSOON: You used the term "speed bumps," so can you explain to me what you meant when you said you were aware of speed bumps in May 2022.
SAMUEL BANKMAN-FRIED: So I——sorry. I apologize. This is——because of the order that we're doing this in, this will be a somewhat substantial digression if——for me to provide all of the context for that. I'm happy to do it, though. Or I'm happy to give a summary of it.
MS. SASSOON: I don't think my question calls for extensive context. I'm asking you what you knew in terms of Alameda's exemption from auto-liquidation. You used the term "speed bumps." What do you mean by "speed bumps"?
SAMUEL BANKMAN-FRIED: I understand there had been prior incidents in which liquidations had been erroneously triggered on accounts in general and in some cases on Alameda's account, or had been almost triggered, and in response to those, I had conversations with Gary, Nishad, and others around putting in place some checks to prevent an erroneous liquidation of Alameda's account, which would cause chaos on the platform, and I understood that they had implemented some features that would do as such. That is roughly the extent of my specific knowledge of it.
MS. SASSOON: So when you say "do as such," you understood these checks would prevent Alameda from being liquidated like any other account would?
SAMUEL BANKMAN-FRIED: That it would attempt to address the risk of improper erroneous liquidations on Alameda's account by doing some combination, I wasn't confident which, of having delays, having annual checks, having alerts. I wasn't sure if it was a alert that you had to click on to liquidate or not to liquidate. I apologize. I wish I could give you a more specific answer. I obviously now have a more specific set of answers to that question, but at the time, that is my best recreation of the state of my knowledge at that point in time.
MS. SASSOON: So at the time you understood that there were certain checks or features in place such that Alameda would not be liquidated in the same fashion as other accounts; is that accurate?
SAMUEL BANKMAN-FRIED: I thought that there might be other accounts on similar or the same program.
MS. SASSOON: What about with respect to the typical customer account? At that time did you understand that the typical process for a typical customer account did not apply to Alameda?
MR. COHEN: We're far afield of the topic of this hearing, your Honor.
JUDGE KAPLAN: Overruled.
SAMUEL BANKMAN-FRIED: So at that point in time, in May 2022, I was well aware that there were various programs that market makers participated in that were gated on volume.
MS. SASSOON: Mr. Bankman-Fried——
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: ——I will allow you to answer the questions I ask, but that's not the question I asked. The question I asked was about a typical customer, not a market maker. As you understood it in May 2022, did you understand that Alameda was not subject to the same auto-liquidation as a typical customer account?
SAMUEL BANKMAN-FRIED: If by typical customer you mean not a market maker, so a very dissimilar account from Alameda, then yeah, I did.
MS. SASSOON: Okay. And you mentioned that at this time you were not aware of "Allow Negative" by name.
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: So I just want to clarify.
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: Were you aware that Alameda could go negative regardless of the name for that feature?
SAMUEL BANKMAN-FRIED: I was aware that Alameda and many other accounts on the exchange, in fact most by volume, could go negative in a particular asset. That was a core property of FTX as an exchange. I'm not——but I——I'm sorry. I'm probably not addressing your——your question.
MS. SASSOON: Let me rephrase it. I'm asking about Alameda and only Alameda.
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: Were you aware at that time in May of 2022 that Alameda could have an overall negative balance on FTX?
SAMUEL BANKMAN-FRIED: By an overall negative balance, are you referring to a negative balance, a negative net asset value, or are you talking about a negative balance in a particular asset, or are you——sorry. I just want to make sure I understand what you mean by overall.
MS. SASSOON: That if you added up all the accounts, they could have a overall negative balance.
SAMUEL BANKMAN-FRIED: And adding up all assets, not talking about particular assets; is that correct?
MS. SASSOON: That's correct.
SAMUEL BANKMAN-FRIED: Okay. My understanding was that we were ensuring that Alameda's——at that time my understanding was that we were ensuring Alameda had a positive overall net asset value on FTX. I was not sure whether that was enforced into a code base or whether that was something that we inspected to confirm it was true. It was something that I had discussed at various points with Gary and others, and had checked that Alameda's overall net asset value on the platform had remained positive.
MS. SASSOON: So when you said that you were not aware of "Allow Negative" by name but you had some understanding of it, tell me what you meant by that.
SAMUEL BANKMAN-FRIED: So I'm not sure that——I apologize. I might be misunderstanding what the "Allow Negative" feature did. I——I——I think I've given you what my understanding was, but I suspect I might be wrong about what it——what it did.
MS. SASSOON: Well, let's talk about Alameda's main trading account. Are you aware that that main trading account could go negative?
SAMUEL BANKMAN-FRIED: And so to clarify, you're talking about info@, the main account, or the entire user?
MS. SASSOON: The info@ main account.
SAMUEL BANKMAN-FRIED: So account No. 9.
MS. SASSOON: Yes.
SAMUEL BANKMAN-FRIED: And by "go negative," you're talking about negative in a particular coin or negative net asset value?
MS. SASSOON: Just have a negative balance, Mr. Bankman-Fried.
SAMUEL BANKMAN-FRIED: Sorry. I——
MS. SASSOON: Let me make this easier for you.
MS. SASSOON: If we could pull up Government Exhibit 50 and go to Tab 2.
SAMUEL BANKMAN-FRIED: Okay. The——
MR. COHEN: Your Honor, I would object to this. The issue for this hearing is the scope of counsel relationship. This is a deposition now.
MS. SASSOON: May I respond.
JUDGE KAPLAN: Yes.
MS. SASSOON: They're asserting a presence of counsel defense. It's relevant what he did or did not tell counsel, and to understand that, it's also relevant what he did or did not know at the time that he was not telling counsel certain things.
MR. COHEN: That has no limiting principle, your Honor. That could be let's do our entire case through deposition and then ask him if he told counsel about it.
JUDGE KAPLAN: Well, look, I'm going to allow this. I understand your point.
I've gotten beyond my tether here.
I'm going to allow this. I am going to acknowledge the point you make, but all things are relative, and there is a good deal to what the government says also, and part of the problem is that the witness has what I'll simply call an interesting way of responding to questions for the moment.
MR. COHEN: I would say, your Honor, with respect, part of the problem is just the nature of this kind of a hearing, where we're doing things sort of out of order, out of sequence, because we have to address legal issues.
JUDGE KAPLAN: Well, Mr. Cohen, there's a simple answer to that, and the simple answer to that is that if you want to push ahead with the evidence you're seeking to introduce, it's through this hearing, if at all.
MR. COHEN: Understood, your Honor. But I was just responding to the last point, your Honor.
JUDGE KAPLAN: I understand. Let's go ahead.
(Continued on next page)
MS. SASSOON: Mr. Bianco, if you could just highlight row 17.
MS. SASSOON: Mr. Bankman-Fried, in May of 2022, were you aware that account ID 9 @AlamedaResearch.com could have an overall negative value?
SAMUEL BANKMAN-FRIED: I am giving you my best guess at answering the question.
MS. SASSOON: I'm not asking for a guess. I'm asking what you understood at the time.
SAMUEL BANKMAN-FRIED: I am going to answer what I think the question you are asking is, but I apologize if I'm answering the wrong question.
I don't know exactly what that cell was referring to. As of May 2022, I believe that I did not have any specific knowledge about the extent to which, for instance, one subaccount of Alameda Research's info@ account, as in, i.e., the account number 9, was treated as part of a collection of or separate from other subaccounts of that user or other users affiliated with Alameda.
What I believe I knew at that time was, or at least what I believed at that time was that Alameda overall maintained a positive net asset value on FTX. I don't think at that time I had specific beliefs about how that did or didn't apply to a particular subaccount of Alameda's.
I'm assuming that overall net asset value, rather than value in a particular coin, is what I think that you are going for here, so that's how I was answering that question. That is my answer as of that time.
JUDGE KAPLAN: Mr. Bankman-Fried, you have been asked that question in one form or another quite a number of times and not once did the question include the phrase net asset value. Unless I'm mistaken, every single answer you have given responded on the assumption that counsel had asked you about net asset value.
Now, that's just an observation. If I'm mistaken, I'll stand corrected, but it says what it says.
SAMUEL BANKMAN-FRIED: I apologize if that's correct. A. If that's true, I don't know what you mean by negative balance.
MS. SASSOON: I am going to move on, your Honor.
JUDGE KAPLAN: OK.
MS. SASSOON: On your direct examination you testified that, in May 2022, that you thought in certain circumstances Alameda Research borrowing funds from FTX was permitted.
Do you recall that testimony?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: Can you explain under what circumstances you believed Alameda was permitted to borrow funds from FTX.
SAMUEL BANKMAN-FRIED: I apologize. I think you said this, but this was as of May 2022?
MS. SASSOON: Yes.
SAMUEL BANKMAN-FRIED: Yup. I believe that it was permissible for there to be borrowing from assets that FTX was holding that were acting as security or collateral for margin or futures positions as of that point in time and that that was what at least I was internally treating as the core metric.
MS. SASSOON: Did that include withdrawing those assets off the exchange?
SAMUEL BANKMAN-FRIED: Potentially there would have to be a risk analysis associated with doing so. But, in general, FTX's margin programs did not differentiate between a position or borrow put on by a trade or one put on by a withdrawal.
MS. SASSOON: Just to be clear and to understand the answer to my question, when you just described the borrowing you thought Alameda was permitted to do, did that include withdrawing those assets off the exchange and using them somewhere else?
SAMUEL BANKMAN-FRIED: Potentially, subject to a risk analysis.
MS. SASSOON: Did you believe that Alameda had to post collateral to make those withdrawals off the exchange?
SAMUEL BANKMAN-FRIED: I would have believed that it had to post security and that the most straightforward and the version I would have been most comfortable with that would have been collateral physically posted to FTX. We did have discussions with other market makers as well around assets that FTX couldn't physically custody but could get contractual claims on. I would view that as a possibility, albeit a less desirable one.
MS. SASSOON: I'm asking about Alameda only. In your view, in May of 2022, that Alameda's collateral could take the form of assets that were not posted to the exchange.
SAMUEL BANKMAN-FRIED: I had the view that it potentially could. I also had the view that I would have been less comfortable on a relative basis with that.
MS. SASSOON: Did you discuss that with an attorney?
SAMUEL BANKMAN-FRIED: At the time discuss that. In particular, are you referring to the off-exchange assets, or are you referring to something else?
MS. SASSOON: Yes, that.
SAMUEL BANKMAN-FRIED: As of May 2022, in that context, no.
MS. SASSOON: Did you discuss it with an attorney prior to November of 2022?
SAMUEL BANKMAN-FRIED: In the general context -- give me one second -- I discussed some specific instances of potentially using off-exchange assets as collateral with attorneys prior to November 2022. I don't know that I had a general discussion around such a practice.
MS. SASSOON: Which attorneys?
SAMUEL BANKMAN-FRIED: I believe that we had discussions involving -- I had discussions with Ramnik, who described discussions with attorneys around the potential of accepting some collateral from Three Arrows Capital.
MS. SASSOON: OK. I am going to stop you. Ramnik is not an attorney, correct?
SAMUEL BANKMAN-FRIED: That is correct.
MS. SASSOON: I'm asking if you had direct conversations with any attorneys about Alameda specifically using as collateral for borrowing assets that were not on the FTX exchange prior to November 2022.
SAMUEL BANKMAN-FRIED: I don't believe that I personally, rather than through an intermediary, had discussions, particularly about Alameda doing it prior to November 2022 that I can recall right now, no.
MS. SASSOON: The answer is no?
SAMUEL BANKMAN-FRIED: That is correct.
MS. SASSOON: When you had that you thought that Alameda could borrow assets in this fashion, can you explain through what program? Is this the borrow-lend program, something else?
MR. COHEN: Objection. Scope.
JUDGE KAPLAN: Overruled.
I'm sorry. Sustained.
MS. SASSOON: Let's talk about loans. Were all of your loans from Alameda documented?
SAMUEL BANKMAN-FRIED: Are you referring to the personal loans?
MS. SASSOON: Yes.
SAMUEL BANKMAN-FRIED: I was under the belief at the time that they were all documented. I am not sure today that the most recent ones had been documented yet.
MS. SASSOON: Sitting here today, are you aware that some were not?
SAMUEL BANKMAN-FRIED: Sitting here today, I believe that some of the most recent ones prior to the collapse had not yet been documented, that is correct.
MS. SASSOON: At any point in your discussions with counsel about the structure of these loans, was it discussed that some of the funds were coming from FTX customer money?
SAMUEL BANKMAN-FRIED: I would not classify that as particularly what happened, so, no. That is certainly not how I discussed it with attorneys.
MS. SASSOON: What was the reason that the investments were not made directly from Alameda Research?
SAMUEL BANKMAN-FRIED: By the investments, you're referring to things like Robinhood, is that correct?
MS. SASSOON: Let me be a little clearer. You described certain investments being funded by loans that first went to you from Alameda Research toward the investments. Why not just straight from Alameda Research?
SAMUEL BANKMAN-FRIED: It depended on the particular circumstance. I will say that the most frequent reason, according to my memory, is that the investment target did not want Alameda Research to be the investing entity for one reason or another, or, alternatively, that -- yeah. That's the reason I can most frequently remember. In some cases I honestly don't know what the reason is.
MS. SASSOON: Were there occasions when you did not want Alameda to be the investing entity?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: For example, with Robinhood, is it right that you did not want Alameda to be the investing entity?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: Did you disclose that to your attorneys?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: What was the reason you didn't want Alameda to be the investing entity?
SAMUEL BANKMAN-FRIED: I was concerned about the potential for conflicts in interest or at least the appearance of conflicts of interest. In particular, Alameda had at various points engaged in talks with Robinhood about potentially being a liquidity provider for Robinhood's flow of cryptocurrency and I did not want anyone, including Robinhood, to view this investment as related to those discussions.
MS. SASSOON: Did you disclose that to your attorneys?
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: Was the buyout of Binance through loans?
SAMUEL BANKMAN-FRIED: It was financed -- are you referring to personal loans or intercompany loans?
MS. SASSOON: Any loans.
SAMUEL BANKMAN-FRIED: The buyout of Binance, I believe the bulk of it, the international version, my memory is that it was financed through -- it may have been a loan to Paper Bird. I believe Paper Bird is the entity that ended up with that equity stake, which is where the bulk of my equity stake in FTX was held. I'm not entirely sure if there is an intercompany loan, but I would suspect there may have been associated with that. There is separately the FTX US portion of the Binance buyout, which I think was structured through personal loans.
MS. SASSOON: Were lawyers involved in that transaction?
MS. SASSOON: Did you discuss with lawyers that some of the money was coming from FTX customer funds?
SAMUEL BANKMAN-FRIED: That is not what I viewed to be happening, so that is certainly not how I discussed it with attorneys.
MS. SASSOON: Let's talk, finally -- I have two more topics. They should be shorter.
You talked about safeguarding of assets.
SAMUEL BANKMAN-FRIED: Um-hum.
MS. SASSOON: I think you mentioned in your testimony the physical security of the assets to protect from hacks.
MS. SASSOON: Is that the limit of your understanding of what it means to safeguard assets?
SAMUEL BANKMAN-FRIED: No. I apologize. I think that answer was cut short a small fraction the way it's written. There are a number of things that I would have considered to be related to that.
MS. SASSOON: Would that include not embezzling customer assets, for example?
MR. COHEN: Objection.
JUDGE KAPLAN: Sustained.
SAMUEL BANKMAN-FRIED: Yes, it would include that.
MR. COHEN: You didn't have to answer if it has been sustained. Haven't you been sitting here for four weeks.
SAMUEL BANKMAN-FRIED: I felt the need to answer that one.
MS. SASSOON: You talked about discussions with other industry participants about omnibus wallets?
MS. SASSOON: When you referred to omnibus wallets, are you referring to omnibus FBO wallets?
SAMUEL BANKMAN-FRIED: Sorry. Are you referring to cryptocurrency wallets or FBO bank accounts? I have not heard FBO as a term applied to wallet, but I could guess what it would mean.
MS. SASSOON: I don't want you to guess.
When you talk about a crypto omnibus wallet, did you understand that to be for the benefit of customers?
MS. SASSOON: When you spoke to industry participants, did they say anything about a practice of using funds from these customer crypto wallets for their own purposes?
SAMUEL BANKMAN-FRIED: Of using them for their own purposes -- it depended on the counterparty that I was talking to and the nature of their business. I don't know that anyone would have described it that way. The discussions were obviously different after I was talking to a borrow lending desk, for instance.
MS. SASSOON: Let's limit it to an exchange.
SAMUEL BANKMAN-FRIED: Limited to an exchange, I think the answer is no, but let me just give you precisely what my answer would be, and you can tell me if that is not responsive, which is that it did not include industry participant exchanges saying that they would use funds from omnibus customer wallets for the exchange's corporate expenses. Does that respond --
MS. SASSOON: What about CEOs of these exchanges using customer funds for any of their own spending?
MR. COHEN: Objection.
JUDGE KAPLAN: Form.
MS. SASSOON: Did you have conversations with CEOs of crypto exchanges about whether it was proper to use customer money out of omnibus crypto wallets for purposes other than customer trading and withdrawals and the like?
MR. COHEN: Objection. Beyond the scope of the direct.
JUDGE KAPLAN: Overruled.
SAMUEL BANKMAN-FRIED: Let me, A, apologize if this isn't responsive, so tell me that. I will try to be responsive.
I certainly did not have conversations with CEOs about them discretionarily taking funds from -- as CEO of the exchange from customer omnibus wallets for their own personal expenses.
MS. SASSOON: What about CEOs discussing using customer funds in omnibus crypto wallets for the spending of their affiliated companies?
MR. COHEN: Same objection.
JUDGE KAPLAN: Same ruling.
SAMUEL BANKMAN-FRIED: So, once again, I will give a specific answer, but if this is not scoped correctly, tell me.
MS. SASSOON: Go ahead and give your answer, and I will ask another question if it's not responsive.
SAMUEL BANKMAN-FRIED: Thank you.
I certainly did not have conversations with CEOs about them as CEO of an exchange, taking -- using funds from omnibus customer wallets for their own spending of any sort. However, I'm not entirely sure what the implied relationship there was between the CEO of the exchange and the affiliates, so it's hard for me to answer that.
MS. SASSOON: Let me ask it another way. Did you have any conversations with industry participants that led you to believe that it was proper for you to spend customer cryptocurrency deposited into omnibus crypto wallets for your affiliates?
MR. COHEN: Objection. Scope and form.
JUDGE KAPLAN: Overruled.
SAMUEL BANKMAN-FRIED: So let me again attempt to answer that.
What I did have discussions with industry participants about was on margin wallets for margin exchanges that customers, including in some cases affiliates, might have borrows. They might have liabilities. And those would necessarily have come out -- been part of the net customer balances. There were negative numbers in those customer balances that added up to the overall customer balances. That would be a separate thing from a flow-of-funds perspective than the CEO not as a customer but as just the exchange or the CEO of the exchange using funds from customer wallets for corporate expenses.
MS. SASSOON: I apologize now. Now I'm apologizing. I don't know that I understood that answer.
The wallets you are referring to are those the omnibus wallets that you have been talking about, or different ones?
SAMUEL BANKMAN-FRIED: No. Same wallets, yeah.
MS. SASSOON: I want to talk to you about Dan Friedberg for a few minutes.
SAMUEL BANKMAN-FRIED: Um-hum.
MS. SASSOON: You hired him?
MS. SASSOON: Before you hired him, you had been reluctant to hire a general counsel, correct?
SAMUEL BANKMAN-FRIED: I had been reluctant to hire the wrong general counsel is how I would put it.
MS. SASSOON: The wrong general counsel, in your view, was someone who would inhibit you from taking risks for the company, wasn't it?
MR. COHEN: Objection.
JUDGE KAPLAN: Ms. Sassoon.
MS. SASSOON: Your Honor, they are asserting a presence-of-counsel good-faith defense and it's relevant to this, whether in good faith he hired an attorney who was a respectable attorney.
MR. COHEN: Your Honor, that's a very thin soup. Continued objection.
JUDGE KAPLAN: I think the question is appropriate, without endorsing the use of the word respectable.
SAMUEL BANKMAN-FRIED: It depends on what exactly you mean by that. I did want to find a general counsel who would be comfortable with the business being allowed to take reasonable risks, so long as they were otherwise permissible and consistent with its obligations. I did not want a general counsel who would permit -- who would restrict the company from taking any risks or any significant risks under any circumstances, but I also didn't want a general counsel that would permit it to take any risks without bound. The answer, it depends on the specifics.
MS. SASSOON: Didn't you tell Caroline Ellison that Dan Friedberg was unlike most lawyers you knew because he was not going to stop you from taking risks?
SAMUEL BANKMAN-FRIED: I don't recall saying that in particular. Had I said something like that, and I may have, it would have been, I suspect, with further context that would have clarified the sorts of risks that it did and didn't refer to.
MS. SASSOON: Were you aware when you hired Dan Friedberg that he had previously been general counsel at a company that suffered an insider trading scandal?
SAMUEL BANKMAN-FRIED: I wasn't aware of the details of it, but I was aware at a high level that there had been scandals with one of the companies that he had been counsel for before, yes.
MS. SASSOON: Did you understand that when you hired him that he had been at a company with a criminal scandal?
MR. COHEN: Objection.
JUDGE KAPLAN: Sustained.
MS. SASSOON: Your Honor, he said at a high level scandal. It was not responsive to the question.
MR. COHEN: Well beyond the topic of this hearing, your Honor.
JUDGE KAPLAN: The topic of this hearing includes good-faith reliance, and I am going to allow the question.
SAMUEL BANKMAN-FRIED: I don't know that I know exactly what you are referring to as a criminal scandal, and I don't know that I knew the details of the incidents at the company or companies he had prior worked at in much more specificity than the -- admittedly than specificity I have supplied so far.
MS. SASSOON: Did you know there had been a criminal investigation at his prior company?
JUDGE KAPLAN: Ms. Sassoon, let's move on.
MS. SASSOON: Were you aware that Dan Friedberg used illegal narcotics with your employees?
MR. COHEN: Objection.
JUDGE KAPLAN: Sustained.
Let's wrap it up.
MS. SASSOON: Alameda at one point had a general counsel? His name was Bailey Korrell.
SAMUEL BANKMAN-FRIED: Something like that is correct, yes. I am not sure I know exactly what his title was.
MS. SASSOON: Were you aware that Dan Friedberg fired Bailey Korrell?
MR. COHEN: Objection.
JUDGE KAPLAN: Sustained.
MS. SASSOON: Your Honor, may I be heard on this?
JUDGE KAPLAN: Yes.
MS. SASSOON: I would like to inquire of the witness about whether he was aware of the reason Dan Friedberg hired Bailey Korrell, which is relevant to the good-faith reliance on counsel here.
JUDGE KAPLAN: That's for another day.
MS. SASSOON: This is my second-to-last question, if not my last question.
JUDGE KAPLAN: Let's get on to the next one.
MS. SASSOON: May I have a moment, your Honor?
JUDGE KAPLAN: Yes.
MS. SASSOON: I'll do you one better. No further questions, your Honor.
JUDGE KAPLAN: Thank you.
Mr. Cohen, anything else?
MR. COHEN: No, your Honor.
JUDGE KAPLAN: You're excused, Mr. Bankman-Fried.