2.Samuel Bankman-Fried — Direct (Part 2)
2,266 lines(Jury present)
JUDGE KAPLAN: Well, good morning, everybody. I hope we're all refreshed.
Call your next witness, please, Mr. Cohen.
MS. SASSOON: Your Honor, just the instruction to the jury, if you don't mind.
JUDGE KAPLAN: Thank you very much.
Members of the jury, I just want to remind you of something I said quite a few weeks ago at this point——namely, that there should be no contact whatever between anybody on the jury and any lawyers. I've reminded the lawyers of this also. And that includes anything as simple as saying "good morning" on the street or in an elevator or anything like that. If you happen to encounter a lawyer, maybe somebody who's sitting 4 feet away from you, somewhere and they ignore your existence, they're not being rude. They're being extremely careful. So don't hold it against anybody on either side, please.
Okay. Your next witness.
MR. COHEN: Thank you, your Honor. The defense calls Sam Bankman-Fried.
COURT CLERK: Mr. Bankman-Fried, would you please rise and raise your right hand.
(Witness sworn)
COURT CLERK: Thank you. Please be seated. SAM BANKMAN-FRIED, the Defendant, having been duly sworn, testified as follows:
DIRECT EXAMINATION BY MR. COHEN:
MR. COHEN: Good morning, Mr. Bankman-Fried.
SAMUEL BANKMAN-FRIED: Good morning.
MR. COHEN: We've heard a lot about FTX over the last several weeks. When did you found it?
SAMUEL BANKMAN-FRIED: 2019.
MR. COHEN: Who did you found it with?
SAMUEL BANKMAN-FRIED: Gary Wang.
MR. COHEN: What did FTX stand for?
SAMUEL BANKMAN-FRIED: Futures Exchange. The F and the T both come from the word "futures."
MR. COHEN: What was your vision for FTX when you founded it?
SAMUEL BANKMAN-FRIED: We thought that we might be able to build the best product on the market, an exchange that would combine the elements that we thought were best from traditional financial products with the elements we thought were best from the big crypto ecosystem, that it could move the——move the ecosystem forward.
MR. COHEN: Did it turn out that way?
SAMUEL BANKMAN-FRIED: No, it turned out basically the opposite of that. A lot of people got hurt——customers, employees——and the company ended up in bankruptcy.
MR. COHEN: Did you defraud anyone?
SAMUEL BANKMAN-FRIED: No, I did not.
MR. COHEN: Did you take customer funds?
MR. COHEN: We're going to talk in detail about what happened at FTX, but can you tell us big picture.
SAMUEL BANKMAN-FRIED: Yeah. At a high level, there are multiple different types of exchanges. There are spot exchanges, which is where a customer deposits a hundred dollars to buy a hundred dollars of Bitcoin, or hundred dollars of Ethereum. And there are margin exchanges. On margin exchanges, customers might deposit a hundred dollars to buy $500 of Bitcoin or to sell $200 of Bitcoin that they don't have, to borrow; customers might also deposit a hundred dollars to withdraw $50 of Bitcoin that they don't have, going negative in Bitcoin. FTX was predominantly a margin exchange. The vast majority of activity happened on margin on FTX. When you have a margin exchange, you know, you can think of it in some ways like a mortgage. You know, if you have a hundred-thousand-dollar house, you might take out a $10,000 mortgage against that. That would be the equivalent of, you know, having a deposit of some number of Bitcoins, withdrawing dollars against that. And the biggest risk for margin exchanges in general, and for FTX, is what happens if one of those is threatening to go bad; that is to say——
MS. SASSOON: Objection, your Honor. Narrative.
JUDGE KAPLAN: Yes. Ask another question, please.
MR. COHEN: Mr. Bankman-Fried, did you make any mistakes along the way?
SAMUEL BANKMAN-FRIED: Yes, I made a number of small mistakes and a number of larger mistakes. By far the biggest mistake was we did not have a dedicated risk management team, we didn't have a chief risk officer. We had a number of people who were involved to some extent in managing risk, but no one dedicated to it, and there were significant oversights.
MR. COHEN: Let me talk a bit about your background, sir. Where did you grow up?
SAMUEL BANKMAN-FRIED: I grew up in Palo Alto.
MR. COHEN: And did you go to college?
SAMUEL BANKMAN-FRIED: I went to MIT.
MR. COHEN: Okay. What did you study there?
SAMUEL BANKMAN-FRIED: Physics.
MR. COHEN: What years did you go to college?
SAMUEL BANKMAN-FRIED: 2010 to 2014.
MR. COHEN: Okay. And where did you live there?
SAMUEL BANKMAN-FRIED: I lived at it was called an independent living group called Epsilon Theta.
MR. COHEN: Who did you live with in that house?
SAMUEL BANKMAN-FRIED: There were about 20 of us living there, including Gary Wang and Adam Yedidia, and others who I'd come to work with later.
MR. COHEN: Had you met Gary Wang before that?
SAMUEL BANKMAN-FRIED: I met Gary in high school when we went to the same math summer camp.
MR. COHEN: How long have you known Gary Wang?
SAMUEL BANKMAN-FRIED: I guess about 15 years at this point.
MR. COHEN: Okay. And how would you briefly describe the Epsilon Theta House?
SAMUEL BANKMAN-FRIED: It was——it was sort of a house that was coed, nerdy, and dry. It was transients living in a house, lots of board games, no drinking, and it's, you know——formed a lot of friendships there.
MR. COHEN: When did you graduate from MIT?
SAMUEL BANKMAN-FRIED: 2014.
MR. COHEN: And where did you work after that?
SAMUEL BANKMAN-FRIED: The summer after my junior year of college, I interned at Jane Street Capital, which is a quant trading firm on Wall Street, and then when I graduated, I went to work there full time.
MR. COHEN: Okay. You said Jane Street was a quant trading firm. Could you explain that to the jury, please.
SAMUEL BANKMAN-FRIED: Yeah, it's a term that it can mean a lot of things in different contexts. For Jane Street in particular, it was neither a high-frequency trading firm——a firm that made money trying to send orders nanoseconds before other firms——it also wasn't a discretionary firm that would take a long position on Apple for a year if it thought Apple was a good company. It was somewhere between. And the core thing that it did was arbitrage.
MR. COHEN: What is arbitrage?
SAMUEL BANKMAN-FRIED: Briefly, arbitrage is trying to buy low and sell high, ideally at the same time. So if you could buy a share of Apple for a hundred dollars and simultaneously sell it somewhere else for a hundred dollars and 3 cents, you would make 3 cents of profit on that, with——with very little risk.
MR. COHEN: Just a bit more of terminology. You used the phrase "long." Can you describe for the jury what it means to use "long" and "short" in trading.
SAMUEL BANKMAN-FRIED: Sorry. Yeah. They effectively mean buy and sell. So if you went long Bitcoin, that would mean you're buying Bitcoins; if you went short Bitcoin, that meant you were selling, and in fact selling more than you had, so that you ended up owing Bitcoins.
MR. COHEN: During your——what was your job at Jane Street? What was your title?
SAMUEL BANKMAN-FRIED: I was a trader.
MR. COHEN: Okay. And in the course of your duties at Jane Street, did you interact with prime brokers?
SAMUEL BANKMAN-FRIED: Yeah, frequently.
MR. COHEN: What were they?
SAMUEL BANKMAN-FRIED: Prime brokers——so a traditional broker, a place like E*Trade or Schwab, is where an individual customer might go to buy or sell stocks. Prime brokers are sort of souped-up versions of that for institutional trading firms. So when most trading firms would connect to trade stocks, rather than trading directly on an exchange, they would go through what's called a prime broker. The prime broker would give them credit in margin and interface between them and the exchanges.
MR. COHEN: Did you receive training at Jane Street?
SAMUEL BANKMAN-FRIED: Yeah. On compliance and a number of other topics.
MR. COHEN: Okay. Did you ever hear the phrase "front running"?
SAMUEL BANKMAN-FRIED: Yeah. It came up a lot.
MR. COHEN: Tell the jury what "front running" meant to you.
SAMUEL BANKMAN-FRIED: "Front running" meant effectively a concern of a market practice where one participant would be about to send an order to buy something; another customer would learn one way or another that that first customer was about to do that trade, and race in to do that trade before them, thus buying up the asset when it was cheaper and then maybe even selling it back to that first customer when their order was finally processed.
MR. COHEN: What, if anything, did Jane Street train you on with regard to front running?
SAMUEL BANKMAN-FRIED: Not to do it.
MR. COHEN: Okay. During that period did you ever hear the phrase "The New York Times test"?
SAMUEL BANKMAN-FRIED: Yeah. It came up a fair bit at Jane Street.
MR. COHEN: At Jane Street. Can you describe for the jury what you meant by that.
SAMUEL BANKMAN-FRIED: Yeah. I understood it to be a term for a test where basically anything that you wrote down, there is some chance it would end up on the front page of The New York Times, and so if you were going to write something down, you should make sure that you gave sufficient context for it, that you were clear about exactly what you meant, because a lot of innocuous things can look pretty bad out of context and there are lots of examples of people getting burned by that.
MR. COHEN: Now I believe you said you were a trader at Jane Street.
MR. COHEN: Did you work for a particular desk? And I'm going to ask you to describe what a desk is, so two questions.
SAMUEL BANKMAN-FRIED: I worked for the international ETF desk.
MR. COHEN: First tell us what a desk was. We know what a desk is, but——
SAMUEL BANKMAN-FRIED: Right. A desk really is——20 desks put together was one bigger desk. A desk, it was a group. So it was a name for a team at Jane Street that traded a particular type of product. So there was a desk of, you know, about 20 people that traded US stocks; there is a group that traded foreign stocks; a group that traded commodities. I was on a group that traded what are called international ETFs.
MR. COHEN: What's an ETF?
SAMUEL BANKMAN-FRIED: It stands——excuse me——it stands for exchange traded fund. You can think of it like a mutual fund that is a thing you could invest in which itself buys a little bit of a lot of different companies to make it easy to diversify. ETFs were mutual funds which you could also trade on an exchange like you could trade the stocks themselves.
MR. COHEN: Okay. What was the size of the trades you worked on at Jane Street?
SAMUEL BANKMAN-FRIED: They——they varied. The individual trades could be as small as a hundred dollars or as large as a billion dollars, and I managed roughly tens of billions of dollars a day of trading.
MR. COHEN: And was Jane Street——you said they were engaging in arbitrage?
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: Can you give us a brief example from your time there.
SAMUEL BANKMAN-FRIED: Yeah. So there were a lot of different types of examples. The one that came up most frequently is with ETFs. So in theory, if you have a fund which is composed of one share of 500 different companies, it should be priced at the same value as those companies added up. You could effectively take one share of each of those, do what's called a creation, turn it into ETF, or it could turn ETF back into what it actually owned. And a lot of what we did was look for cases where, especially when markets were going crazy, when there's large volatile moves and it was very difficult for people to get good prices on things, where we would figure out, you know, what should these products be worth right now, given whatever the things that they own are trading at and, you know, find ways to buy——buy low and sell high, effectively.
MR. COHEN: How long did you work at Jane Street for?
SAMUEL BANKMAN-FRIED: About three and a half years.
MR. COHEN: Did you enjoy your time there?
SAMUEL BANKMAN-FRIED: Very much. They were very good to me. I learned a lot there. They did a really good combination, I felt, of sort of giving responsibility to people while also giving mentorship.
MR. COHEN: Did anyone work at Jane Street who later worked beside you, who later worked for Alameda or FTX?
SAMUEL BANKMAN-FRIED: Yeah. Caroline Ellison, who was a trader and then later CEO at Alameda, was a trader at Jane Street; Adam Yedidia, who was a developer at FTX, was an intern at Jane Street when I was there; and a few other people at various points of the company's history had worked at Jane Street at various points.
MR. COHEN: Mr. Yedidia was one of the people you lived with at MIT?
SAMUEL BANKMAN-FRIED: That's correct.
MR. COHEN: Now after your time at Jane Street did there come a time when you started a company called Alameda Research?
SAMUEL BANKMAN-FRIED: Yeah, in the fall of 2017.
MR. COHEN: Why did you start it?
SAMUEL BANKMAN-FRIED: This was——this was when crypto was starting to become really publicly visible for the first time, at least in the circles I was in. You'd walk down the street in the fall of 2017, you'd see two people excitedly talking about something, there was a pretty decent chance that thing was Bitcoin, that they had a friend who had a friend who had tried buying Bitcoin for the first time. And in terms of pricing, Bitcoin went from, you know, $1,000 to $10,000 in a few-month period, in late 2017. There was a ton of excitement, a ton of demand, and there was very little infrastructure in the space. Large trading firms like Jane Street weren't trading cryptocurrencies yet, the banks weren't involved, the brokers weren't involved. It seemed like a place where there very well may have been a pretty big demand for basically an arbitrage provider.
MR. COHEN: When you first started to get into the crypto world, what did you know about it?
SAMUEL BANKMAN-FRIED: Basically nothing. I knew that a Bitcoin was digital. I knew there was no physical thing, that it was on computers, and that you could trade it on websites called cryptocurrency exchanges. I knew that there were other cryptocurrencies, like Ethereum and XRP. And I had absolutely no idea how they worked, what the technology behind them was, what the difference was between different cryptocurrencies. I just knew they were things you could trade.
MR. COHEN: When you established Alameda, what was your goal for the company from a business model?
SAMUEL BANKMAN-FRIED: At a high level, doing arbitrage, something similar to what Jane Street did, but in the new market. In particular, there were a lot of places you could buy and sell cryptocurrencies, called exchanges. Coinbase, Binance are two well-known examples. And in late 2017, when I started looking into it, it appeared, from my initial overview of public data, that there might be really, really large arbitrage opportunities available.
MR. COHEN: Okay. Maybe if you could explain that for the jury. What were you seeing? First of all, what public data were you looking at and then what were you seeing?
SAMUEL BANKMAN-FRIED: Yeah. So I was looking at websites like coinmarketcap.com. That is one of the two premier placing sources for cryptocurrencies, CoinGecko being the other one. And all it did was basically take data from all the various cryptocurrency, you know, exchanges and tokens and summarize it together. And what I saw, it looked like there were some places where you could buy a Bitcoin for $10,000, and others where you could sell it for $11,000, at the same time. That's a 10 percent difference in price. And for context, at Jane Street, if we could do a trade that was 1 percent good, that was unheard of. We never found a trade even 1 percent good. 1 percent of 1 percent was a typical trade. So that would be something you could buy for a hundred dollars and 3 cents and sell for $100.04 at the same time, making 1 penny on that trade. It looked like the arbitrage opportunities in Bitcoin might be a thousand times as large. It was——it was so large, I wasn't sure I even believed it.
MR. COHEN: And where did Alameda's original funding come from?
SAMUEL BANKMAN-FRIED: The very original funding was the money that I had left over after my work at Jane Street, and after that, we cobbled together what we could, mostly lines of credit borrows from people, originally from friends that we knew.
MR. COHEN: Did you also borrow from third-party lenders?
SAMUEL BANKMAN-FRIED: Yeah. Over time we——we started to know more and more third-party lenders. These were generally companies whose businesses were borrowing and lending cryptocurrencies. Genesis, Voyager, Celsius, BlockFi, those are four examples that Alameda had borrowing relationships with. And that ultimately was where the majority of its capital came from.
MR. COHEN: And how did borrowing from third parties compare, if at all, to what went on at Jane Street?
SAMUEL BANKMAN-FRIED: It was fairly similar. Jane Street had been around, obviously, a long time. It was——well, a lot longer than Alameda, at least. They'd been around for about 20 years. Alameda had been around for about 20 months at the time that we're talking about. So Jane Street had built up a large amount of internal capital, just profits from its trading, but in addition to that, it had borrows, lines of credit from financial institutions. It was a similar story to Alameda, although we had had far less time to build up the profit portion of that.
MR. COHEN: Where was Alameda's first office?
SAMUEL BANKMAN-FRIED: The first office, it was in——it was a Airbnb that we rented out in North Berkeley, California.
MR. COHEN: Can you describe the layout of that Airbnb.
SAMUEL BANKMAN-FRIED: Yeah. So it was listed as a two-bedroom Airbnb. There were three of us, but it had an attic, so that seemed like three bedrooms to us. There was a living room which was a couch, so a fourth bedroom. And then the rest of the area there was the office. We packed that with desks and computers, and mostly boxes from Amazon. Eventually we had to start dealing with the cardboard box problem pretty soon. And after overflowing that apartment, after a few months, we got a more traditional office space in downtown Berkeley.
MR. COHEN: Okay. I want to come back to that in a moment. But first let me ask you: Why did you name the company Alameda Research?
SAMUEL BANKMAN-FRIED: Yeah. So Alameda is——Berkeley, California, is in Alameda County. I'm not very good at naming things. I didn't come up with FTX's name and could not come up with anything better than that. Not that I thought it was that amazing of a name in the first place. But effectively, we wanted to be under the radar at that point in time. I didn't want to call it Sam's Crypto Trading Firm or anything like that. We——there are a lot of competitors and people who we didn't particularly want to know what we were building out because they would race to do it. "Research" was a sort of generic word, which filled out the company name. And that was——it was far better than the internal name that we had at that point, which was Wireless Mouse.
MR. COHEN: Now let's come back to the early days in the Airbnb. Who else worked there besides you, Mr. Bankman-Fried?
SAMUEL BANKMAN-FRIED: So there was myself, there was Gary Wang, and a host of other people, some from very early on, some who came later, and many of whom were not there by later in Alameda's history.
MR. COHEN: And why did you ask Gary Wang to join?
SAMUEL BANKMAN-FRIED: I had known him, I mean, from math camp, but chiefly from MIT. He was a friend of mine. I trusted and respected him. He was a brilliant developer——developer meaning software coder. I'm not much of a programmer. My plan was to sort of lead the trading operation, but we needed someone to build out all the computer systems that we would be using. Our plan was to trade on, you know, tens of exchanges, hundreds of assets, 24/7, and I, you know——I only have two hands. You need thousands of hands to do that. So we were going to program computers to actually manage a lot of that. And, you know, this was, you know, a few 25-year-olds who had no history starting a company with——a startup without much of a long-term plan yet trading in——
MS. SASSOON: Your Honor, 611.
JUDGE KAPLAN: Pardon me?
MS. SASSOON: 611. Narrative.
JUDGE KAPLAN: Sustained. Ask a question, counselor.
MR. COHEN: As between you and Gary, what roles did you each play at Alameda?
SAMUEL BANKMAN-FRIED: Yeah. I was originally leading the trading operation. That meant basically doing trades myself, coming up with parameters for computer trading systems and managing other traders. Gary was leading the technological efforts, basically building out the computer systems themselves.
MR. COHEN: And the other people you hired in the early days, how did you find them?
SAMUEL BANKMAN-FRIED: They were all friends or friends of friends. Those were the people who we were able to find early on.
MR. COHEN: Okay. How were you compensated at the beginning?
SAMUEL BANKMAN-FRIED: We——I had a $200,000-a-year salary, I believe. I think that was what most of us had.
MR. COHEN: Did you end up hiring anyone else from Jane Street?
SAMUEL BANKMAN-FRIED: Yeah. A few months in, we hired Caroline Ellison.
MR. COHEN: Now did there come a time that you hired Nishad Singh?
SAMUEL BANKMAN-FRIED: Yeah. That was in between when we started and when we hired Caroline, so it was after a month or so.
MR. COHEN: And how did you know him?
SAMUEL BANKMAN-FRIED: He was a close friend of my brother's from high school. I had known him, although not as well, in high school. He had been a software developer at Facebook and was interested in joining.
MR. COHEN: Okay. Coming back to Ms. Ellison, about when did she join the company?
SAMUEL BANKMAN-FRIED: She joined in——right around late February or early March of 2018.
MR. COHEN: And after she joined, did anything happen?
SAMUEL BANKMAN-FRIED: Yeah. There was a split, a schism, in the company. There were sharp divides between two groups of the company, and ultimately one of them resigned and took most of the capital with it.
MR. COHEN: Did there come a time when you spoke to Ms. Ellison about what happened?
SAMUEL BANKMAN-FRIED: Yeah, I did.
MR. COHEN: And what did you say?
MS. SASSOON: Objection.
JUDGE KAPLAN: Hearsay?
MS. SASSOON: Yes.
JUDGE KAPLAN: Are you actually asking what he said?
MR. COHEN: What he said, yeah.
JUDGE KAPLAN: All right. Mr. Bankman-Fried, you may answer to the extent of saying what you said to Ms. Ellison.
SAMUEL BANKMAN-FRIED: Understood.
SAMUEL BANKMAN-FRIED: I——as context, the problems had started emerging after we had given an offer to her, but I believe be——
MS. SASSOON: Objection.
JUDGE KAPLAN: Sustained. Answer stricken. Jury will disregard it.
SAMUEL BANKMAN-FRIED: Okay.
MR. COHEN: What did you say to Ms. Ellison?
SAMUEL BANKMAN-FRIED: I——I said that I was——I apologized for not telling her earlier when problems had started bubbling up that I suspected that there might be bigger problems.
MR. COHEN: Okay. Now after this schism and half of the company left, what happened to Alameda's performance?
SAMUEL BANKMAN-FRIED: It did——I felt like it did quite well after that. We had addressed the——the problems that had led to the schism. We had dozens of weeks of profit in a row. We were making between 50 and a hundred percent returns annualized.
MR. COHEN: Now you started in Berkeley. Did there come a time when you——when the company moved?
SAMUEL BANKMAN-FRIED: Yeah. In beginning and late 2018, it started transitioning to Hong Kong as headquarters.
MR. COHEN: Why did you move the company to Hong Kong?
SAMUEL BANKMAN-FRIED: I had ended up there almost accidentally, going to a conference. While there, I had, in a one-week period, more useful meetings than I'd had in the year prior in California. I ended up canceling my return ticket and renting out a WeWork in Hong Kong, and I felt like there were really large business expansion opportunities for Alameda there.
MR. COHEN: The conference you went to, what was the topic of the conference?
SAMUEL BANKMAN-FRIED: It was a general——it was called the Sora Summit. It was a general crypto conference that many of the industry leaders from a lot of different parts of the industry were there.
MR. COHEN: And did you take space in Hong Kong?
SAMUEL BANKMAN-FRIED: Yeah. So we, you know, started out at a WeWork, which was I guess something like 30 square feet or something. We could fit maybe two or three desks in there and no more. And it was myself, one or two other people, eventually grew, and we rented out a larger office.
MR. COHEN: Now I think you mentioned earlier that you began FTX, you founded FTX in 2019 with Gary; is that correct?
SAMUEL BANKMAN-FRIED: Yeah, that's correct.
MR. COHEN: What was your role in the founding; what was Gary's role?
SAMUEL BANKMAN-FRIED: So after——after a week or so in Hong Kong, I'd had conversations with a few other people who I'd met there about the possibility of us starting a crypto exchange. It's something that we'd wanted to do, but that we'd had no idea at all how we would get customers. I still had no real idea, but at least I'd started to meet other people from the industry, and I'd also met companies that were potentially interested in purchasing a crypto derivatives exchange, if we were to create one. So I called up Gary, he flew out to Hong Kong, and Gary started building out the technical systems for FTX, and I talked to him about the design philosophy and the goals.
MR. COHEN: Did there come a time that Nishad joined you?
SAMUEL BANKMAN-FRIED: Yeah. Nishad had been working at Alameda for I guess about a year and a half at that point, and over the course of 2018, he transitioned primarily out of Alameda into becoming the——or sorry, 2019, rather——into becoming a developer at FTX instead.
MR. COHEN: Okay. Did you supervise Gary?
SAMUEL BANKMAN-FRIED: I——I was his supervisor in that ultimately I was the CEO and ultimately I had authority, and I also had a number of discussions with him about the goals of the systems that he was building. On the other hand, I wasn't much of a programmer. I didn't write any of FTX's code or read any of FTX's code. So I didn't supervise the direct work that he was doing. And he and Nishad were both authorized to make decisions on behalf of the company without consulting with me, though they often would consult with me about it.
MS. SASSOON: Objection.
JUDGE KAPLAN: What's the objection?
MS. SASSOON: Testimony about Nishad is not responsive.
JUDGE KAPLAN: I'm sorry?
MS. SASSOON: Testimony became unresponsive to the questions, beginning with discussions about Nishad.
MR. COHEN: Background, your Honor.
JUDGE KAPLAN: Overruled.
BY MR. COHEN:
MR. COHEN: At this time, Mr. Bankman-Fried, in 2019 or so, about how many crypto exchanges were there in the market?
SAMUEL BANKMAN-FRIED: I mean, in total, there were hundreds or thousands, but there were 10 or so that had most of the volume and maybe 50 or so that had any appreciable activity.
MR. COHEN: So why start another one?
SAMUEL BANKMAN-FRIED: We felt like, especially for the margin exchanges, there was a really big hole in the space. At the time we felt like the design philosophies of most of the crypto derivatives or margin exchanges were clunky and didn't make a lot of sense if you wanted to trade, and when we tried trading on the leading margin exchanges for crypto at the time, there were hundreds of different wallets that you had to manage for a single account. If you wanted to trade Bitcoin against dollars, you would have to first use your dollars to buy physical Bitcoins, move them into your Bitcoin-versus-dollar spot margin trading wallet, use that as collateral. If you then wanted to go trade Ethereum against dollars, you'd have to move those Bitcoins out, sell them for spot Ethereum, move your Ethereum into Ethereum-versus-dollars trading wallet and then do that trade. It was a many-step process every time you wanted to do a different trade.
MR. COHEN: And were you trying to address that at FTX?
SAMUEL BANKMAN-FRIED: Yeah, that was one of the core things that we were trying to do differently than how most other crypto margin exchanges were built at the time.
MR. COHEN: Let me ask you about another topic. Have you ever heard the phrase "cross-margining"?
MR. COHEN: What is that?
SAMUEL BANKMAN-FRIED: That is effectively the opposite of what I just described. That's——cross-margining is what we were intending to build and what we did build. The theory with cross-margining——at least what we meant by it——was that you could deposit any one of a number of assets as collateral and then you could trade any market, or at least any——a number of products. With that, you could buy, you could sell, you could deposit, you could withdraw, and all the exchange monitored——or at least most of what it monitored was just that on net, your account's value was sufficient. You could go negative in any particular asset as long as you had any other reasonable asset as security for the borrowing that you did, rather than having what's called isolated margin, where you had a completely separate system for every single trade that you wanted to do.
MR. COHEN: So if a customer had 20 subaccounts——
MR. COHEN: ——and assets in each of them, how would that work for cross-margining?
SAMUEL BANKMAN-FRIED: So for cross-margining, if you had different subaccounts, you could isolate those from each other if you wanted to, but if you had 20 different assets in your account, FTX would basically just add up the total value of them, add up the total value of all of your borrows, of all of your liabilities, and ensure that you had more assets than liabilities.
MR. COHEN: Did you ever hear of the term "clawbacks"?
MR. COHEN: What did that mean to you?
SAMUEL BANKMAN-FRIED: So the risk associated with a margin system in general is what happens if an account ends up with a negative overall value, which is to say, what happens if the value of its liabilities become greater than the value of its assets. In that case, you know, we could try to reach out to that——that user and request that they send us more assets that might or might not work, depending on who the user was. We couldn't rely on that for most users. And absent that, there would then be, you know, a net debt that that user had that had to be covered by someone. The exchange——FTX in our case——would try to cover it, but if we couldn't, the risk was that it would have to be socialized, what's called socialized loss or clawback to many or all of the users on the platform where they would cover the loss.
MR. COHEN: Can you explain that, the last part, socialized loss.
SAMUEL BANKMAN-FRIED: Yeah. So let's say that there were an account that had a thousand dollars of assets and was borrowing $500 against those assets. Maybe it had deposited a thousand dollars of Bitcoin and withdrawn 500 US dollars. If Bitcoin fell in value by 50 percent, that would then be $500 worth of Bitcoin left in the account. If it fell by another 50 percent, there would be $250 of the original thousand of assets, just because the assets had fallen. But still that account would have borrowed $500. So in total, the account would be worth negative. It would be worth negative $250, you know, the $250 of assets minus the $500 of——of borrowing. Another way to put that is we wouldn't be able to sell those Bitcoins off for enough dollars to cover that account's debts. That then is, you know, effectively negative $250 in net value that someone had to cover, and if that client wouldn't deposit more and if FTX couldn't cover it itself, then we would have to basically claw back assets collateral from other users on the system, $250 worth in total, in order to true up that account that had gone negative.
(Continued on next page)
MR. COHEN: Now, during your time at Alameda, before you founded FTX, I think you mentioned you traded on other exchanges, is that correct?
SAMUEL BANKMAN-FRIED: Yeah, that's correct.
MR. COHEN: Did they provide for clawbacks?
MR. COHEN: What is futures trading?
SAMUEL BANKMAN-FRIED: So futures trading is -- it's another form of market or leverage trading where instead of, for instance, trading an actual Bitcoin, instead of depositing some number, you know, a hundred dollars and buying 500 dollars of Bitcoins, you could buy what's called a futures contract on Bitcoin. You can think of it as something that will eventually turn into however much a Bitcoin is worth. So if you bought a December Bitcoin future, then in December that would turn -- and in December a Bitcoin was worth $20,000, that future would be worth $20,000 at the end of the day. And futures trading generally happened with leverage, so you might deposit $100 of collateral and then buy or sell $500 of Bitcoin futures and gain or lose, depending on whether Bitcoin went up or down in price.
MR. COHEN: Last term. Have you ever heard the term spot margin?
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: That's what I had been referring to as margin. It's basically when you have spot assets rather than futures assets, so these are actual Bitcoins. But where -- rather than being fully collateralized and fully funded, you are borrowing. So that was what was happening. If you deposited $100 in order to buy $500 of Bitcoin, that would be spot margin trading.
MR. COHEN: From time to time during your time as CEO of FTX, would you prepare something called explainers?
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: What were they?
SAMUEL BANKMAN-FRIED: These were pages that we posted on our website, generally on Zendesk, which is sort of our customer support portal to explain to customers how parts of the exchange worked.
MR. COHEN: Can we call up Defendant's Exhibit 978 for the defendant only for identification entitled spot-margin trading explainer.
MR. COHEN: Can you go through this quickly, Mr. Bankman-Fried, and tell us what it is.
SAMUEL BANKMAN-FRIED: Yeah.
MS. SASSOON: Objection. I don't believe this is in evidence.
JUDGE KAPLAN: That's correct.
MR. COHEN: That's right. I am trying to lay a foundation, your Honor.
MS. SASSOON: Your Honor, he just asked him to explain to the jury what this document is.
MR. COHEN: Let me rephrase. I didn't mean to say that, your Honor.
JUDGE KAPLAN: No harm, no foul.
MR. COHEN: Take a moment and go through it.
MR. COHEN: Brian, if you need to scroll through it for Mr. Bankman-Fried.
MR. COHEN: This question is only whether you recognize this document.
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: What is it?
SAMUEL BANKMAN-FRIED: This is the explainer page that we had written for spot-margin trading for FTX and its customers.
MR. COHEN: Your Honor, we offer DX-978 not for its truth.
JUDGE KAPLAN: Any objection?
MS. SASSOON: One moment, your Honor.
It's not for its truth. No objection, your Honor.
JUDGE KAPLAN: It's received for the fact that such a document existed, not for the truth of anything it said, members of the jury.
(Defendant's Exhibit 978 received in evidence)
MR. COHEN: We can take that down.
Can I publish it, your Honor?
JUDGE KAPLAN: Yes.
MR. COHEN: Let's publish it quickly.
The heading is spot-margin trading explainer. I would just like to go to one page. I think it's the second page, please, Brian.
MR. COHEN: Look at the top. It says: How does borrowing and lending work. You see that?
MR. COHEN: From time to time you would put out explainers about how things in the market in the industry worked?
SAMUEL BANKMAN-FRIED: That's correct.
MR. COHEN: We can take that down.
MR. COHEN: Let's move forward, Mr. Bankman-Fried.
Did FTX have something called a risk engine?
MR. COHEN: Tell us what that was.
SAMUEL BANKMAN-FRIED: The risk engine was basically a setup -- a system that would attempt to monitor customer positions to watch to see if any of them were in danger of becoming overall negative value and, if so, would potentially learn about it and potentially start to close down that position to prevent the risk of losses.
MR. COHEN: How did the risk engine at FTX compare, if you know, with what went on at other crypto exchanges?
SAMUEL BANKMAN-FRIED: Yeah. FTX's risk engine was, first of all, cross-margined. Most other crypto exchanges at the time, as I understood it, were not cross-margined. So most others I understood to have a separate risk engine effectively for every trade that you would do, every market that you would do.
FTX has looked at users or accounts as a whole, just looking at assets and liabilities overall, and it also had a number of steps that were at least somewhat unique to FTX. It was mostly automated. It would monitor markets 24/7. And it would close down positions if necessary. It also had a backstop liquidity provider system, which was something I wasn't aware of other exchanges having at the time.
MR. COHEN: We will come to that in a moment.
I realize I meant to ask you --
MR. COHEN: If we could call up just for the witness --
MR. COHEN: Before we do that, in addition to explainers, from time to time would you set forth your views about terms in the industry?
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: How would you do that?
SAMUEL BANKMAN-FRIED: One of the ways was through blog posts that we would make.
MR. COHEN: Just for the witness, if we could call up DX-964 for identification.
MR. COHEN: If you could go through this and just tell us if you identify the document, sir.
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: What is this?
SAMUEL BANKMAN-FRIED: This is a blog post that I had written early on in FTX's history about clawbacks and FTX's approach to them.
MR. COHEN: Including the risk engine?
MR. COHEN: We offer DX-964 not for its truth.
MS. SASSOON: Objection, your Honor.
JUDGE KAPLAN: Ground.
MS. SASSOON: He just asked him earlier does this set forth your views of the terms in the industry. The defense tried to admit this document -- perhaps better addressed at sidebar, your Honor.
JUDGE KAPLAN: All right.
(Continued on next page)
(At sidebar)
MS. SASSOON: Your Honor, it's a hearsay objection. The defense has not established a relevant nonhearsay purpose why offering it not for its truth has any relevance.
JUDGE KAPLAN: Mr. Cohen.
MR. COHEN: Sounds like a relevance objection.
JUDGE KAPLAN: Sounds like both.
MR. COHEN: Sure, your Honor.
This is to rebut the evidence proffered by the government that FTX was set up from the outset as a criminal enterprise. We are entitled to show that it was set up as a real and legitimate business and that Mr. Bankman-Fried was trying to educate his customers about things the like risk engine and the liquidation engine.
JUDGE KAPLAN: What is your support for the proposition that the government is arguing that this was a criminal enterprise from the beginning?
MR. COHEN: The evidence they elicited from Mr. Wang about encounters with Mr. Bankman-Fried in 2019 and 2020 where he claims that he talked with Mr. Bankman-Fried and a trader about the company being set up to take customer assets. The evidence --
JUDGE KAPLAN: Being set up to what?
MR. COHEN: To take customer assets, the encounter in the hallway with the trader.
JUDGE KAPLAN: May I have a page reference to the transcript?
MR. COHEN: I don't have it with me. I can get it for you, your Honor.
JUDGE KAPLAN: Please.
MR. COHEN: The evidence from Ms. Ellison implying that even at Alameda it was set up as a fraudulent operation and that early on, way before the events of June 2022 that we are all very familiar with, Mr. Bankman-Fried was essentially running this as a fraud.
I think for the Court's consideration all I wanted to do was put this in, read the title, and move on. I am not going to go through any of the terms.
MS. SASSOON: May I respond, your Honor?
JUDGE KAPLAN: If all you want to do is put it in and read the title, then I'm reasonably convinced right now that it is not relevant.
Go ahead.
MS. SASSOON: I want to quit while I'm ahead.
JUDGE KAPLAN: No. Come on.
MS. SASSOON: There is no RICO charge in this case. It's a wire fraud. As I understand it, including from yesterday's hearing testimony, the defense actually doesn't dispute a lot of these facts that, for example, Alameda was set up to receive customer money. They just dispute whether that was criminal or not.
To the extent that he wants to put this in to show what Sam was saying to customers, there has been no foundation that any customer saw this. The one time that this document came up, it was with Gary Wang who said he had never seen it before. I don't think that there is a foundation for that purpose.
MR. COHEN: There is, your Honor. To your Honor's question, and I can hand you my copy if you'd like, there are two paragraphs that I would like to call out but not spend a lot of time on. That's on the second page. The bottom two paragraphs where he talks --
JUDGE KAPLAN: I am going to send the jury out. We will take the morning break now. I want to see the page references to support your assertion.
Unless you're conceding his assertion, the assertion that this was -- your position is, this was all set up as a fraud from the getgo.
MR. COHEN: The other thing, your Honor, to that, the period of the conspiracy charged is 2019. It's not 2022. The government is seeking to show that this was a fraudulent enterprise from that --
JUDGE KAPLAN: When was that published?
MR. COHEN: This was published in 2019. 2020. 2020.
MR. ROOS: Judge, it's not just what it says and when. It is that they are offering it clearly for its truth. The relevant purpose they are advancing is taking the document as a stated fact to advance the truth. I still have not heard a relevant nonhearsay purpose. They literally want to read his musings. For instance, the defendant posted a blog post that said, I am not guilty.
JUDGE KAPLAN: I am going to break now. Somebody needs to give me a copy of the document. That's what we will do.
(In open court)
JUDGE KAPLAN: Folks, we will take our morning break early. I'll see you in 15 minutes, and we will get this resolved.
(Jury not present)
JUDGE KAPLAN: I'll see counsel in five or six minutes.
(Recess)
JUDGE KAPLAN: Mr. Cohen, again, what purpose is this being offered for?
MR. COHEN: Your Honor, this is being offered for the purpose to show that this was put out on a blog of FTX in 2020 on the topic of the liquidation engine and clawbacks and that FTX said on this blog that it would try to avoid or minimize clawbacks, not that in fact it happened, but just again -- it goes again, in our view, to the defendant's state of mind and to rebut the evidence that I described at the sidebar.
JUDGE KAPLAN: So far as the evidence you purportedly described at the sidebar, what are the page references?
MR. COHEN: Turns out, we have not been able to find all of them, but the page reference I did find is the exchange with the trader involving Mr. Wang, which is at 375. The sequence starts at line 4. Goes for about a page.
JUDGE KAPLAN: And concluding where, line 18?
MR. COHEN: Yes, your Honor.
JUDGE KAPLAN: Government, what do you have to say to that?
MR. ROOS: Starting with the last point, this says that Mr. Wang had a conversation with the defendant in 2019 about Alameda having a negative balance. How this blog post from 2020 is a response to that is beyond me. The blog post is about comparing FTX's risk and liquidation system and its history with clawbacks to one or more other exchanges, so it's not responsive in any way to the question of whether there were negative balances in 2019. I don't know from where in this portion of the transcript defense counsel is inferring the idea that there is something of a sort of a grand conspiracy in 2019 to rebut.
The other points that they made were that this is being offered to show that it was on the blog. I think for starters there are a few foundational questions relating to the nonhearsay purpose there.
For one, the question that was posed to the witness was whether or not he sometimes posted his views on the Internet. That is not necessarily a relevant purpose. As I mentioned at sidebar, of course a witness could post all sorts of thoughts to the Internet. That does not make them relevant or provide a foundation for their relevancy. In fact they could post false exculpatories, they could post musings. That does not mean there is a relevant nonhearsay purpose, particularly here where there is no evidence in the case that any person who is relevant, that is, a customer or victim, saw this. And when defense counsel previously attempted to offer this document through another witness, the witness said, I have never seen this before and I did not know it existed.
I think there is a lack of a foundation to establish a relevant nonhearsay purpose. By the way, that's at page -- my apologies. Mr. Wang did say he saw this. The Court just sustained the admissibility objection to it.
On the question of state of mind, it's not clear how the document is being offered for state of mind. It's really just being offered for the truthful assertion of various facts in there. To give your Honor some examples, starting with the title, which defense counsel called out, the title is how we significantly reduce clawbacks. This is being offered for its truth. Same with, FTX has in fact never had a clawback. Again, a truthful statement. The defense of course can have the defendant testify to these facts, but they can't sort of -- if they prefer the way it is written in the blog post, introduce the blog post for its truth and that seems to be what's happening here.
JUDGE KAPLAN: Last shot, Mr. Cohen.
MR. COHEN: Yes, your Honor.
Taking the last point first, we are not offering it to show that the truth of the statement in the document actually came to pass. The Court has received a number of documents from both sides during this case on that ground.
As to foundation, I'd be happy to ask additional questions, but this was not a personal blog by the defendant, but it was on the FTX blog and put out to customers.
As for the --
JUDGE KAPLAN: And the difference it makes in this case is what? The difference in this case it makes is what?
MR. COHEN: I'm just responding, your Honor, to counsel's distinction, which he seemed to think was relevant, that it would be treated differently if it was a personal blog versus something put out by the company. The answer was put out by the company. That's what counsel just said.
The last point, your Honor, with respect, I don't think the government is offering this passage with Mr. Wang on the limited ground it now claims. I believe from both the government's opening statement and questioning of other witnesses, it is going to seek to offer this certainly in its closing as proof that FTX was set up as a fraudulent enterprise from the beginning.
JUDGE KAPLAN: The reason we took the break, in part, was because you made that assertion at the sidebar, and I asked you to give me the reference that supported your claim that that's the government's position. You drew my attention to page 375. I have read it. It's not supportive of your position. I don't know what the government is going to argue at the end of this case any more than you do. The objection is sustained.
Let's get the jury. Let's get the witness back on the stand first.
(Continued on next page)
(Jury present)
JUDGE KAPLAN: The record will reflect that the defendant and the jurors all are present.
You may continue, counsel.
MR. COHEN: Thank you, your Honor.
BY MR. COHEN:
MR. COHEN: Mr. Bankman-Fried, when we broke you were talking about some of the early days at FTX. You mentioned you were located in Hong Kong?
MR. COHEN: And that you had picked Hong Kong because of the crypto conference you went to?
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: Were there any other reasons you found Hong Kong attractive at that time?
SAMUEL BANKMAN-FRIED: Yes. There were a few primary reasons. One, it was -- it seemed to be the global epicenter of crypto. It was far easier to meet with counterparties there and it was far easier to get business done if you can have face-to-face meetings with people. There were problems that Alameda had been having on exchange accounts of its for months that got resolved within days of me being there.
The second is that it had a much more -- a much clearer regulatory environment for cryptocurrency exchanges at the time.
So as we thought about building out FTX, that was something that we were far more able to do in Hong Kong.
MR. COHEN: Why was having a more built-out regulatory instruction -- structure important to you?
SAMUEL BANKMAN-FRIED: It was important for multiple reasons. One was, we thought it was appropriate for there to be regulatory oversight of ourselves and the rest of the exchanges, and the second is that, frankly, whether or not we wanted it, we felt like there was going to be regulatory oversight that regulators were going to be involved, licenses were going to be required, and we didn't want to be on the wrong end of that.
MR. COHEN: When you first began to build the FTX exchange, what was your plan for it?
SAMUEL BANKMAN-FRIED: The original plan was most likely to sell it to an existing cryptocurrency spot exchange that didn't have an associated margin exchange. Binance in particular was the first one that we talked about with this.
MR. COHEN: Why weren't you thinking of running it?
SAMUEL BANKMAN-FRIED: The biggest reason was, I had no idea how we would get customers if we were to run it ourselves.
MR. COHEN: What made you change your mind?
SAMUEL BANKMAN-FRIED: A few reasons.
One, Binance ended up, instead of working with us, working with one of their internal teams to build out a futures and margin exchange.
But the other was, the more that we talked about it, the more that I thought about it, I became convinced of a few things.
One was that I felt like we would be able to do a better job of growing it than a company that we sold it to.
Second was I, as I met more and more people in Hong Kong, still didn't know exactly how we would get customers, but it felt less hopeless. It felt like maybe we could figure the it out.
Third was, I still thought we probably wouldn't figure it out. I thought there is maybe a 20 percent chance of success and 80 percent chance that we would fail to launch or, rather, that we'd have launched but failed to ever attract any customers and just closed down after a few months. But even that 20 percent chance was a huge opportunity, given that the biggest exchanges at the time were multibillion dollar companies.
MR. COHEN: Once you decided not to sell the exchange, you have mentioned a few times one of the challenges was getting customers.
Do you recall that?
MR. COHEN: How did you try to do that at first?
SAMUEL BANKMAN-FRIED: We reached out to people we knew in the industry, friends of ours, basically. We got a few initial customers that way, a single-digit number. They gave feedback. We iterated on the product in response to that. Ultimately, some of them liked the exchange. They told some of their friends about it and it started spreading that way basically organically through word of mouth and eventually on social media. We started interacting with customers on social media and through customer support, emails, and tickets. We tried to be responsive. It was cobbling together those rather than a paid marketing strategy.
MR. COHEN: In the beginning did you have a marketing budget?
SAMUEL BANKMAN-FRIED: No. We had no marketing team. We had no marketing budget. We could have scraped together some money together if we had a brilliant marketing idea, but we didn't.
MR. COHEN: You mentioned support tickets in your prior answer. What are they?
SAMUEL BANKMAN-FRIED: Support tickets, it's a name for when there is a customer who has a question or problem with their account and they want to get in contact with someone who works at the exchange to get help. They would file what's called a support ticket.
MR. COHEN: Did you have anything to do with support tickets?
SAMUEL BANKMAN-FRIED: Yeah. I tried to make sure that I was periodically answering some of them. There were a lot, ultimately thousands a day. We had a team of dozens of people managing it. But I wanted to make sure that I was -- I was the CEO, but I wanted to make sure that I was still answering at least a handful of support tickets from customers regularly because I worried that, if I didn't, I would lose touch with what the actual customer experience was like, what the actual concerns our customers had, and I wouldn't know what we should be prioritizing as a company because of that.
MR. COHEN: I want to move forward and talk about the FTX code base and database. Just a few terms first, Mr. Bankman-Fried.
Can you tell us what the code base was?
SAMUEL BANKMAN-FRIED: Yeah. The code base, it's computer code written by our programmers, our developers that basically contains instructions for how FTX, the website and the exchange, operated. Running that computer code is what made the exchange run.
MR. COHEN: What was the database?
SAMUEL BANKMAN-FRIED: The database was basically a set of computers that stored all the individual pieces of data. The code base would have instructions for what happens when someone tries to buy an asset, what happens when they try to sell an asset and types of numbers to display on a user's account page. The database is where we would store user XYZ has three Bitcoins or on Tuesday at 11 p.m. this other user deposited $3 or whatever. So all the individual millions of pieces of data were stored in the database.
MR. COHEN: You said the database was on computers?
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: About how many did you end up having?
SAMUEL BANKMAN-FRIED: A lot. I mean, it started at a few servers, which is basically computers we were renting out. By the end, it was dozens, I think maybe hundreds of computers that we were renting out to manage all of FTX's systems and data.
MR. COHEN: One last phrase. What was an order book?
SAMUEL BANKMAN-FRIED: Yeah. Let's say that you were a customer and you wanted to buy a Bitcoin for a thousand dollars. You would send what's called an order, which is basically an offer to buy it for a thousand dollars. So you would send an instruction to FTX, I would like to purchase one Bitcoin for $1,000 if possible. Another customer might say, well, I'd be interested in selling a Bitcoin for $2,000, if possible. They would send an order, an offer to sell that Bitcoin for $2,000.
The order book was basically the thing that just contained all of those offers that hadn't yet been filled that were just sitting out there that anyone could trade against.
If you then came on the exchange, you could buy for $2,000 from that second person or you could sell a Bitcoin for $1,000 to that first person. It contained all the buying offers and selling offers for all the products.
MR. COHEN: Just to circle back, on the database, I meant to ask you, did there come a time that FTX entered into an arrangement with Amazon about the database?
SAMUEL BANKMAN-FRIED: Yeah. FTX, its primary database was stored on what's called Amazon Web Services, AWS. Basically, it was dozens of computers that we needed to rent out. We needed backups for it. We needed to be able to add more at a moment's notice if the exchange grew. And we couldn't manage all of that hardware, all of that -- we'd need a warehouse to make that work. And Amazon is one of the companies that has a service where you can rent servers, which are basically just computers from them, on demand.
MR. COHEN: Moving forward, once FTX was up and running, did it have any business relationships with Alameda?
SAMUEL BANKMAN-FRIED: Yes, it did.
MR. COHEN: I am going to talk about a few of them.
Have you heard the term market maker?
MR. COHEN: What is that?
SAMUEL BANKMAN-FRIED: A market maker is a company that intends to have buying and selling offers out at most points in time for a product. The purpose that we saw for market makers was, without them, if a customer is signed up for FTX, they deposited dollars they wanted to buy at Bitcoin, and no one on the exchange was currently trying to sell a Bitcoin, no one was offering a Bitcoin for any price, then there would be nothing to buy from and the customer, they would go through all the work of creating the account, funding it, they would realize they couldn't actually buy a Bitcoin, there were no sellers, and they would be angry and leave.
An important thing for customers was that at any point in time they could open up their account and buy, if they wanted to buy, and sell, if they wanted to sell. That meant that we needed to have market makers. We needed to have people who were always willing to buy for some price, sell at another price, probably higher, but not that much higher, reasonable prices.
And early on it was difficult to get market makers. Early on we didn't have very much volume or activity on the exchange. Market makers, they made a penny on every hundred dollar trade that they did. Those were big companies, so they weren't going to bother going through the process of trading on FTX or market making on FTX if they are only getting to ten trades a day and make ten cents a day, which meant that until -- unless and until we got more customers and more volume, we weren't going to get most of the market makers on the platform. These were -- some of these were Wall Street trading firms. Some of these were crypto-specific ones.
Alameda was a market maker, so Alameda was the primary market maker on FTX at the beginning.
MR. COHEN: Over time did that role change? Was Alameda still the primary market maker?
SAMUEL BANKMAN-FRIED: It did change. Alameda was always a market maker. Where it was something like half of all volume on the exchange for the first few months, which was obviously far larger than any other single user was, by 2022, it was down to roughly 3 percent of the trades on the exchange because we had successfully gotten a number of other market makers and Alameda was now just one of 10 or 15 core market makers. When I say liquidity, I mean basically the same thing as market maker.
MR. COHEN: Back when you were at Jane Street, were you involved with market makers?
SAMUEL BANKMAN-FRIED: Yes. Jane Street was a market maker.
MR. COHEN: What about the desk that you worked on at Jane Street?
SAMUEL BANKMAN-FRIED: Yeah. The desk that I was on was one of the largest, if not the largest market maker for international ETFs. When a new ETF would come into existence, the company would often reach out to us and request that we be a market maker, that is to say, have offers to buy and sell out at all times so that people could buy their products if they wanted to.
MR. COHEN: Are you familiar with the term line of credit?
MR. COHEN: In particular, are you familiar with the term line of credit in connection with being a market maker?
SAMUEL BANKMAN-FRIED: Yes, I am.
MR. COHEN: Can you explain that to the jury, please.
SAMUEL BANKMAN-FRIED: At least on FTX some market makers, many of them had lines of credit. The original impetus for this, as I understood it, was that we needed people to have bids and offers to buy and sell at all times in all of the markets.
As we grew as a platform we had thousands of different order books of markets. There were hundreds of different, if not thousands of different currencies that you could buy and sell, and each one you could buy and sell in a few different ways.
And on every single one of those, in order to have a good experience for customers, we wanted a customer to be able to come on to the exchange 24/7 and spend at least a million dollars to buy or be able to sell a million dollars of it. For many customers it was just important to have a thousand dollars. But we had companies that were signing up to FTX to trade that wanted to large-size trades, and they were a significant fraction.
MS. SASSOON: Objection, your Honor. Narrative.
MR. COHEN: It's for background, your Honor.
MS. SASSOON: The original question was: What's a line of credit?
MR. COHEN: That wasn't the question he was responding to.
JUDGE KAPLAN: The question he was responding to was: Explain that to the jury.
MR. COHEN: It was the question before that, your Honor.
JUDGE KAPLAN: The question before that was a yes/no question and he said yes.
MR. COHEN: Let me rephrase then, to your Honor's point.
MR. COHEN: Let's focus this one, Mr. Bankman-Fried. Was there any way that having a line of credit related to acting as a market maker in FTX?
SAMUEL BANKMAN-FRIED: Yes, there was.
MR. COHEN: Can you tell us about that.
SAMUEL BANKMAN-FRIED: Yes. We wanted to have a substantial size of orders out, of offers out in thousands of markets, that by the time FTX had reached its peak in 2022 meant billions of dollars of orders out at all points in time. By default that required collateral. You had to have assets deposited on the system in order to send those orders.
But in the particular case of market makers, they were a service, the orders were a service to FTX. So we would often give market makers lines of credit to make it more efficient for them to be able to send those orders.
MR. COHEN: Next concept. Have you ever heard the term backstop liquidity provider?
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: That was a term that FTX created to describe one of the steps in our risk waterfall.
MR. COHEN: Can you explain what you mean by the risk waterfall.
SAMUEL BANKMAN-FRIED: Yeah. If there was an account which had some level of assets, some level of liabilities and the assets started dropping or the liabilities rising, to the point where we became concerned that it might not be able to repay its debts, and that we might not be able to sell its assets to repay its debts, we would start to do that, ideally before it dropped into overall negative territory.
The first step of the risk waterfall was to just go out into the order books and start selling off the assets of the account. In the case of an account that had deposited say $500 of Bitcoin and withdrawn 250 U.S. dollars against that, we'd start selling off those Bitcoins to recoup the dollars that it had borrowed. That was the primary line of defense.
But sometimes that would look like it might be about to fail. In other words, the assets would keep dropping or the liabilities would keep rising, to the point where we didn't think that we were going to be able to sell off all of those assets in the market in time, that the account might end up creating a hole if we weren't careful.
As a backup we had what were called backstop liquidity providers. Those were generally market makers on FTX who agreed that, in the event of a customer position that we were liquidating, that we were closing down because we were concerned about its risk, if it was too big to close down in the market or markets were moving too fast, that, instead, we could basically just hand the position to those backstop liquidity providers.
In the hypothetical with $500 of Bitcoin borrowing $250, we would hand basically that -- those Bitcoin and the dollar liability over to the backstop liquidity providers, who would then fill the liability out of their assets and, by doing that, effectively take care of the liquidation.
MR. COHEN: Was Alameda a backstop liquidity provider?
SAMUEL BANKMAN-FRIED: Yes, it was.
MR. COHEN: Was Alameda also a customer on the FTX exchange?
SAMUEL BANKMAN-FRIED: Yes, it was.
MR. COHEN: Did it have an account?
SAMUEL BANKMAN-FRIED: Yeah. It had a few accounts. It had one primary trading account.
MR. COHEN: Was it sometimes referred to as the main account?
SAMUEL BANKMAN-FRIED: Yes. So there is the info@ user. User refers to sort of overall entity or person using the system, which had a number of accounts on it, subaccounts. One of them, the main account had most of the trading activity.
MR. COHEN: Was that the info@AlamedaResearch.com account?
SAMUEL BANKMAN-FRIED: Yes. Info@AlamedaResearch.com was the user. Then the main account of that was the primary trading account. That's right.
MR. COHEN: As a customer of the exchange, was Alameda permitted to borrow from the exchange?
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: When it borrowed, where was the money coming from?
SAMUEL BANKMAN-FRIED: The money -- my understanding was that it was coming from basically margin traders. It was coming from collateral or -- basically collateral from other margin traders or from assets that were earning interest on the platform, and that those were sent to FTX as security for borrowing other traders were doing and was being lent out to traders, including Alameda, that were borrowing.
MR. COHEN: What could Alameda do with the funds it borrowed off the exchange?
SAMUEL BANKMAN-FRIED: In general, FTX didn't have restrictions on what people could do with funds that they borrowed. So the answer like for other users was, anything -- so long as we believed that the risk was being managed, which is to say, so long as we believe that its assets were greater than its liabilities, we didn't care if a user withdrew funds and used them to buy muffins, to pay business expenses, to invest, or anything else.
MR. COHEN: Let's move forward to the next topic, Mr. Bankman-Fried.
How did the volume of trading on the FTX exchange change, if at all, over time?
SAMUEL BANKMAN-FRIED: It grew substantially. In the early days it was trading a few million dollars a day. That grew to tens of millions of dollars a day in 2019. In 2020, that grew to hundreds of millions of dollars a day. And by 2022, it was 10 to $15 billion per day of trading volume.
MR. COHEN: Did there come a time that this growth created any issues with respect to the risk engine?
SAMUEL BANKMAN-FRIED: Yeah. It frequently created -- they are growing pains all the time and few specific to the risk engine.
MR. COHEN: Let me turn to one specific and call your attention to 2020, approximately 2020.
SAMUEL BANKMAN-FRIED: Um-hum.
MR. COHEN: You recall an event that happened with respect to the risk engine?
MR. COHEN: Can you tell us about it.
SAMUEL BANKMAN-FRIED: Yeah. So as FTX grew, the number of orders and trades and the amount of data and the number of users that the systems had to process grew quite a bit, which put strain on the computer systems.
At this point, in 2020, the risk engine was effectively sagging under the weight of that growth and was running behind, which is to say, it took some number of minutes for it to -- for it to learn about what was happening in the markets. We had a user with a relatively small position that had to be liquidated, that had to be closed down by the risk engine, so the risk engine liquidated that position. I recall it being thousands of dollars to begin with.
But because it was taking minutes for the risk engine to learn about market events, including its own trades, a few seconds later the risk engine looked at that same account, didn't realize it had already closed down that position, and did so again, and again and again and again, until it had to close down the same position many, many, many times. That position went, I think, from thousands of dollars to millions of dollars.
When it finally caught up to all the liquidations it had done, it realized it had to undo most of those, so it then ping-pong'd back in the opposite direction. That became vastly more in buying back all the sales that it had done on that account and it ping-pong'd back and forth, I believe got to from thousands of dollars to trillions of dollars in not too long. It was growing exponentially. And this all from a few-minute delay. In reading its own fills, there is a feedback loop.
That, in turn, caused downstream issues, unsurprisingly. That position quickly became -- it was ridiculous, but it became so large that it had to go to the backstop liquidity providers. At that point that was primarily Alameda.
So the risk engines started passing off thousands, millions, billions, trillions of dollars in effectively erroneous fills to Alameda's account. That, in turn, caused Alameda's account to go under water because of the positions it was being handed in the trillions of dollars and triggered a potential liquidation of Alameda's account which in turn, because there was no backstop liquidity provider, would go to the final phase of the risk engine, which was the phase we always tried to minimize and hope to avoid, which was socializing losses on all of the customers of the platform.
MR. COHEN: Was there a name for what happened?
SAMUEL BANKMAN-FRIED: So the auto deleveraging was a name for liquidations effectively closing it down, and then clawbacks was the name for what was going to happen to most or all of the users on the platform.
MR. COHEN: And what was your reaction --
JUDGE KAPLAN: Excuse me for just a clarification.
You used the term realized probably more than once. This was all an automated process, is that correct?
SAMUEL BANKMAN-FRIED: That is correct.
JUDGE KAPLAN: There were no human beings making decisions along the way of what you have described.
SAMUEL BANKMAN-FRIED: That is correct.
JUDGE KAPLAN: Go ahead.
MR. COHEN: Thank you, your Honor.
MR. COHEN: What was your reaction to this auto deleveraging event?
SAMUEL BANKMAN-FRIED: Well, it was potentially very bad for the platform. The whole thing shouldn't have happened in the first place. It should have been a routine liquidation of, I think, thousands of dollars of an account with no large downstream events, but it grew into a ridiculous set of erroneous trades that ultimately would claw back funds from the entire platform's users. That would be catastrophic for the platform and for its customers.
Once we have realized, once the humans realized what was really happening, we shut it down. We unwound all of the sort of trades that never should have happened in the first place. It was still a really inconvenient event for everyone involved. The exchange was basically unusable for an hour as we dealt with all of this. And it was scary.
This was something which presented systematic risk to the entire system and all of its platforms. We addressed the specific problems there by increasing the number of servers, of computers that we devoted to the risk engine so that it wouldn't fall behind again. That was what triggered this in particular. But it exposed a larger concern as well, which was that if there was a liquidation of Alameda's account or of any other account of that size on the platform, although at the time Alameda was the only one.
MS. SASSOON: Objection.
JUDGE KAPLAN: What's the objection?
MS. SASSOON: Nonresponsive to the question at this point.
JUDGE KAPLAN: Finish your answer, please. Overruled. A. That if there were an erroneous liquidation of Alameda, it would have disastrous consequences for the platform and its users. I had a conversation with --
JUDGE KAPLAN: I think let's stop there.
Next question.
MR. COHEN: Yes. Thank you, your Honor. That was my thought as well.
MR. COHEN: You mentioned a few times in the last answer we.
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: Who were you referring to?
SAMUEL BANKMAN-FRIED: Myself, Gary, and Nishad were involved in understanding what happened here.
MR. COHEN: Did there come a time when you spoke with Gary and Nishad about any steps that were necessary to prevent this from happening again?
MS. SASSOON: Objection. Leading.
JUDGE KAPLAN: Overruled.
MR. COHEN: Can you tell us about that conversation.
SAMUEL BANKMAN-FRIED: Yeah. Immediately after this --
JUDGE KAPLAN: I'm sorry. Rephrase the question.
MR. COHEN: What did you discuss?
JUDGE KAPLAN: Rephrase the question.
(Continued on next page)
BY MR. COHEN:
MR. COHEN: Can you please tell us what you said to Gary and Nishad in that conversation.
SAMUEL BANKMAN-FRIED: Yeah. In addition to addressing the particular problem at hand here, I said that we should have some system in place to catch or stop erroneous liquidations of Alameda's account, and that maybe it would be an alert or a delay or something of that form.
MR. COHEN: And what happened after that?
SAMUEL BANKMAN-FRIED: They——I was told by them that they had implemented some feature of that sort.
MR. COHEN: Do you know what that was?
SAMUEL BANKMAN-FRIED: At the time I couldn't have told you the details of it or its name. I now believe I know what that feature was.
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: "Allow Negative."
MR. COHEN: Did you ever hear the term "delay liquidation"?
MR. COHEN: What did that mean to you?
SAMUEL BANKMAN-FRIED: Delayed liquidation was a——a concept whereby for an account on FTX, especially a large account, where there would be significant market distress if there were a liquidation, that rather than immediately liquidating it, if the collateral started to drop in value, we would effectively send out alerts, prompt that user to deposit more collateral or manage the risk themselves, and then after some period of time, if that hadn't happened, that we would move forward and liquidate the account.
MR. COHEN: Did the topic of delayed liquidation come up in your conversations with Gary and Nishad?
SAMUEL BANKMAN-FRIED: Yes, it did.
MR. COHEN: What did you say to them?
SAMUEL BANKMAN-FRIED: So at the time in 2020, that was roughly the feature that I was proposing in some sense was, you know, to be implemented, and it came up later on in 2022 as well.
MR. COHEN: Okay. Just quickly going back for a moment, you told us that in Alameda's role as a customer, when it borrowed off the exchange, there were no restrictions on the use of the funds. Do you recall that, sir?
MS. SASSOON: Objection.
JUDGE KAPLAN: Sustained.
MR. COHEN: Were there restrictions on other customers' use of funds when they borrowed off the exchange?
JUDGE KAPLAN: So Mr. Bankman-Fried——
SAMUEL BANKMAN-FRIED: Yeah.
JUDGE KAPLAN: ——did "borrow off the exchange" mean, for example, a customer going to Chase Manhattan and taking out a loan or did it mean something else?
SAMUEL BANKMAN-FRIED: Sorry. It meant the following: It meant that if a customer had some sort of collateral or security for their FTX account, they could borrow assets from——from FTX, so go negative in those assets, withdraw them to their personal bank account or——or wallets, and at that point FTX lost track of those assets.
JUDGE KAPLAN: Thank you.
Go ahead.
MR. COHEN: Thank you, your Honor.
BY MR. COHEN:
MR. COHEN: You spoke earlier about a line of credit. Do you recall that, sir?
MR. COHEN: Okay. When Alameda first began on the exchange, did you know what the line of credit was, the total?
SAMUEL BANKMAN-FRIED: Sorry. When Alameda first began trading on the exchange?
MR. COHEN: Yeah. Yes, sir.
SAMUEL BANKMAN-FRIED: I'm not aware that there was——if there was a line of credit on the very inception of Alameda trading on the exchange.
MR. COHEN: Fair enough. When it began to have a line of credit.
SAMUEL BANKMAN-FRIED: I'm——I was aware of roughly the amount that it was utilizing, or the amount that it was borrowing. I was not aware of if there was a clear, like, maximum and if so, what that was.
MR. COHEN: What was your awareness about the amount it was using?
SAMUEL BANKMAN-FRIED: So it grew over time as FTX and Alameda grew. It was millions in 2019, it grew to hundreds of millions, and then by 2022, my understanding was that it was around $2 billion on average of borrowing through the info@ account.
MR. COHEN: And did there come a time when you had a discussion with Gary and Nishad about Alameda hitting its line of credit?
MS. SASSOON: Objection, leading.
JUDGE KAPLAN: Sustained.
MR. COHEN: Did there come a time when you had any discussions about Alameda's line of credit increasing?
MR. COHEN: Who were those with?
SAMUEL BANKMAN-FRIED: I remember those being with Gary and Nishad.
MR. COHEN: Okay. Tell us what you said, sir.
SAMUEL BANKMAN-FRIED: There were a few instances in which Alameda would have out so much in open orders as the scale of the exchange was growing that it ran out of collateral, of credit.
MS. SASSOON: Objection, your Honor. The question was: "Tell us what you said."
JUDGE KAPLAN: Sustained. The answer is stricken. The jury will disregard it.
MR. COHEN: Just tell us what you said to Gary and Nishad.
SAMUEL BANKMAN-FRIED: I said that it was potentially quite destructive for the platform if all of Alameda's orders got canceled at once and it wasn't able to send further orders because that would mean that customers who came onto the platform wouldn't have anything to trade against, and furthermore, that the risk engine might end up getting whacky prices for various assets, if an order were cleared out entirely, it wouldn't be able to figure out what a Bitcoin was worth and so might liquidate people when it shouldn't, and that as such, as long as Alameda was still maintaining a positive net value on the——on the exchange and the scale of borrowing was reasonable, that it probably made sense to increase the line of credit such that it would be able to continue providing orders.
MR. COHEN: And do you know what happened after this conversation?
SAMUEL BANKMAN-FRIED: My understanding at the time was that they implemented some feature to address that. I believe now that what that was was increasing the maximum size drawable of info@'s line of credit.
MR. COHEN: Okay. Now let's move forward, Mr. Bankman-Fried.
MR. COHEN: If we could call up GX 817 in evidence.
MR. COHEN: And just to orient us, this is a chain from July 31, 2019. Someone named Bitshine asks you the question: "How are you going to resolve the conflict of interest of running your own derivative exchange, AND actively trading against the market at the same time?"
And if we could drop down to your answer, you say: "Alameda is a liquidity provider on FTX but their account is just like everyone else's. Alameda's incentive is just for FTX to do as well as possible; by far the dominant factor is helping to make the trading experience as good as possible."
Do you recall this exchange, sir?
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: So what did you mean by "Alameda is a liquidity provider on FTX but their account is just like everyone else's"?
SAMUEL BANKMAN-FRIED: I was responding to Bitshine's question, which I interpreted to be about front running. I understood him to be concerned about scenarios whereby Alameda would have access to customer orders, so information about what trades people were doing on FTX, would look at those trades, and would find a way to jump ahead of them, to do front runs on those customers, thus doing the trades they wanted to do before they could——the customers could do those trades, and causing the customers to get worse prices on those trades, or other similar types of concerns. And that was not something that I ever intended or thought Alameda would do on——on FTX or, frankly, any other platform. And I wanted to reassure Bitshine that that was the case.
MR. COHEN: Okay. Thank you.
MR. COHEN: We can take that down.
MR. COHEN: Now let's talk about how customers could deposit assets on the exchange. Let's start with: What types of assets could they deposit?
SAMUEL BANKMAN-FRIED: They could deposit a number of different assets, chiefly cryptocurrencies or digital assets and fiat currencies, meaning dollars and euros and stuff.
MR. COHEN: Let's start with crypto. How would customers get crypto onto the exchange?
SAMUEL BANKMAN-FRIED: So a customer would create an account on FTX, you know, you'd enter a user name, a password, you would then have to go through a "Know Your Customer" process for compliance reasons, where you would basically give usually a photo of your ID and background information about yourself. You know, presuming you've completed that, if you went to your account page, you would get an address, a blockchain address, where you could deposit a cryptocurrency.
MR. COHEN: And where on the exchange would those assets be placed?
SAMUEL BANKMAN-FRIED: So when a user went to their——to their balances, their account page, what they were given was a deposit address that was unique to them, so that if they sent an asset there, we knew who it was coming from. There's no sender field necessarily on those transfers, but we need to know which customer to credit. So you had your own unique place to send the cryptocurrencies. But we wouldn't store them all in a separate address for each individual user. That would be impractical. That would mean every time there's a trade on the platform, we would need to send a transfer on the blockchain of those assets. If you deposit an Ethereum token and someone else bought that token from you, we'd need to send that token from your address to their address. That cost a few dollars in general, and would have cost millions of dollars a day in fees for customers. So instead what we did is we had an omnibus customer wallet, which meant, in effect, that customers would deposit digital assets and they would then all be transferred to one central customer wallet for that type of address——asset. So we had a customer Ethereum wallet where all——where the net amount of Ethereum tokens that represented customer account balances on the platform would be held.
MR. COHEN: Okay. So when a trade was made involving customers with assets in the omnibus wallet, were funds transferred?
MR. COHEN: So what happened?
SAMUEL BANKMAN-FRIED: It was a database change, effectively. So if Alice bought one Bitcoin from Bob for a thousand dollars, then the computer code would go to the database, it would increase the number of, you know, Alice's Bitcoin balance by one, decrease Bob's Bitcoin balance by one, and conversely, it would increase Bob's dollar balance by a thousand and Alice's decreased by a thousand.
MR. COHEN: Now——
JUDGE KAPLAN: Again, a clarification.
MR. COHEN: Yes.
JUDGE KAPLAN: The question was directed to whether funds were transferred. Am I correct or not correct in inferring that your answer actually related to digital assets rather than money——
SAMUEL BANKMAN-FRIED: My answer——
JUDGE KAPLAN: ——fiat money?
SAMUEL BANKMAN-FRIED: So my answer for that particular question about funds being transferred actually applied to both. Neither digital assets nor fiat assets were physically transferred when a trade happened on the platform. The answer about how deposits worked was specific to digital assets.
JUDGE KAPLAN: Pardon me?
SAMUEL BANKMAN-FRIED: My earlier answer about how deposits worked, how you'd send funds to the platform, was specific for digital assets, not for fiat assets.
JUDGE KAPLAN: I think you'd better clarify, Mr. Cohen.
BY MR. COHEN:
MR. COHEN: Okay. Let's trace through the digital assets again, sir.
SAMUEL BANKMAN-FRIED: Yup. All right.
MR. COHEN: So the question was: When a trade happened——
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: ——with respect to digital assets——
SAMUEL BANKMAN-FRIED: All right.
MR. COHEN: ——were actual funds transferred——
SAMUEL BANKMAN-FRIED: Understood. No.
MR. COHEN: ——as the judge suggested?
SAMUEL BANKMAN-FRIED: The answer is no, and if you instead take a situation where a Bitcoin would trade for five Ethereum, for instance, both of which are digital assets, there's no movement of digital assets when that trade happened. We would just go to the database and update the balances of both of the users involved in the trade so that we'd remember that that trade had happened and so that their own balances page would correctly reflect that the new user now had the Bitcoin and the other user had the Ethereum, because they just swapped.
MR. COHEN: And just following up, when the transaction involved fiat——we'll talk about fiat in a moment——
SAMUEL BANKMAN-FRIED: Right.
MR. COHEN: ——but were actual funds transferred?
SAMUEL BANKMAN-FRIED: No. Funds were not transferred either in that case either when a trade happened.
MR. COHEN: Now were FTX's own corporate assets stored in the omnibus wallet?
SAMUEL BANKMAN-FRIED: No, they were not.
MR. COHEN: Can we take a look at Government Exhibit 914A in evidence.
MR. COHEN: Mr. Bankman-Fried, this is your testimony before the U.S. Senate Committee on Agriculture from February 2022. Do you recall that, sir?
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: Okay. Let me call your attention, Brian, to page 11, in the second paragraph. If you just highlight the last sentence.
MR. COHEN: You said, "Additionally, as a general principle, FTX segregates customer assets from its own assets across our platforms."
What did you mean by that, sir?
SAMUEL BANKMAN-FRIED: Yeah, so what that——that meant, essentially, was that for digital assets, we would have an omnibus wallet that represented the net customer holdings on the exchange, but the profit that FTX as a company had made wouldn't be there. And in terms of banks, at least by 2022, we had separate bank accounts where net customer assets would be held versus where, again, FTX's profit would be held. So, you know, FTX had about a billion or two, depending on when you're measuring it, in——in, you know, in revenue. That would be held in corporate or operating bank accounts, which were separate from where the——where customer——net customer assets would be held, and then same thing for blockchain wallets.
MR. COHEN: Okay. We can take this down.
MR. COHEN: Now we talked about how to deposit crypto onto the exchange. How did customers deposit fiat currency onto the exchange?
SAMUEL BANKMAN-FRIED: Yeah. So that, there were a number of routes, and it changed over time. Originally, in 2019——really in 2020 I think is when this program started——FTX had not yet been able to get bank accounts in its own name. It had applied, it was going through that process with banks, but we anticipated that it would take a year or two for it to actually be able to open up a bank account. And in the interim, a lot of our customers wanted to be able to wire money to the exchange, to send dollars in in order to buy Bitcoins. We had a few third-party payment processors we worked with——MasterCard, PayPal, and others——but for bank transfers, the largest was Alameda. For a period of a year or two, we originally just, in some cases, and ultimately throughout FTX International, gave wire bank account information for an Alameda bank account to customers where they could wire funds in and be credited on FTX to trade.
MR. COHEN: What would they see on their FTX account?
SAMUEL BANKMAN-FRIED: What they would see when they went to deposit is the bank account information of Alameda, or whatever Alameda entity had the bank account, and then if they wired the money in, what they would see is if they wired in a thousand dollars, for instance, they would then see a balance of 1,000 USD on their account page.
MR. COHEN: And who at Alameda handled the incoming deposits to the Alameda account?
SAMUEL BANKMAN-FRIED: There was a settlements team that was——I think Alameda settlements team was five or ten people, and they were in charge of managing the——everything related to Alameda's bank accounts.
MR. COHEN: And you mean settlements with an S, settlements team?
SAMUEL BANKMAN-FRIED: That is correct, yes.
MR. COHEN: Now in 2020, when this began, what was your understanding, Mr. Bankman-Fried, of how, if at all, these funds were being tracked?
SAMUEL BANKMAN-FRIED: I wish I had a better understanding than I did. My understanding at the time was that there were teams that were managing this process and that to whatever extent there was any borrowing, either from those assets or from others, that it would be reflected in Alameda's info@ account.
MR. COHEN: Can you explain that.
SAMUEL BANKMAN-FRIED: Yeah. So the——effectively, when customers wired funds to Alameda Research's bank account, you know, customer wired a thousand dollars there, that customer then had a balance on FTX of 1,000 US dollars, which they could use to buy Bitcoins or use as margin, as collateral for a margin trade, or whatever else they wanted to do on FTX with it. But FTX didn't actually custody those dollars. It didn't have bank accounts to do it with. Alameda did. There were a number of things that could have been happening there that I at the time believed could have been happening there. Alameda could have found a way to transfer those——
MS. SASSOON: Objection.
JUDGE KAPLAN: Ground?
MS. SASSOON: Speculative. There were things that could have been happening, could have, could have.
JUDGE KAPLAN: Mr. Cohen?
MR. COHEN: Let me rephrase, your Honor.
BY MR. COHEN:
MR. COHEN: What did you believe was happening with the funds at the time?
SAMUEL BANKMAN-FRIED: So at the time, I wasn't entirely sure what was happening. What I believed was that either the funds were just being held in a bank account and, you know, not used or removed, or that they were being sent to FTX in one way or another, maybe as stablecoin, or to the extent that those weren't happening and that Alameda was borrowing funds and using them, that that would be reflected as a borrow on Alameda's info@ account; in other words, that that would be——if Alameda was trading with——with funds and ultimately owed those funds back to FTX, which it did in this case, that that would be, like other borrowers, shown as a negative number in Alameda's account on FTX.
MR. COHEN: I'm going to come to this in more detail, but for now, when Alameda began, you were the CEO, correct?
SAMUEL BANKMAN-FRIED: Yes, that's correct.
MR. COHEN: Just for a timing point of view, did there come a time when you ceased to be the CEO?
MR. COHEN: When was that?
SAMUEL BANKMAN-FRIED: That was in the summer, late summer of 2021.
MR. COHEN: Okay. All right. Now did Alameda have something called the pointer system?
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: That was the name for the system Alameda employees would use to do basically everything that they did. So if you wanted to do a trade as an Alameda trader, you would use a pointer web page built by the developers to do that trade. It was just the name for the system that Alameda's developers built.
MR. COHEN: And at FTX was there something called the FTX admin dashboard?
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: So that was a dashboard for FTX employees, built by FTX's developers, which gave employees the ability to do a lot of what they needed to do. So as an example, the admin dashboard had a page that listed recent customer support requests so that the customer support team could look through those, choose ones to respond to, give a response. There was a page that had a list of deposits and withdrawals so that the settlements team could manage those. And there was what we've called the admin users page, where FTX employees could view accounts of customers to help, you know, debug customer support tickets or similar things.
MR. COHEN: So an FTX employee using the admin dashboard could view user accounts.
SAMUEL BANKMAN-FRIED: Yes, that's right.
MR. COHEN: All right. Can we call up Government Exhibit 1475, please.
MR. COHEN: Do you recall seeing this photograph before, Mr. Bankman-Fried?
MR. COHEN: Okay. Now I noticed——well, we can see that you have a number of screens up in front of you. Can you describe for us what those screens related to.
SAMUEL BANKMAN-FRIED: Yeah. I had six screens, generally. I found it really helpful. The——I had different things up on different screens. This is——are you asking about this period of time?
MR. COHEN: I'm asking you about the period of time after you were no longer the CEO of Alameda.
SAMUEL BANKMAN-FRIED: Understood. So in 2022, I would generally have email——I have two things usually per screen, so 12 total things open. I would have email open, I would have Slack open, I would have Signal open, I would have a few websites open, I would have a few FTX admin pages, admin dashboard pages open, I would have some project I was working on——a spreadsheet usually——open, and I would have a spreadsheet that displayed market data open that basically had prices and moved in various currencies open, I also had a few pointer pages which were associated with that spreadsheet generally behind it.
MR. COHEN: And what were you——what did you have up on the pointer system?
SAMUEL BANKMAN-FRIED: So the pointer system was what was actually providing the data for that spreadsheet, so part of the answer is that spreadsheet which showed what is a Bitcoin trading at now, what is Solana, what is Ethereum trading at now, how much have they moved today. Behind that I had a few tabs of the pointer system that I hadn't removed from my auto-open when I opened my computer. The one that I still used occasionally was the fills page.
MR. COHEN: What is a fills page?
SAMUEL BANKMAN-FRIED: A fills page was a scrolling list of all trades that Alameda did. So every time, on any exchange that Alameda bought or sold something, it would appear on that page. I found it useful to get an overall sense of what was happening in the crypto market. Behind that I would have two other pages. I think one was the balances page and I forget what the other one was.
MR. COHEN: If a user had subaccounts, did you have those up on the pointer system?
SAMUEL BANKMAN-FRIED: No. You could have found those. If——sorry. Do you mean if Alameda had subaccounts?
MR. COHEN: Well, yes.
SAMUEL BANKMAN-FRIED: Yes. So I——you could have searched for those on the balances page, but I——I didn't have that——have those open and displayed by default.
MR. COHEN: Okay. We can take that exhibit down.
MR. COHEN: So my next——I'm going to move forward, Mr. Bankman-Fried. My next question is about several categories of assets. We talked about spot margin trading and margin, and futures accounts.
MR. COHEN: Let me ask you this: How did FTX safeguard customer assets involved in spot margin trading?
SAMUEL BANKMAN-FRIED: So there were a few different pieces to that. One was around physical security of those assets against hacking attempts. The one that came up more was around the risk management system.
MR. COHEN: Can you explain that.
SAMUEL BANKMAN-FRIED: So a lot of that was the risk engine that we had talked about that would monitor user accounts. The risk that it was designed to prevent was a user account where the——basically assets could no longer repay the liabilities, and that that would cause a loss to the system, and if FTX couldn't fill it, it would be socialized to other users. We felt at the time that we had built a better risk management system than other exchanges. It was something we put a lot of thought and time into, how a risk engine worked, and that as such, we hoped that we would reduce clawbacks and ideally avoid them entirely. We had not had a clawback ever to that point. There had been some small losses from accounts. FTX was able to cover those. That was the——that was the goal of the risk management system.
MR. COHEN: And was there a difference between spot margin and the margin used, for example, on futures trading?
SAMUEL BANKMAN-FRIED: Yes and no. There——they were financially somewhat similar. In general, if you deposit a hundred dollars and then buy $500 of Bitcoin with that, that's very similar to if you deposited a hundred dollars and bought $500 of Bitcoin futures with that. The financial difference is that at some point in time that future would expire and it would just turn into however many dollars the Bitcoin was worth then, whereas the Bitcoin wouldn't expire ever. And there were few other technological differences. The margin system treated them as fairly similar.
MR. COHEN: And talking about fiat balances, which we just were discussing, what steps, if any, did FTX take to safeguard those?
SAMUEL BANKMAN-FRIED: So to the extent that they were involved in margin trading, or futures trading, the answer is the same as for safeguarding digital assets involved in that trading. There weren't the same concerns around blockchain hacking attempts for wallets because dollars weren't on the blockchain, but we had, you know, settlements team that was managing the bank accounts.
MR. COHEN: Okay. Did FTX have terms of service with its customers?
MR. COHEN: Okay. Can we call up GX 558, please, in evidence.
MR. COHEN: Take a moment to go through this, Mr. Bankman-Fried, and let me ask you if you recognize it.
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: Okay. What is it?
SAMUEL BANKMAN-FRIED: This is the FTX terms of service that were created in May of 2022.
MR. COHEN: Okay. Did you ever have occasion to review these?
SAMUEL BANKMAN-FRIED: I did.
MR. COHEN: Okay. Do you know about when you did that?
SAMUEL BANKMAN-FRIED: I skimmed it over a few times. I went through parts of it in more detail after its release.
MR. COHEN: If we could go to page 17, please.
Back one page. I'm sorry.
MR. COHEN: Do you see Section 16?
MR. COHEN: If you could call that out, Brian.
MR. COHEN: That refers to margin trading. Was this one of the provisions that you reviewed?
MR. COHEN: Okay. And now continuing to the next page. 16.4, if you can call out that paragraph.
MR. COHEN: Without me reading the entire thing to you, sir, can you tell the jury what your understanding of this provision was.
SAMUEL BANKMAN-FRIED: Yeah, my understanding was that this was referring to two different features of the platform, not features as a necessarily positive connotation, but the first was the risk of liquidations. When it talks about, you know, liquidating your position, that's——that's referring to the risk that if your assets fell in value, FTX might sell off your positions to reduce risk in your account. The second part of this is talking about clawbacks, or socialized losses, when it says that even if you haven't suffered any losses yourself, your balance might be clawed back if other users had losses, in particular losses large enough that they created a hole in the system.
MR. COHEN: Okay. And can we continue on to page 35. And blow that up.
MR. COHEN: It says Service Schedule. Futures Market. Do you see that, sir?
MR. COHEN: And again, without having to read through the whole thing, what was your understanding of what Schedule 5 provided for?
SAMUEL BANKMAN-FRIED: Yeah. My understanding was this provided terms that were specific to futures trading rather than spot trading.
MR. COHEN: Okay. And did it have the same provisions relating to clawback you just discussed?
SAMUEL BANKMAN-FRIED: Yeah. My memory is it actually just ref——it referenced the margin trading provisions.
MR. COHEN: Okay. Good.
MR. COHEN: All right. If we could go to the middle of that page, where it says Important.
MR. COHEN: Okay. If you can just read the first sentence.
MR. COHEN: Brian, if you could highlight that. Above, above, next to Important.
MR. COHEN: Is this what you were referring to, Mr. Bankman-Fried?
SAMUEL BANKMAN-FRIED: Yes. That's what I was referring to.
MR. COHEN: Okay. We can take that down.
MR. COHEN: Let me move forward, Mr. Bankman-Fried. Are you familiar with something called FTT?
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: FTT is a token that was created and issued by FTX around the time of its launch. It's what's called an exchange token.
MR. COHEN: Okay. What was the purpose of FTT?
SAMUEL BANKMAN-FRIED: The purpose of FTT was for——to be a——a token that users of FTX could buy and trade if they wanted, that would give their account benefits if they held it, and where they would benefit if FTX had success.
MR. COHEN: And more generally——let me step back——did other exchanges issue tokens?
SAMUEL BANKMAN-FRIED: Yeah. Most of the non-American crypto exchanges issued tokens.
MR. COHEN: Can you give us an example.
SAMUEL BANKMAN-FRIED: Binance issued BNB, for instance, which is Binance's exchange token.
MR. COHEN: And how did Binance compare in size to other exchanges?
SAMUEL BANKMAN-FRIED: Binance was——when FTX first started, it was one of the five largest exchanges. By 2022, it was by far the largest exchange.
MR. COHEN: And who created FTT?
SAMUEL BANKMAN-FRIED: I mean, FTX did. So——and I guess you could say myself and Gary and, you know, the other early employees.
MR. COHEN: Okay. Did you ever hear the term "buy and burn"?
MR. COHEN: Can you explain to us what that meant.
SAMUEL BANKMAN-FRIED: Yeah. So one of the key features of FTT was the buy and burn. What that refers to is every week, FTX would take 1/3 of the——of the money that it had made that week and use it to buy up FTT tokens and then——and then burn them, similar to a share buyback. So if, for instance, FTX had $3 million of revenue in a week, it would take 1 million of those dollars and use that to buy FTT tokens in the market, effectively giving value to FTT token holders.
MR. COHEN: Have you ever heard the term "white paper"?
MR. COHEN: What's that?
SAMUEL BANKMAN-FRIED: It's a term that——at least I've heard it in the context of the cryptocurrency industry, where, when someone is going to launch a token or some other project, they will often write a explainer on what they intend that to be. It's called a white paper. It's usually sent out to early users or investors.
MR. COHEN: And was a white paper prepared in connection with FTT?
MR. COHEN: Who prepared it?
SAMUEL BANKMAN-FRIED: Myself and others at FTX at that time, which was right around when it was being founded.
MR. COHEN: Okay. Can we call up DX 006 for identification, just for the witness.
MR. COHEN: Take a moment to go through it, sir.
MR. COHEN: What is it?
SAMUEL BANKMAN-FRIED: That is the FTT white paper.
MR. COHEN: The defense offers Exhibit 6, not for its truth.
MS. SASSOON: No objection.
JUDGE KAPLAN: Received. Not for its truth.
(Defendant's Exhibit 6 received in evidence)
MR. COHEN: Now did FTT trade on the FTX exchange?
MR. COHEN: Did it only trade on the FTX exchange?
SAMUEL BANKMAN-FRIED: No. Originally it primarily traded on FTX, but by 2022, it was listed on almost every non-American exchange.
MR. COHEN: Like Binance?
SAMUEL BANKMAN-FRIED: Yup, like Binance, Huobi, OKX, and others.
MR. COHEN: And how was the price for FTT determined?
SAMUEL BANKMAN-FRIED: Just the market price, whatever price it was trading at across those exchanges.
MR. COHEN: Right. Were you familiar with the price of FTT?
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: Were you familiar with the price of FTT in 2022?
SAMUEL BANKMAN-FRIED: Yeah. I obviously don't remember every day's price, but I remember the high level.
MR. COHEN: Let me step back. This white paper that you prepared——
MR. COHEN: Oh, can we publish it, your Honor? I'm sorry. Exhibit 6.
It's as if I heard a voice telling me to publish it. Okay.
MR. COHEN: Was this white paper published anywhere?
SAMUEL BANKMAN-FRIED: I——it was on FTX's website, yeah.
MR. COHEN: Okay. All right. Now let's call up DX 1096 for identification.
Okay. Just for the witness.
MR. COHEN: Can you tell us what this is, Mr. Bankman-Fried.
SAMUEL BANKMAN-FRIED: Yeah. This is a graph of the price of FTT over the course of 2022.
MR. COHEN: And in the upper left-hand corner, it refers to CoinMarketCap. What was that?
SAMUEL BANKMAN-FRIED: Yeah. That is one of the two premier websites for crypto pricing information. CoinGecko was the other one.
MR. COHEN: The defense offers DX 1096.
MS. SASSOON: One moment, your Honor.
No objection.
JUDGE KAPLAN: Received.
(Defendant's Exhibit 1096 received in evidence)
MR. COHEN: Mr. Bankman-Fried, I don't want to go through every——
MR. COHEN: Well, can we publish it to the jury. Excuse me.
JUDGE KAPLAN: Yes.
MR. COHEN: Okay. I don't want to go through every up and down in the chart, but as a general matter, what does this chart reflect?
SAMUEL BANKMAN-FRIED: This reflects the price of FTT. And I think I misspoke. It's not just——oh, no, it is, yeah, I think just of 2022, looking at the——the bar down at the bottom. It shows that FTT was trading between 20 and $60 over the course of the year of 2022.
MR. COHEN: What was FTT's market cap? Well, let me back up.
What does the phrase "market cap" mean to you?
SAMUEL BANKMAN-FRIED: Yeah. Market cap is the total value of a token project, so if you——the value of all of the tokens put together, what it would cost to buy, you know, all——all of a token if the price didn't change.
MR. COHEN: And if you know, what was FTT's market cap in 2022?
SAMUEL BANKMAN-FRIED: It fluctuated, but it was generally around $10 billion.
MR. COHEN: Now we can take that down.
MR. COHEN: When FTX entered into transactions with other companies, other crypto companies, would they accept FTT as payment?
SAMUEL BANKMAN-FRIED: Yeah, they sometimes would.
MR. COHEN: Okay. Do you recall a time that FTX bought out shares from Binance, that Binance owned?
SAMUEL BANKMAN-FRIED: Yeah. I recall a time when we bought out the Binance's shares of FTX.
MR. COHEN: I'd better give some foundation.
Did Binance invest in FTX to begin with?
SAMUEL BANKMAN-FRIED: Yeah, they were FTX's first investor.
MR. COHEN: And how much did they invest?
SAMUEL BANKMAN-FRIED: They invested——well, they invested using BNB as the primary form of their investment. At the time they invested, it was about $80 million worth.
MR. COHEN: Okay. Did there come a time that FTX bought back the shares?
SAMUEL BANKMAN-FRIED: I don't know that FTX was the entity that bought back the shares, but there did come a time when I bought back those shares, yes.
MR. COHEN: So FTX arranged for payment to Binance, correct?
MR. COHEN: And what forms of payment did that include?
SAMUEL BANKMAN-FRIED: It was split between FTT, BNB, and US dollars, or stablecoin.
MR. COHEN: Okay. Now let me call your attention to mid-2021. Did there come a time that Binance began to sell the FTT it had received?
SAMUEL BANKMAN-FRIED: That's what we——we believed was happening, yes.
MR. COHEN: Did you have discussions with anyone about that?
MR. COHEN: Who did you have discussions with?
SAMUEL BANKMAN-FRIED: I had discussions in a group I know that Caroline——Caroline Ellison, Sam Trabucco, and Ben Xie were in that group. I'm not sure if other people were as well.
MR. COHEN: Okay. And why don't you tell us what you said in those discussions.
SAMUEL BANKMAN-FRIED: I said that in general, it was my understanding that especially for things that Alameda was a large market maker in, it would try to buy low and sell high, and so if there was a significant decrease in price, that it would often try and buy after that decrease, and if there was a significant increase, it would often try and sell to that increase. I remember asking if Alameda was buying FTT, if and when the price decreased due to Binance's selling, and if so, you know, at what price point Alameda thought it would be a good trade to start buying.
MR. COHEN: Did you ever hear the term "market manipulation"?
MR. COHEN: When did you first hear that?
SAMUEL BANKMAN-FRIED: I first at least substantively heard it when I was a trader at Jane Street.
MR. COHEN: And what did you learn then?
SAMUEL BANKMAN-FRIED: It was a term that was used to refer to a variety of practices that were effectively traders trying to do trades they would not otherwise want to do——bad trades——for the purpose of changing the price of some asset.
MR. COHEN: You said something——you referred to something called a "bad trade."
MR. COHEN: What does that mean?
SAMUEL BANKMAN-FRIED: Right. So any trade that anyone ever does is——may change the price of that asset. If you buy Apple stock, probably that at least marginally increases the price of Apple stock. It's supply and demand. The more buyers, the higher it trades. My understanding was that in terms of valuating whether a trade was legitimate or whether it was market manipulation, there——the core test was whether it was a trade which, for its own sake, you thought would be profitable, so if you buy an asset and you think you're buying low, you think you're buying lower than you can or will be able to sell it off for, then that is a hallmark of a legitimate trade. If you think you are buying high, that you're going to lose money because you're not going to be able to sell it for as much as you're buying it for but are instead doing it in order to increase the price of an asset, that is the hallmark of market manipulation.
MR. COHEN: And this was——
MS. SASSOON: Objection.
JUDGE KAPLAN: Excuse me, counsel.
Yes. Your objection?
MS. SASSOON: Clarification about this being his opinion and what that's based on rather than opining on the law here.
JUDGE KAPLAN: Exactly.
MR. COHEN: Let me try to follow up, your Honor.
JUDGE KAPLAN: You can follow up when I'm through.
MR. COHEN: I'm sorry. I thought you were.
JUDGE KAPLAN: "Manipulation" is a legal term that has significance, among other places, in the law of securities and commodities, and probably fraud, and you may accept what the witness says as what he thought it meant, without regard to whether what he thought was right or wrong, and if it becomes necessary to instruct you about what "manipulation" means for purposes of this case, you will take what I say as what "manipulation" means.
Counsel, go ahead.
MR. COHEN: Thank you, your Honor.
BY MR. COHEN:
MR. COHEN: This discussion you were just——this answer you were just giving, was that based on a discussion with anyone?
SAMUEL BANKMAN-FRIED: The——actually, it was based on——
JUDGE KAPLAN: Mr. Bankman-Fried, that's a yes or a no.
SAMUEL BANKMAN-FRIED: Oh. Yes.
MR. COHEN: Who?
SAMUEL BANKMAN-FRIED: It was based on my understanding of discussions with traders and managers at Jane Street when I was working there.
MR. COHEN: And then——yes or no——did you discuss this topic with anyone at Alameda?
MR. COHEN: And who did you discuss it with?
MS. SASSOON: Objection. Depending on the answer.
JUDGE KAPLAN: I think you need to narrow the question, counselor.
MR. COHEN: I don't want to——I'm not sure how to respond to a not-yet-interposed objection, but I just want the names of people and not what was said, okay?
MR. COHEN: Did you discuss this topic with anyone at Alameda?
SAMUEL BANKMAN-FRIED: Yes, I did.
MR. COHEN: And what people? Just the names.
SAMUEL BANKMAN-FRIED: I know that I discussed it with Caroline Ellison, Sam Trabucco, and Ben Xie. I likely discussed it with others as well but don't remember the specifics.
MR. COHEN: And just to remind us, who was Ben Xie?
SAMUEL BANKMAN-FRIED: He was the head of trading at Alameda.
MR. COHEN: And who was Sam Trabucco?
SAMUEL BANKMAN-FRIED: He was the——so he was a trader at Alameda. He then became one of the co-heads of trading along with Caroline at Alameda, and then when I stepped down as CEO, he became a co-CEO of Alameda, along with Caroline.
MR. COHEN: Okay. All right. Let's move on, Mr. Bankman-Fried.
Coming into 2021, end of 20, 2021, did FTX experience growth?
MR. COHEN: Can you give the jury a sense of that growth in terms of the number of users, the daily volume, the daily revenue.
SAMUEL BANKMAN-FRIED: Yeah. So the number of users grew from, I mean, one user, obviously, at the very beginning, to, by late 2021, millions of users. The revenue annually grew from 10 or 20 million in 2019 to about 80 million in 2020, to roughly a billion in 2021. That meant a daily revenue of about $3 million by late 2021. And the daily trading volume had grown to 10 to $20 billion of daily trades on the website.
MR. COHEN: When you started FTX in 2019, did you expect this level of growth?
SAMUEL BANKMAN-FRIED: No, absolutely not.
MR. COHEN: Now over time did FTX hire employees?
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: About how many employees did you have by 2021 going into 2022?
SAMUEL BANKMAN-FRIED: We had a few hundred.
MR. COHEN: Okay. And just by category, we already talked about developers and settlements people. Who else did FTX have by category?
SAMUEL BANKMAN-FRIED: So in addition to those categories, there were marketing——there was a marketing team, there was a customer support team, there was a "Know Your Customer" team, compliance team and legal team, and an operations team, and then a number of sort of one- or two-person departments.
MR. COHEN: Okay. You mentioned a "Know Your Customer" team.
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: What did that do?
SAMUEL BANKMAN-FRIED: So whenever a user created an account on FTX, they had to go through what we called a "Know Your Customer" process. This was mandated by various regulatory agencies. And what that meant basically is we needed to know who was trading on the exchange. We had to know what their real name was and have evidence that it was in fact really them. So we would generally ask for something like a photo of their ID or passport, you know, basic background information on themselves. We would look at the IP address they were accessing, the website from which——basically where in the world was their computer, see if that was in line with other things they were saying. We would sometimes ask for a cellphone number. And they would submit this information. We had a team internally then, the "Know Your Customer" team, that would validate, basically, this information, make sure that it looked legitimate. One problem we had sometimes is people photoshopping IDs, effectively. So the "Know Your Customer" team would, themselves and with software that they ran, check to see if the——if everything appeared to be legitimate.
MR. COHEN: You mentioned an operations team.
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: What did they do?
SAMUEL BANKMAN-FRIED: Everything. It was sort of a catchall category for anything that needed to be accomplished that wasn't clearly someone else's responsibility. So that included everything from trying to find a new office to trying to figure out how to transport visitors to and from the office to figuring out how, you know, to open up accounts at service providers, figuring out, translating things for various users, or any other odd tasks that came up.
MR. COHEN: Did FTX at that time have a risk management department?
SAMUEL BANKMAN-FRIED: We sure should have, but no, we did not.
MR. COHEN: Now during this period from 2019 to 2021, can you give us a sense of what kind of hours you were working.
SAMUEL BANKMAN-FRIED: On a light day, I would work 12 hours or so; on a heavy day, 22, roughly. I probably took off one day every couple months.
MR. COHEN: And based on your interactions with Gary and Nishad, did you have a sense of how hard they were working?
SAMUEL BANKMAN-FRIED: I did.
MR. COHEN: And what was that?
SAMUEL BANKMAN-FRIED: Not quite the hours I was working but still quite long hours.
MR. COHEN: Can we call up——actually, we'll do that later.
MR. COHEN: Now you mentioned emails.
MR. COHEN: How many emails would you receive in a typical day?
SAMUEL BANKMAN-FRIED: Thousands.
MR. COHEN: Okay. And how many were in your inbox at a given time?
SAMUEL BANKMAN-FRIED: So I know some people shot for inbox zero. I was shooting for inbox 60,000, roughly. If I could get under 60,000 on my messages, that would be a slightly less overwhelming number. I didn't usually succeed.
MR. COHEN: You mentioned that the company also used Signal to communicate.
MR. COHEN: And I believe people refer to it as being on a Signal channel. Was that correct?
SAMUEL BANKMAN-FRIED: Yeah.
MR. COHEN: Okay. Around this time in the 2021 period, how many Signal channels were you on?
SAMUEL BANKMAN-FRIED: A few hundred, I think.
MR. COHEN: Now did the growth of FTX affect in any way your relationship with Alameda?
SAMUEL BANKMAN-FRIED: Yeah, it did.
MR. COHEN: Okay. Tell us what happened.
SAMUEL BANKMAN-FRIED: In 2017 and 2018, I was running Alameda. I was the CEO. I was in charge day to day, overseeing directly much of its operations. In 2019, I founded FTX. My times began to shift. By 2020, I was spending part of my days at Alameda, part of my days at FTX. So sometimes I was running Alameda, sometimes I was not. I was always running FTX. As FTX grew, it became untenable for me to run both companies at once, at least in a realistic, day-to-day process. So by 2021, I was not involved in a day-to-day manner at Alameda, and, you know, in the summer of that year, I formally handed off the CEO role. There were still some areas of Alameda that I was involved in, including venture investments and including, at least by mid-2022, hedging and risk management.
MR. COHEN: Okay. And who did you turn over Alameda to as CEOs?
SAMUEL BANKMAN-FRIED: Originally it was Caroline Ellison and Sam Trabucco.
MR. COHEN: And why did you ask them to do it?
SAMUEL BANKMAN-FRIED: They had been the second and third in command at Alameda when I had been CEO. They were both very good traders, very smart, capable people. They complemented each other fairly well. In addition, they had complementary strengths, and together I felt like they could make a good team to run the company. And I have——they're the best options I had at the time.
MR. COHEN: You said you viewed them as complementary. In your view how were they complementary? In what ways?
SAMUEL BANKMAN-FRIED: So Caroline was generally regarded as a very good manager. I received very positive reports from people who she managed. They described her as involved, as smart, as empathetic. She was a——she was not a software developer, but for a trader, she was a very good software developer, and so she was relatively good at interfacing with the developer team as well. She was also a——a good trader and very good at doing research for trades, writing mathematical models. That was, you know——those were a bunch of areas of responsibility at Alameda. She had not focused as much on risk management or on sort of unusual trading opportunities or risks. Trabucco focused much more on those areas, had been doing that as trader, and I anticipated would continue to as CEO, as co-CEO.
MR. COHEN: Now did there come a time after they became co-CEOs that Mr. Trabucco stepped away?
SAMUEL BANKMAN-FRIED: Yeah, he formally stepped away in mid-2022, but my understanding was that by shortly after he was named co-CEO, he was drifting away towards what I understood to be effectively early retirement.
MR. COHEN: And that left Ms. Ellison as the sole CEO.
SAMUEL BANKMAN-FRIED: That's right.
MR. COHEN: Did the topic of adding a new co-CEO ever come up with her?
SAMUEL BANKMAN-FRIED: Yes, it did.
MR. COHEN: What did you tell her?
SAMUEL BANKMAN-FRIED: I suggested——I believe she——there was at least one time I can specifically remember with her, whether she would want Ben Xie as a co-CEO for the company.
MR. COHEN: And Ben Xie was a trader at Alameda?
SAMUEL BANKMAN-FRIED: Yeah, and at the time he was the head of trading at Alameda.
MR. COHEN: Okay. And what happened?
SAMUEL BANKMAN-FRIED: She rejected the idea and that was——that was that.
MR. COHEN: Okay. You said that you remained involved in Alameda, I believe you said in venture investments.
MR. COHEN: In any other area did you stay involved after the transition?
SAMUEL BANKMAN-FRIED: Well, to some extent, and ultimately to a fairly significant extent, in risk and hedging.
MR. COHEN: Okay.
SAMUEL BANKMAN-FRIED: There may have been a few other areas I'm forgetting as well, but those are the main ones.
MR. COHEN: Why did you stay involved?
SAMUEL BANKMAN-FRIED: I was an owner, I was the largest owner, of the company. I cared about how well it did. And especially with Trabucco stepping back, it was an overwhelming job for any one person, and I felt that Caroline was doing quite well at many areas but that there were some areas that it was important that she have help and support and was concerned about how things would go otherwise. There were also areas, particularly in the ventures space, where it was complementary to what I was doing at FTX.
MR. COHEN: Your Honor, this might be a good time for our lunch break.
JUDGE KAPLAN: I'd like to continue for a while.
MR. COHEN: Okay. Thank you.
JUDGE KAPLAN: Give me an idea of how much longer you expect to be.
MR. COHEN: Well, that's one of the things I want to calculate over the lunch break in light of some of the rulings we've been talking about, so——
JUDGE KAPLAN: Well, you may have less to calculate over lunch if we have lunch a little later.
MR. COHEN: Okay. I will do whatever your Honor wants.
JUDGE KAPLAN: Thank you.
(Continued on next page)
MR. COHEN: Mr. Bankman-Fried, let's move forward.
Did there come a time that you moved FTX from Hong Kong?
JUDGE KAPLAN: I'll tell you what, Mr. Cohen. We will break now.
But 1:30 sharp, folks.
MR. COHEN: Thank you, your Honor.
(Luncheon recess)
AFTERNOON SESSION 1:30 p.m.
JUDGE KAPLAN: What's the latest estimate, Mr. Cohen?
MR. COHEN: Yes. Your Honor, I believe that I will be finished on Monday morning.
JUDGE KAPLAN: When on Monday morning?
MR. COHEN: I don't anticipate going through lunch. Depends on how fast we go this afternoon, but couple of hours Monday morning at the most, I think, your Honor.
JUDGE KAPLAN: OK. Let's get the jury.
(Jury present)
JUDGE KAPLAN: The defendant and the jurors all are present.
The witness is reminded he is still under oath.
Let's proceed, Mr. Cohen.
MR. COHEN: Thank you, your Honor.
BY MR. COHEN:
MR. COHEN: Mr. Bankman-Fried, let's move forward in time. Did there come a time when FTX left Hong Kong?
SAMUEL BANKMAN-FRIED: Yeah. In late 2021.
MR. COHEN: Why did you leave Hong Kong?
SAMUEL BANKMAN-FRIED: There were multiple reasons. The two largest: One was that we were looking for a location where we could be fully licensed where there was a local regulator that would oversee FTX. We had been hoping that Hong Kong would be that location. There had been lots of announcements that I had seen about upcoming crypto regulatory framework overhauls. Those hadn't come in the way that we were expecting, and it was becoming more and more important for us to be in such location.
In addition, there were domestic issues in Hong Kong at that time that caused us to at least be looking for potential new homes.
MR. COHEN: What domestic issues?
SAMUEL BANKMAN-FRIED: Two chiefly. The first was COVID. We were in Hong Kong from 2018 through 2021. And in response to COVID-19, Hong Kong had a quarantine policy whereby anyone, including a permanent resident or a citizen, entering the city had to quarantine for three weeks in a hotel room before they could get in. That made job interviews basically impossible. If we are trying to hire people, no one wants to go for a one-day job interview complete with a three-week quarantine in a hotel. And it made employees unhappy because they could never leave, effectively. And there were domestic disputes with China around that time that was also causing a pretty large drag on quality of life in the city.
MR. COHEN: Where did you end up going?
SAMUEL BANKMAN-FRIED: In the end we moved to the Bahamas.
MR. COHEN: Why did you pick the Bahamas?
SAMUEL BANKMAN-FRIED: There was a pretty short list of countries that had actually rolled out full regulatory frameworks for crypto exchanges, especially countries that could regulate a crypto derivatives or margin exchange. To my memory, there were a single-digit number of countries with a framework that we found sort of suitable, and we looked into all of those different countries, into the merits of them. We had employees go check out each of them.
And at the end of the day the employees who checked out the Bahamas came back with very positive stories about what it would be like if we moved there. I took a trip there in the fall of 2021 and agreed.
MR. COHEN: What was the nature of the regulatory system in the Bahamas?
SAMUEL BANKMAN-FRIED: The head regulator in the Bahamas --
MS. SASSOON: Objection.
JUDGE KAPLAN: Sustained.
MR. COHEN: When you moved to the Bahamas, Mr. Bankman-Fried, where did you end up living?
SAMUEL BANKMAN-FRIED: I lived in Albany.
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: It was a housing complex and also vacation spot in New Providence, Nassau, which is the main island.
MR. COHEN: How did you come to live there?
SAMUEL BANKMAN-FRIED: When I first moved to the Bahamas, I lived in a different place on the other side of the island called One Cable Beach. After I think about a month there or so, a number of other employees had moved to Albany. That seemed to be the center of where the company was congregating. I checked it out. It had a lot of good housing, enough for myself and for a lot of the company. So I moved there with a few other colleagues.
MR. COHEN: How many people did you end up living with?
SAMUEL BANKMAN-FRIED: First, I was living with two other people, with Adam Yedidia and Andrea Lincoln in one apartment there. After another month or so, we moved into a larger apartment for ten of us.
MR. COHEN: You mentioned Andrea Lincoln. Who was she?
SAMUEL BANKMAN-FRIED: She at the time -- she was Adam's fiance at the time, now wife. She was someone who I had met at MIT. She was in one of my math classes and started dating Adam at the time, and she would later become a developer at FTX.
MR. COHEN: You mentioned you ended up living with ten people. Who were they?
SAMUEL BANKMAN-FRIED: It was myself; Caroline; Adam and Andrea; Gary and his partner, Cheryl; Nishad and his partner, Claire; Ross and Lela.
MR. COHEN: Who were Ross and Leila?
SAMUEL BANKMAN-FRIED: Leila was a developer at FTX. Ross worked for the FTX charitable arm.
MR. COHEN: Why did you end up living ten together?
SAMUEL BANKMAN-FRIED: It replicated the living experience to some extent that we had in college, which I had really liked and enjoyed, where a group of us were living together. It also served as an office away from the office, a place where much of the management of FTX lived in that apartment. It gave us a good spot to hang out, to chat after work, and to host other employees.
MR. COHEN: Let's pull up GX-1642, please. It's in evidence.
MR. COHEN: Do you see that, sir?
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: That's a photograph with you holding a deck of playing cards.
MR. COHEN: Why did you hold playing cards?
SAMUEL BANKMAN-FRIED: I sort of compulsively fidget with things, with my hands. For a while I would have decks of playing cards by me. I started doing that in college. I would go through a deck every week or so before the cards would get worn out. I later transitioned to fidget spinners.
MR. COHEN: Did you play poker?
SAMUEL BANKMAN-FRIED: No. I hadn't played for many years.
MR. COHEN: Did you ever go to Las Vegas?
MS. SASSOON: Objection, your Honor.
JUDGE KAPLAN: Sustained.
MR. COHEN: We can take 1642 down.
MR. COHEN: Now, I think you mentioned -- let me ask it this way.
Did there come a time that you had a romantic relationship with Ms. Ellison?
SAMUEL BANKMAN-FRIED: Yes, I did.
MR. COHEN: What was the timing of that relationship?
SAMUEL BANKMAN-FRIED: We began dating in 2020, and we dated on and off for about two years.
MR. COHEN: When did you break up?
SAMUEL BANKMAN-FRIED: Our final breakup was in the spring of 2022.
MR. COHEN: What was the reason for the breakup?
SAMUEL BANKMAN-FRIED: I didn't have the time or the energy to put in what I think she wanted from our relationship. It wasn't the first time that I had that problem. From a combination of my working hours, but also it's not something I have been great at as a person historically being able to sustain romantic relationships for long periods. I think my understanding was that she wanted more from it than I was able to give.
MR. COHEN: Please answer this question yes or no. Yes or no, would you have philosophical conversations with her?
MR. COHEN: Yes or no. This is not -- just answer as to the person.
JUDGE KAPLAN: I'm sorry. Maybe start that one again, please.
MR. COHEN: I am trying to keep this very tight, your Honor.
MR. COHEN: As to those conversations, who would initiate them?
SAMUEL BANKMAN-FRIED: Generally, she would.
MR. COHEN: Without giving any of the substance, what would be the nature of the conversations?
SAMUEL BANKMAN-FRIED: Generally, she would stake out a position on some philosophical topic, usually a contrarian one, and we would debate it.
MR. COHEN: Now, before we move on, you mentioned there was a time when you stepped down as CEO of Alameda.
Do you recall that, sir?
MR. COHEN: Ms. Ellison and Mr. Trabucco became co-CEO?
MR. COHEN: Then Ms. Ellison.
MR. COHEN: You remained an owner?
MR. COHEN: Did you receive any reporting from Ms. Ellison?
SAMUEL BANKMAN-FRIED: I did.
MR. COHEN: What kind of reporting did you receive?
SAMUEL BANKMAN-FRIED: In addition to sort of unofficial or scattershot things as scenarios arose, the standard thing that I would get would be balance sheets from her periodically.
MR. COHEN: Would you get other financial documents as well?
SAMUEL BANKMAN-FRIED: Yeah. I would get associated documents to those balance sheets.
MR. COHEN: Did you receive them on a regular basis?
SAMUEL BANKMAN-FRIED: Yeah. Once every couple of months.
MR. COHEN: Let's pull up Defense Exhibit 78 for identification for the witness only.
MR. COHEN: Take a moment to go through this, sir, and just let me ask you if you have seen it before?
SAMUEL BANKMAN-FRIED: Click on the parameters briefly.
MR. COHEN: Click on the parameters.
SAMUEL BANKMAN-FRIED: Scroll up, and to the left. Sorry.
SAMUEL BANKMAN-FRIED: Yes, I have.
MR. COHEN: What is it?
SAMUEL BANKMAN-FRIED: This is one of those balance sheets and associated underlying data that she would send me.
MR. COHEN: This is from 2021?
SAMUEL BANKMAN-FRIED: From late 2021 and early 2022. It covers two dates.
MR. COHEN: And this document was sent to you in the ordinary course of Alameda's business?
MR. COHEN: It was her regular practice to send you such documents?
MR. COHEN: The defense offers DX-78.
MS. SASSOON: Objection, your Honor.
JUDGE KAPLAN: Basis.
MS. SASSOON: Hearsay.
JUDGE KAPLAN: Address the business records point, please.
MS. SASSOON: Yes. The defense counsel asked two leading questions, but he has not established what went into preparing these documents. It has multiple tabs with tons of data. He didn't put in that data, he has not authenticated that data, and he didn't prepare this balance sheet.
MR. COHEN: He doesn't have to prepare it for it to be a business record.
MS. SASSOON: He has not established a foundation for how Ms. Ellison prepared it and how he knows that it was prepared in the regular course of business.
JUDGE KAPLAN: Sustained for the moment. See if you can lay a better foundation.
MR. COHEN: Mr. Bankman-Fried, what was the data contained in this document?
SAMUEL BANKMAN-FRIED: The data contained in this document was for a particular time period. The positions or balances of Alameda across all the platform --
MS. SASSOON: Objection. Foundation.
JUDGE KAPLAN: Yes. You want to rephrase it.
MR. COHEN: Yes.
MR. COHEN: Did you have any discussions with Ms. Ellison about how this document was prepared?
MR. COHEN: Tell us about those.
MS. SASSOON: Objection. Hearsay.
JUDGE KAPLAN: Sustained.
Presumably you're offering it for the truth, right, Mr --
MR. COHEN: Yes, your Honor.
MR. COHEN: In the course of those discussions, without revealing those discussions, did the method of preparation come up?
MR. COHEN: What was your understanding of the method of preparation?
MS. SASSOON: Objection. Derived from hearsay.
JUDGE KAPLAN: Sustained.
MR. COHEN: Mr. Bankman-Fried, without getting into the specifics, did you have an understanding of how this document was prepared?
MR. COHEN: Tell us.
MS. SASSOON: Objection.
JUDGE KAPLAN: Sustained.
MR. COHEN: Do you know the inputs that went into this document, Mr. Bankman-Fried?
MR. COHEN: What were those inputs?
MS. SASSOON: Objection.
JUDGE KAPLAN: Sustained.
MR. COHEN: Mr. Bankman-Fried, when you were CEO of Alameda, did you prepare balance sheets?
SAMUEL BANKMAN-FRIED: Yes, I did.
MR. COHEN: How did you prepare them?
SAMUEL BANKMAN-FRIED: I prepared them by putting together spreadsheets, first assembling the underlying data, and then creating balance sheets based on those.
MR. COHEN: What inputs did you use?
SAMUEL BANKMAN-FRIED: I used as inputs data from the pointer system, which, in addition to being the front-end interface that triggers would use, was also used to refer to the database that Alameda maintained. I would use from that system Alameda's balances and positions at two different points in time, and, in addition to that, the trades that they had done between those two periods of time to reconcile and confirm that the difference in the balances was similar to the set of trades that happened over that point in time and assumed that was the case, or after adjusting for any errors that came up because of that, I would then create balance sheets based on the data at those two points in time.
MR. COHEN: Did there come a time that you stopped preparing the balance sheets?
SAMUEL BANKMAN-FRIED: Yes, I did.
MR. COHEN: Who took over for you?
SAMUEL BANKMAN-FRIED: Ryan Salame and Caroline Ellison.
MR. COHEN: Did you provide them with the format that you had used?
SAMUEL BANKMAN-FRIED: Yes, I did.
MR. COHEN: Taking a look now at DX-78 for identification, was this the same format?
SAMUEL BANKMAN-FRIED: It is a very similar format drive from the same process.
MR. COHEN: Offer.
MS. SASSOON: Objection.
Your Honor, they had an opportunity to authenticate this through the witness --
MR. COHEN: Can we have a nonspeaking objection, please.
JUDGE KAPLAN: Counsel, we are all trying to do the same thing here, which is get to the bottom of things in a fair and appropriate way. If it's helpful when I look at counsel who just objected, it usually signifies that I'm waiting to hear what the objection is.
Now, if you want to take the view that if I or a subsequent court will sustain whatever I do with respect to an objection, whatever I do, if there is any imaginable basis on which I might have been right, we can proceed that way. But if you would rather proceed on the basis that I should know what the objection is and rule on what the objection is, that might be preferable. Don't you think?
MR. COHEN: I think we should proceed on whatever basis your Honor thinks is best.
JUDGE KAPLAN: So we will do that.
That doesn't mean I'm inviting lots of speaking objections or lots of sidebars. Believe me, I'm not. But I have to know what's going on here in counsel's mind in this particular instance.
MR. COHEN: I would be happy to come up to the sidebar.
JUDGE KAPLAN: Let's take one thing at a time.
The phrase "from the same process" is stricken. It is unresponsive and it of course is not based on personal knowledge from what the record shows so far. If you'd like to have a sidebar on the rest of it, let's do it.
MR. COHEN: No. I think we should move on, your Honor.
JUDGE KAPLAN: If you want to brief it over the weekend, I gather we will have an opportunity to do that.
MR. COHEN: OK. I am sure your Honor would love a brief over the weekend.
JUDGE KAPLAN: You can be certain of that.
MR. COHEN: We will come back to this.
Let's take this down for now.
MR. COHEN: Without looking at the document, can you describe the kind of financial information Ms. Ellison would provide you?
SAMUEL BANKMAN-FRIED: Yeah. She would provide chiefly tabs that had a consolidated balance sheet for Alameda Research, generally two different periods in time, a start and an end time, which would have assets and liabilities and net-asset values. And also in those spreadsheets would be the set of positions at those two points in time that generated that balance sheet and also a set of trades between those points in time.
MR. COHEN: You mentioned something called positions. What was that?
SAMUEL BANKMAN-FRIED: Yeah. It's a term that was used differently by different platforms that Alameda would access, but often positions would be used to refer to what the equivalent of balances was for futures. So if you had a balance of plus five Bitcoins and a negative $400, you might have a position of plus five Bitcoin futures and a balance of plus $100.
MR. COHEN: You also mentioned that part of the information related to trades. What did you mean by that?
SAMUEL BANKMAN-FRIED: The trades that Alameda had done across all of the exchanges that it traded on between those two points in time.
MR. COHEN: Thanks, Mr. Bankman-Fried.
Let's move forward. I want to talk about some of the marketing spending by FTX.
Did FTX have a marketing team?
MR. COHEN: Who was on that team?
SAMUEL BANKMAN-FRIED: There were around 15 people or so on that team. Sina was one of the leaders of that team. There were regional people in different countries as well.
MR. COHEN: Did you interact with the team?
SAMUEL BANKMAN-FRIED: I did.
MR. COHEN: How did you do that?
SAMUEL BANKMAN-FRIED: I was CEO of the company, and so I would be involved at a high level in some decisions, and for particularly important decisions I would sometimes be involved in the details of what they were discussing, often in discussions with Sina or others who are leading the team, sometimes with the team as a whole.
MR. COHEN: Did FTX ever use an outside marketing firm?
SAMUEL BANKMAN-FRIED: Yeah. It used multiple.
MR. COHEN: What was your approach? We are now in the period of 2021? What was your approach to marketing?
SAMUEL BANKMAN-FRIED: Going into it, I was unsure of how to approach marketing. I had absolutely no background in marketing. I had no idea how companies would market, how it would be successful, and what we should do. But as FTX began to grow from thousands of customers, most of whom were deep in the crypto community and had heard about us from social media or their friends, to a business with hundreds of thousands, then millions of users, it became important for us to think about marketing.
So I began to think much more about marketing over the course of 2021 and came to some views about pathways that we should try doing.
MR. COHEN: What were those views?
SAMUEL BANKMAN-FRIED: The primary views that I came to were that I was skeptical of what was called performance marketing, which meant Facebook ads and Google ads; basically, the little squares you would see when using one of those platforms saying, click here to try FTX. I had not been convinced that those were effective. However, I came to the view that I thought that it might be quite effective to do brand marketing, things like partnerships, sponsorships, so I began exploring with a few other employees at FTX what brand partnerships FTX could potentially form.
MR. COHEN: Can we call up Government Exhibit 343 in evidence.
MR. COHEN: I want to focus on the first entry for the Miami Dade FTX Arena. Can you see that, sir?
MR. COHEN: Can you also expand that to row 3, cell 3P further out, where it says years. Go back. Go back to your left, Brian. Right there is fine.
MR. COHEN: First, tell me how the -- did FTX sponsor the Miami Dade FTX Arena?
SAMUEL BANKMAN-FRIED: Yes, it did.
MR. COHEN: How did it come about?
SAMUEL BANKMAN-FRIED: In 2021, prompted by me, we began seriously investigating stadium naming opportunities. The reason that I prompted that was it had been my impression that the names of stadiums of professional sports teams in America, particularly baseball, football and basketball teams, were very widely known. I, as a somewhat average-level sports fan, could name dozens of stadium names, almost all of which I have never been to, and that was true of others I talked to as well.
It seemed to me at the time to give a level of brand awareness that was far above and beyond other partnerships that we were presented with. I remember comparing it to various commercials that I saw which, at least anecdotally to me at the time, appeared to have almost zero recollection value. I would watch a commercial that was played before every single football game involving Dak Prescott and Sleep Number bed, and nobody who I talked to who watched those games could remember that, but many of them could remember arena names.
Because of that, I felt like that arena names were potentially a big opportunity in marketing.
MR. COHEN: Did you consider any other arenas?
SAMUEL BANKMAN-FRIED: I did. Our marketing team, which was smaller at that point, reached out to various agents to figure out if there even were any arenas that were available to be renamed. Generally, they are under long-term contracts, and that year there were four or so major arenas that were potentially available. I remember FTX or, at that point, American Airlines Arena for the Miami Heat, a basketball team; the New Orleans Saints arena, football team; the Kansas City Chiefs, another football team; and the Kansas City Royals, a baseball team.
MR. COHEN: How did you land on Miami?
SAMUEL BANKMAN-FRIED: We explored the New Orleans Saints and the Kansas City Chiefs. Both of them had already been in talks with their partners that they ultimately went with. And with no offense to the Royals, I didn't want to be known as the Kansas City Royals of crypto exchanges, so we passed on that one. And we pursued ultimately the Miami Heat Arena.
MR. COHEN: If you could look up at line 1A.
MR. COHEN: If we go, Brian, a little bit to the left.
MR. COHEN: It says that the agreement was for 19 years?
MR. COHEN: Continue to the right, Brian.
MR. COHEN: The total payment was $135 million and the first payment was 14 million?
SAMUEL BANKMAN-FRIED: Right.
MR. COHEN: What did that mean to you, sir?
SAMUEL BANKMAN-FRIED: That meant that it was -- I believe there were a few other payments in the lines below it that were associated with it as well. Putting those together, it was around $10 million per year for this contract.
MR. COHEN: Did you think this was a good use of marketing expenses?
SAMUEL BANKMAN-FRIED: I did. The thought process I had at the time was that 10 million a year was around 1 percent of FTX's revenue, and I imagined that this might increase FTX's brand awareness by much more than 1 percent, that it might grow the business by far more than what it cost. My understanding at the time was that when I looked into competitors' marketing budgets, they tended to be around 100 percent of the revenue. We were spending 10 to 20 percent of ours on marketing, which felt to me comfortable, so we pursued this.
MR. COHEN: Where did you believe the funds were coming from to support this sponsorship?
SAMUEL BANKMAN-FRIED: FTX's corporate funds, the revenue that it had made and the investments that venture capital firms had made in the company.
MR. COHEN: We can take this slide down.
MR. COHEN: I think you mentioned a few times in your testimony the term venture investments.
MR. COHEN: Can you tell us what you understood that to mean.
SAMUEL BANKMAN-FRIED: Yeah. Alameda and other companies made a number of venture investments over a few-year period. I understood that or at least I used that to refer to a few different types of investments, basically Alameda either investing early stage in companies that were not public companies yet -- they were not listed on the New York Stock Exchange, like Apple or Google were. They were startups -- or it could have meant and in some cases did refer to investing in cryptocurrency tokens that were not yet listed or very recently listed that were sort of akin to early-stage projects or anything else that was in the nature of those.
MR. COHEN: You used the phrase early stage several times. Could you explain that to the jury, please.
SAMUEL BANKMAN-FRIED: Yeah. That basically means a company or project that wasn't yet mature, so not a company that had been around for 30 years and had a stable business that was effectively unchanging. Instead, something more like a startup that was a few years old, where their business was still rapidly changing, ideally growing, and most of the point in investing was depending on what you hoped it would be, not what it already was.
MR. COHEN: Did you ever hear the term due diligence?
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: That referred to the process that you would have prior to an investment where we would research the company, talk to it, look through its documents and, based on those, come to a decision about whether or not to invest.
MR. COHEN: Did you perform due diligence before making venture investments?
SAMUEL BANKMAN-FRIED: Yeah. I and others did.
MR. COHEN: Who were the others?
SAMUEL BANKMAN-FRIED: Ramnik was the person most involved in it. There are a team of people under him. Amy was involved as well. And in some of them I was involved.
MR. COHEN: You mentioned Ramnik. Who was that?
SAMUEL BANKMAN-FRIED: He was the head of -- his title was originally head of product at FTX. He ended up leading the investment and fundraising arms.
MR. COHEN: Was his last name Arora?
SAMUEL BANKMAN-FRIED: Yes, that is correct.
MR. COHEN: Who was Amy?
SAMUEL BANKMAN-FRIED: Amy was a former venture capitalist who we had hired to work on and help lead our investment team as well.
MR. COHEN: I don't want to go through all the investments. I just want to talk about one.
Do you recall the investment in Solana?
MR. COHEN: Can you describe for the jury the due diligence, if any, that was performed.
SAMUEL BANKMAN-FRIED: Yes. Solana is a cryptocurrency. It's a token, like Bitcoin or Ethereum. In the spring of 2020, it was a new cryptocurrency, had just been launched. We were investigating various blockchains at the time to compare them and figure out the pros and cons. I and others had calls with the leadership of most of the major cryptocurrency teams in the space and asked them questions about their technology, about their future projections, how they were going to get there, what they were prioritizing, and came away with the impression from those calls that Solana was --
MS. SASSOON: Objection. Hearsay.
JUDGE KAPLAN: Yes.
Don't tell us what anyone else said, Mr. Bankman-Fried.
MR. COHEN: To his honor's point, just tell us what your takeaway is.
SAMUEL BANKMAN-FRIED: Understood.
MS. SASSOON: Objection. It is based on hearsay.
JUDGE KAPLAN: Sustained. That's another way of doing it, but it's still hearsay.
MR. COHEN: Following his Honor's ruling, say what you did.
SAMUEL BANKMAN-FRIED: I ended up believing --
MS. SASSOON: Objection.
MR. COHEN: Just tell us --
MS. SASSOON: He can describe what he did, not what he believed based on his conversations.
MR. COHEN: Tell us what you did in connection with the Solana investigation.
SAMUEL BANKMAN-FRIED: I ended up making a significant investment in the cryptocurrency Solana at prices starting, I think, around 20 cents per token.
MR. COHEN: Where did you believe the funds for the venture investments came from?
SAMUEL BANKMAN-FRIED: I believe that they came from Alameda Research's operating profits and, in some cases, from the loans that it had from third-party borrow lending desks.
MR. COHEN: What entities would make the investments?
SAMUEL BANKMAN-FRIED: It varied. Sometimes, especially for liquid -- for tokens that were already trading, it would be Alameda Research's core trading entities. For more early-stage projects, or things that were not in the cryptocurrency sector, it would generally be made by one of the Alameda Research venture-related entities, and occasionally there would be a new entity created for an investment.
MR. COHEN: Let's call up GX-80, please, in evidence.
MR. COHEN: Take a look at GX-80. That indicates that an entity called Alameda Ventures LLC had changed its name to Clifton Bay Investments LLC.
Do you see that, Mr. Bankman-Fried?
MR. COHEN: Why was the name changed?
SAMUEL BANKMAN-FRIED: This was in, I believe, October of 2022, on or around October 2022. By that point it had become clear that the venture investing didn't chiefly belong under the Alameda Research brand or umbrella. It had less and less to do with Alameda's core business of arbitrage and market making. We hadn't yet decided what the long-term brand would be for it and the long-term structure. This was an initial step in the direction of separating it out from Alameda's brand towards a dedicated venture investing brand.
MR. COHEN: We can take that down.
MR. COHEN: From time to time, would Alameda make loans to you, Mr. Bankman-Fried?
MR. COHEN: How did that come about?
SAMUEL BANKMAN-FRIED: It came in general -- it usually came because there was an investment that I wanted to make and that I needed capital for, so it would borrow funds from Alameda for it. This was also the case for some donations and contributions that I made.
MR. COHEN: Why did you believe you could borrow funds from Alameda?
SAMUEL BANKMAN-FRIED: I owned Alameda, I was the primary owner of it, and it had had a few billion dollars, to my understanding, of arbitrage-based profit over the prior few years and far more than that in operating capital. So I saw no reason that I couldn't borrow funds from it.
MR. COHEN: Were those loans documented?
SAMUEL BANKMAN-FRIED: I believed that they all were at the time. I think most of them were, but the most recent ones may not have been yet documented.
MR. COHEN: Let's move on.
MR. COHEN: We could pull up GX-3, please.
MR. COHEN: GX-3, without going through it in detail, is a list of a number of properties in the Bahamas.
Do you see that, Mr. Bankman-Fried?
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: Did FTX purchase those properties?
SAMUEL BANKMAN-FRIED: Yes, it did.
MR. COHEN: We can take it down.
MR. COHEN: Why did FTX purchase the Bahamas properties?
SAMUEL BANKMAN-FRIED: We were relocating our corporate headquarters to the Bahamas, and we wanted the core staff to move there. We also wanted to hire a number of new employees to work for FTX from the Bahamas headquarters. As part of that we wanted to provide an easy pathway for them to have housing in the Bahamas; rather than as part of the recruitment and job starting and job training process, have steps devoted to evaluating Bahamian real estate agents. Since the company just did that work, it purchased a number of properties and rented them out to employees as part of an incentivization package essentially.
MR. COHEN: What types of people were you trying to recruit?
SAMUEL BANKMAN-FRIED: The typical employee would be a highly compensated employee at Google or Facebook joining our software developer team.
MR. COHEN: Where did you believe the funds for the Bahamas, the purchase of the Bahamas properties came from?
SAMUEL BANKMAN-FRIED: From FTX's operating cash. That is the same thing as the FTX Arena funds, which is to say from its revenue and from venture capital investments in the company.
MR. COHEN: Who was responsible for being the public face of FTX?
SAMUEL BANKMAN-FRIED: I was.
MR. COHEN: Why did you do it?
SAMUEL BANKMAN-FRIED: It was an accident at first. I hadn't intended to be a public face of anything. I'm somewhat introverted, naturally. I took a few interviews and those ended up going better than I thought they would. After not too long, there was more demand for me to do interviews. Even when it became sort of overwhelming, when there were more PR and interview requests than I could manage or that made any sense for me to be doing as CEO, by that point it was too late to have a new public face of the company. I had become that public face. Most of the outlets weren't interested in having someone else speak.
MS. SASSOON: Objection.
JUDGE KAPLAN: Strike what other outlets were or weren't interested in.
MR. COHEN: We can move on.
MR. COHEN: Why did you wear the shorts and the T-shirts?
SAMUEL BANKMAN-FRIED: I found them comfortable.
MR. COHEN: What about not getting a haircut?
SAMUEL BANKMAN-FRIED: I was kind of busy and lazy and didn't bother getting haircuts for long periods of time.
MR. COHEN: Let's pull up GX-1451.
MR. COHEN: Do you recall seeing that, Mr. Bankman-Fried?
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: Where was that taken?
SAMUEL BANKMAN-FRIED: This was taken in Los Angeles at the 2022 Super Bowl.
MR. COHEN: I am going to ask you to identify whoever you can in the photograph, starting at the left.
SAMUEL BANKMAN-FRIED: That's Katy Perry on the left. Next to her is Orlando Bloom, her partner. Michael Kives is in the center in the white shirt. That's me next to Kives. On the right there is Kate Hudson.
MR. COHEN: Were you in the Super Bowl stadium?
MR. COHEN: How did you come to be there?
SAMUEL BANKMAN-FRIED: I was going to LA for a few business trips. It was around the time of the Super Bowl. We were running a Super Bowl ad that year, FTX was, and for some reason at the time those fit together in the minds of myself and a few people at the company and it seemed natural for me to go to the Super Bowl. I had never been. I thought maybe it would be interesting. So I ended up there.
MR. COHEN: When had you met Michael Kives?
SAMUEL BANKMAN-FRIED: Two nights earlier.
MR. COHEN: Whose suite or box was that?
SAMUEL BANKMAN-FRIED: This was -- it was the box that Kives and friends were in. I am not sure exactly who was renting it. I had been wandering around the stadium late for another meeting.
MS. SASSOON: Objection.
JUDGE KAPLAN: Yes.
MR. COHEN: Let me ask, to counsel's point, how did you come to be in the box?
SAMUEL BANKMAN-FRIED: I had been wandering around that area of the stadium late for another meeting I couldn't find. I ran into them and they invited me in.
MR. COHEN: Now, who was Mr. Kives?
SAMUEL BANKMAN-FRIED: Mr. Kives --
MR. COHEN: You can take that down. A. He was formerly a talent agent who had become an investor and venture capitalist.
MR. COHEN: Did there come a time you invested in his company?
MR. COHEN: What was his company?
MR. COHEN: Which entity actually did the investment?
SAMUEL BANKMAN-FRIED: It was funded by Alameda Research. I don't know off the top of my head the name of the entity that did the investment.
MR. COHEN: What was the reason for investing in K5?
SAMUEL BANKMAN-FRIED: I thought that they had a number of very promising venture investments and, in addition to that, they had a number of promising -- what they called incubations, essentially companies that they would help start, that they would help get off the ground, and then take an ownership stake in return for.
MR. COHEN: Did Mr. Kives have relationships with celebrities and politicians?
SAMUEL BANKMAN-FRIED: Yeah, he did.
MR. COHEN: Did you take that into consideration in making the investment?
SAMUEL BANKMAN-FRIED: I did. I felt like it could be potentially useful for FTX to be able to have brand partnerships. I wasn't sure of the exact pathway that that might take.
MR. COHEN: Did there come a time that you became interested in making donations to political candidates?
MR. COHEN: When about did that begin?
SAMUEL BANKMAN-FRIED: I made my first substantial contributions in 2020, but I became much more involved and did far more in 2021 and 2022.
MR. COHEN: Why did you get involved with political donations at that time?
SAMUEL BANKMAN-FRIED: I had come to the belief that I could have substantial impact on the world. There were issues that I personally cared about for the world a fair bit, pandemic prevention being the chief one. And I believe that the most effective way to help prepare the world for future pandemics was through policy and through discussions with Congress and the executive branch.
MR. COHEN: Were any political donations related to FTX's business?
SAMUEL BANKMAN-FRIED: Yeah, there were some that were. There were a few that were specifically done by FTX or to cryptocurrency logging organizations. That wasn't the purpose of the majority of the contributions, but it was the purpose of some.
MR. COHEN: The ones that were related to the business, what was your goal in making those donations?
SAMUEL BANKMAN-FRIED: Primarily, trying to foster the formation of a regulatory structure for the crypto industry in the United States.
MR. COHEN: Did others at FTX make donations?
MR. COHEN: Who?
MS. SASSOON: Objection. Foundation first.
JUDGE KAPLAN: Yes. Sustained.
MR. COHEN: Based on your interaction with others at FTX, did you ever come to learn whether other employees of the company made political donations?
SAMUEL BANKMAN-FRIED: Yes, I did.
MR. COHEN: Who was that?
SAMUEL BANKMAN-FRIED: I know that Ryan Salame and Nishad Singh both made political contributions. Others may have as well. I am not aware of significant contributions by others.
MR. COHEN: Let's take them one at a time. Did you ever have discussions with Mr. Salame about political donations?
MR. COHEN: Did you ever tell him to make donations?
MR. COHEN: What would have happened if he said he didn't want to make one?
MS. SASSOON: Objection.
JUDGE KAPLAN: Sustained.
MR. COHEN: Did you ever direct Mr. Salame to make donations?
MR. COHEN: Did you have discussions with Nishad Singh about donations?
MR. COHEN: Did you ever direct him to make donations?
MR. COHEN: Based on your interactions with Mr. Salame and Mr. Singh about donations, did you come to a view of where the funds were coming from for their donations?
MR. COHEN: What was that?
MS. SASSOON: Objection, your Honor.
JUDGE KAPLAN: Sustained.
MR. COHEN: Let me go back to your donations, Mr. Bankman-Fried. What was the source of funds for your donations?
SAMUEL BANKMAN-FRIED: Loans from Alameda Research.
MR. COHEN: Did you hire political consultants at all?
MR. COHEN: Do you remember who you hired?
SAMUEL BANKMAN-FRIED: There were a number of them for different purposes. Guarding Against Pandemics is a group that we worked with a bunch, on the crypto side there were others that we worked with, and there were a dozen or so others in the wings.
MR. COHEN: What was your reason for hiring political consultants?
SAMUEL BANKMAN-FRIED: I had had a full-time job. I was not an expert on political donations. I wasn't an expert on where they would be effective. I was not an expert on how to do them effectively or in a compliant way. And I didn't -- it wasn't going to become my area of expertise, so I talked with consultants and others about it.
MR. COHEN: Do you remember the name Michael Sadowsky?
MR. COHEN: Who was he?
SAMUEL BANKMAN-FRIED: He was one of the people that ran Guarding Against Pandemics.
MR. COHEN: During this same period of 2020 to 2021, did you give to charitable causes?
MR. COHEN: Where did the funds come from that you gave to charitable causes?
SAMUEL BANKMAN-FRIED: So, similarly, they were from -- some were made directly by Alameda Research, some were contributions that I gave, and the majority of the funds for that were loans that I took out from Alameda.
MR. COHEN: During this period did you also engage with members of the United States Congress and their staff?
MR. COHEN: What was your reason for doing that?
SAMUEL BANKMAN-FRIED: There were two chief reasons. The first was, I would talk with them about pandemic prevention and other nonbusiness related areas that I cared about for the world. The second was, I had a number of discussions with them about cryptocurrency regulation.
MR. COHEN: What was your goal in connection with cryptocurrency regulation?
SAMUEL BANKMAN-FRIED: The primary goal --
MS. SASSOON: Objection. I believe this was asked and answered.
JUDGE KAPLAN: Overruled. A. The primary goal was helping to establish a regulatory framework for crypto in general in the United States, and in some cases specifically one that FTX would hopefully be able to participate in.
MR. COHEN: Now, FTX, the FTX we have been talking about, was an international company, correct?
SAMUEL BANKMAN-FRIED: That's correct.
MR. COHEN: So why were you interested in U.S. regulation?
SAMUEL BANKMAN-FRIED: There was a different company that, as you said, we have not been talking about, FTX US. FTX US was a separate exchange that I had started which was small, quite small, compared to FTX international but which was U.S. based which did take U.S. customers and which was seeking to offer crypto futures products in the United States through regulatory frameworks there.
MR. COHEN: When did you start FTX US?
MR. COHEN: Now, did there come a time that you testified in front of Congress?
SAMUEL BANKMAN-FRIED: Three times, yes.
MR. COHEN: Approximately when was the testimony?
SAMUEL BANKMAN-FRIED: There was one in late 2021, I don't remember the exact date, there was one in early 2022, and there was one in the late spring, early summer of 2022.
MR. COHEN: So starting with the first one at the end of 2021, you recall what body you testified before?
SAMUEL BANKMAN-FRIED: The House Financial Services Committee.
MR. COHEN: How did that come about?
SAMUEL BANKMAN-FRIED: The committee was hosting a hearing on cryptocurrency, and they asked a few people in the industry to testify. They requested that I come to testify. I originally declined. They reached back out and reiterated their request more strongly, at which point I accepted.
MR. COHEN: And the testimony in early 2022, where was that before?
SAMUEL BANKMAN-FRIED: That was the senate agricultural committee.
MR. COHEN: Why the agricultural committee?
SAMUEL BANKMAN-FRIED: The CFTC, the Commodity Futures Trading Commission, was the prime U.S. regulator for commodity futures contracts and in particular for Bitcoin futures contracts. As such, it was my understanding at the time that if there would be a regulatory license law framework for a company like FTX, it was likely to be issued by the CFTC, and in fact FTX US had a subsidiary with a CFTC license at that point. The senate agricultural committee had oversight over the CFTC.
MR. COHEN: Did the FTX have a government affairs department?
MR. COHEN: What did that do?
SAMUEL BANKMAN-FRIED: It assisted on everything related to FTX US' operations in Washington D.C., chiefly meetings with regulators and congressmen and their staffers about the crypto industry as a whole and regulatory frameworks for it, and with respect to FTX US derivatives applications, in particular for licensure.
MR. COHEN: Who was the head of that group?
SAMUEL BANKMAN-FRIED: Mark Wetjen.
MR. COHEN: Do you know Mr. Wetjen's background?
SAMUEL BANKMAN-FRIED: Yes. He was a former --
MS. SASSOON: Objection. 401.
JUDGE KAPLAN: Sustained.
MR. COHEN: How did Mr. Wetjen come to be hired by FTX?
SAMUEL BANKMAN-FRIED: I had met Mr. Wetjen as an employee of another exchange -- not a cryptocurrency exchange; a traditional exchange in the United States -- that we had been in talks with. I started talking more with him about his goals, and he seemed like a very good fit as a head of policy for FTX US.
MR. COHEN: Before your testimony did you make written submissions?
MR. COHEN: Did you work with anyone on those submissions?
MR. COHEN: Who was that?
SAMUEL BANKMAN-FRIED: Mark Wetjen and Zach Dexter were both involved.
MR. COHEN: Who was Zach Dexter?
SAMUEL BANKMAN-FRIED: Zach Dexter was the CEO of FTX US Derivatives, the subsidiary of FTX US that had a CFTC license.
MR. COHEN: I think you mentioned three times in the testimony. We have talked about two. The third time was in the middle of 2022, is that right?
SAMUEL BANKMAN-FRIED: Yes, that's right.
MR. COHEN: Who did you testify before then?
SAMUEL BANKMAN-FRIED: The house agricultural services committee.
MR. COHEN: What was the reason for that testimony?
SAMUEL BANKMAN-FRIED: I think I mangled the name a little bit, but the house agricultural committee.
FTX US Derivatives had an application before the CFTC to expand its license, to allow it to actually offer cryptocurrency futures in the traditional sense in the United States.
There was -- I was aware of a fair bit of political talk about this in Washington, D.C. The house agricultural committee ended up hosting a hearing on FTX's application, FTX US Derivatives application to the CFTC. So it was a house committee hearing on the company that I owned, and there were competitors of ours who I believed to be pushing back against.
MS. SASSOON: Objection. No foundation.
JUDGE KAPLAN: Beyond that, it's essentially all unresponsive. The question was: Who did you testify before? And the answer was: The house agricultural committee, and then it went on from there.
MS. SASSOON: I believe the question was, what was the reason for the testimony? And this portion of the answer, your Honor, about what he believed competitors were doing, there is a lack of foundation.
JUDGE KAPLAN: Thank you. Sustained.
MR. COHEN: Let me come back to that.
MR. COHEN: Mr. Bankman-Fried, did you come to a view as to what competitors were doing with regard to the agricultural committee?
MS. SASSOON: Objection.
MR. COHEN: Before you answer --
JUDGE KAPLAN: What's the ground?
MR. COHEN: What's the basis for it?
JUDGE KAPLAN: Excuse me.
MS. SASSOON: Leading.
JUDGE KAPLAN: Overruled.
MR. COHEN: Don't tell me what they said. Just tell me what your basis for it was.
SAMUEL BANKMAN-FRIED: My basis for it was conversations with staff both at FTX and with staff of congressmen.
MR. COHEN: What was your understanding then?
MS. SASSOON: Objection.
JUDGE KAPLAN: What's the relevance of this, counsel?
MR. COHEN: It's to round out why he was appearing on this testimony which the government has played for the jury.
MS. SASSOON: Your Honor, not only is this not relevant, but it's clear that the answer is derived from hearsay conversations, not any firsthand observations by the witness.
JUDGE KAPLAN: Sustained.
MR. COHEN: We will move on.
MR. COHEN: New topic, Mr. Bankman-Fried.
Are you familiar with something called EcoSerum?
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: It was an entity that was pushing for adoption of a token called Serum, SRM.
MR. COHEN: Did you ever hear of the phrase staking?
MR. COHEN: What does that mean to you?
SAMUEL BANKMAN-FRIED: Staking referred to a practice in the cryptocurrency ecosystem where if you held some cryptocurrency asset, you could do what's called staking it, which meant effectively putting it somewhere, locking it up for some period, often so it couldn't be withdrawn, and then giving an interest payment as a reward for doing so.
MR. COHEN: Could customers on FTX stake their Serum?
MR. COHEN: What would they receive if they did so?
SAMUEL BANKMAN-FRIED: They would receive tokens, chiefly Serum tokens, but also in some cases other tokens as a reward over time.
MR. COHEN: Did there come a time that you had a discussion with anyone about ECO Serum staking?
MR. COHEN: When was that?
SAMUEL BANKMAN-FRIED: This was in late 2021 or early 2022.
MR. COHEN: Who did you speak with?
SAMUEL BANKMAN-FRIED: Nishad.
MR. COHEN: Tell us what you said.
SAMUEL BANKMAN-FRIED: I had told Nishad that I saw a significant increase in interest payment -- sorry. That's later on. This one was, I had told Nishad or, rather -- I apologize. I told Ramnik first and then later had a conversation with Nishad about the same topic.
MR. COHEN: Let me do it this way, sir.
At the end of the year, year end 2021, did you have any conversations with Ramnik?
MR. COHEN: What was the topic of those discussions?
SAMUEL BANKMAN-FRIED: So with Ramnik I had a conversation around FTX's revenue for the year 2021.
MR. COHEN: What did you say?
SAMUEL BANKMAN-FRIED: I saw that it was -- that it looked to me at the time like it was going to be a little over $1 billion.
MR. COHEN: Did it turn out to be over $1 billion?
SAMUEL BANKMAN-FRIED: Ramnik told me that his calculations had it as a little bit under $1 billion.
MR. COHEN: What, if anything, did you do after that?
SAMUEL BANKMAN-FRIED: I asked him to first confirm if that was correct because my calculations were a little bit different, and if it was correct to check if there were any other sources of revenue that we were missing that would frankly get it over 1 billion.
MR. COHEN: And what happened after that?
SAMUEL BANKMAN-FRIED: I didn't hear back about it for a little while. I then asked Ramnik for an update on it.
(Continued on next page)
BY MR. COHEN:
MR. COHEN: Moving back, why did you want the revenue to get over a billion?
SAMUEL BANKMAN-FRIED: It's just a round number.
MR. COHEN: Okay. Did you hear back from anyone about this issue?
SAMUEL BANKMAN-FRIED: Yeah. I heard from Ramnik that Nishad had updates on it, so I then asked Nishad.
MR. COHEN: What did he tell you?
SAMUEL BANKMAN-FRIED: Nishad told me that he had dealt with it.
MR. COHEN: Did you come to learn anything more about that?
SAMUEL BANKMAN-FRIED: Yeah. I——I asked him what that meant. He said that there were EcoSerum staking rewards that were another 50 million or so of revenue.
MR. COHEN: And what had been done, if anything, with those rewards?
SAMUEL BANKMAN-FRIED: That there were——that FTX was charging a fee on the interest payments made for people staking EcoSerum——I believe it was about a 25 percent fee on the interest payments——and that that was contributing revenue to FTX.
MR. COHEN: And that's what got you to the billion?
SAMUEL BANKMAN-FRIED: Uh-huh.
MR. COHEN: What was your reaction to that?
SAMUEL BANKMAN-FRIED: I was a little surprised. I had not thought of EcoSerum-staking-related things at all. I hadn't been anticipating getting that as a response. I had been anticipating either that no, there was no other revenue or yes, there were other, you know, interest payments with respect to some program that I had thought more about or maybe OTC-related things that had not been accounted for.
MR. COHEN: You mentioned OTC-related things.
MR. COHEN: What is that?
SAMUEL BANKMAN-FRIED: There was an OTC platform and feature on FTX whereby customers, if they wanted to, instead of putting out an offer to buy a Bitcoin for $10,000 in an order book, they could instead go to a market maker, usually Alameda, and just say, I'd like to buy one Bitcoin, what price would you sell that at right now, they'd give back a number, and they could either accept or decline.
MR. COHEN: In connection with reaching a billion dollars in revenue for 2021, did you——did the topic of backdating any document come up?
SAMUEL BANKMAN-FRIED: I don't recall it coming up, no.
MR. COHEN: Were you familiar with something at FTX called the insurance fund?
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: The insurance fund is a word we used to describe the amount of money that we were pledging to cover customer account losses. This was related to the risk of clawbacks or socialized losses.
MR. COHEN: Can you explain how that worked.
SAMUEL BANKMAN-FRIED: Yes. So if there were a customer account that had a margin position, either futures or——or a spot open, markets moved, its assets declined in value, and it ended up with more liabilities than assets, it ended up with, say, you know, $3,000 of liabilities, $2,000 of assets backing that, it had a net liability of a thousand dollars, would close down the accounts position but it would still have that net liability, and someone had to cover it. Either it had to be FTX had to cover it or FTX's customers had to cover it. That's what socialized losses or clawbacks were. But before those came, FTX would try and cover it. The insurance fund, that was the amount of money FTX pledged to use to cover such customer account losses.
MR. COHEN: Can we call up GX 751 in evidence.
MR. COHEN: Okay. If you look at the top, there's an FTX message. The 5.25 million——
MR. COHEN: Can you highlight the top, Brian.
MR. COHEN: "The 5.25 million FTT we put in our insurance fund in 2019 now makes the fund worth over 100 million USD." What was your understanding of that, Mr. Bankman-Fried?
SAMUEL BANKMAN-FRIED: My understanding was that we were pledging to our customers that if there were any losses from——from a customer's account, before socializing any losses to other users, before clawing back funds, FTX would spend at least 5.4 million US dollars and 5.2 million FTT tokens in covering that account.
MR. COHEN: And then underneath it, there's something called backstop fund——
MR. COHEN: ——with size and some number. Do you see that?
MR. COHEN: Okay. Were you the person who calculated the numbers behind the backstop fund?
MR. COHEN: Okay. All right. You can take that down.
MR. COHEN: Did there come a time that the insurance fund did not cover a large loss?
MS. SASSOON: Objection, leading.
JUDGE KAPLAN: Sustained.
MR. COHEN: Let me come at it this way: Have you ever heard of an entity called MobileCoin?
MR. COHEN: What was MobileCoin?
SAMUEL BANKMAN-FRIED: MobileCoin was a cryptocurrency.
MR. COHEN: Okay. And did there ever come a time that there was an issue with MobileCoin on the exchange?
MS. SASSOON: Objection. Still leading.
JUDGE KAPLAN: I'll allow it.
MR. COHEN: Tell us about that.
SAMUEL BANKMAN-FRIED: Yes. So there was a trader on FTX that put on a significant position in a few cryptocurrencies. MobileCoin was one; BTMX, another cryptocurrency, was another one. The account grew in value and was borrowing a substantial amount, collateralized by those assets. It grew to hundreds of millions of dollars in assets and hundreds of millions of dollars that it was borrowing. That was significant but not particularly unusual for FTX at the time. However, there was a steep increase in the price of the assets it was using as collateral——BTMX and MobileCoin and others. BTMX went up over a thousand percent over, so more than ten times in price. That significantly increased the value of its account, and the amount that it could and did borrow against that.
As this was happening, concerns were raised to me by Ryan Salame and Gary and Nishad about whether this account was engaging in something improper. They expressed concerns to me that this account might be——although we, to my knowledge, didn't have proof——that that——that it was——or confidence that it was——might be engaging in what we would have thought of as market manipulation. As——as the judge said, I don't mean that as a legal term, just as my understanding of what that meant. In particular, their concern was that it might be causing a substantial increase in the price of BTMX and MobileCoin and others.
MS. SASSOON: Objection. Narrative.
JUDGE KAPLAN: Sustained. Ask another question, Mr. Cohen.
MR. COHEN: Sure.
MR. COHEN: As a result of what was going on, did FTX suffer a loss?
SAMUEL BANKMAN-FRIED: FTX did not itself suffer a loss, no.
MR. COHEN: Did any entity suffer a loss?
SAMUEL BANKMAN-FRIED: Alameda took on a large position.
MR. COHEN: Why was that?
SAMUEL BANKMAN-FRIED: This trader's position grew to hundreds of millions of dollars in assets and in borrows. I looked at it and said that I was going to take responsibility for monitoring it. I probably didn't do as good a job as I could have. The account ended up withdrawing a lot of money, exploiting a——a loophole that I hadn't noticed, and at that point I became very concerned about the account's position. It still had a negative——a positive value, rather. The assets were still worth far more than the liabilities, but the assets had increased a extremely large amount, very recently, and I was skeptical of the future pricing of those. This was time for the risk engine process to kick in. But the position was large enough and the tokens illiquid enough that it couldn't happen in the order book. It went to the backstop liquidity provider system, and the only backstop liquidity provider willing to take on a large position in those tokens was Alameda Research. As such, we passed that account's position over to Alameda Research.
MR. COHEN: Did the insurance——
MS. SASSOON: Objection. Objection, your Honor, to the testimony that it was Alameda Research. That's not a person. Saying Alameda Research was willing to take on the position.
JUDGE KAPLAN: Overruled.
But let me clarify something. You said the position was large. That was a position in what, just for clarity?
SAMUEL BANKMAN-FRIED: It had assets of a few different cryptocurrencies——MobileCoin and BTMX——and it had borrows of a significant amount of US dollars and Bitcoin.
JUDGE KAPLAN: And the tokens were illiquid, what did that mean?
SAMUEL BANKMAN-FRIED: The trading volume was not that large in BTMX particularly and MobileCoin. In addition to that, their price——at least BTMX's price——had gone up by more than a factor of 10 over the past weeks, which I felt was potentially indicative of a market that might not sustain itself.
JUDGE KAPLAN: And so by tokens illiquid, did you mean——or did you mean something else——did you mean that if you went to sell the tokens, you couldn't get the price at which the tokens had been trading in the very near recent past?
SAMUEL BANKMAN-FRIED: That is essentially what I meant, yes.
JUDGE KAPLAN: Thank you.
Please go on.
MR. COHEN: Thank you, your Honor.
BY MR. COHEN:
MR. COHEN: Did the insurance fund wind up being involved here?
SAMUEL BANKMAN-FRIED: Not substantially. I'm not sure if it was involved not at all or only to a small extent.
MR. COHEN: Why is that?
SAMUEL BANKMAN-FRIED: The account still had positive net asset value when it was passed off to Alameda Research as a backstop liquidity provider. In addition to that, I felt at the time that I had taken responsibility for the management of that account by saying as much to Ryan and Gary and Nishad, that I felt that they had been right to be concerned about it, that I had not done as much as I should have monitoring that account subsequent to taking responsibility, and that as such, it was further appropriate that Alameda Research, which I owned, should be the one to end up with that position.
MR. COHEN: Why not FTX?
SAMUEL BANKMAN-FRIED: So FTX itself did not take positions in assets like that. FTX was not itself a backstop liquidity provider and didn't itself take on liquidating accounts. It would pass them on to trading firms that knew how to deal with large token balances.
MR. COHEN: And did it wind up going to Alameda?
MR. COHEN: Okay. All right. New topic, Mr. Bankman-Fried.
I think you mentioned several times Slack and Signal.
MR. COHEN: What were they?
SAMUEL BANKMAN-FRIED: They were two messaging platforms that FTX used.
MR. COHEN: Why did FTX use them?
SAMUEL BANKMAN-FRIED: It used them chiefly because they had a much better platform designed for conversational-style interactions. Email works well for distributing a message to a person or group of people or for a back-and-forth with one person on a topic, but Slack, for instance, had a number of features that made it easy to create channels for different topics, to have different threads within the channel, to post files or comments, to interact with many people at once on those in realtime, and so it was——it was I understood to be one of the standard workplace communications software, and it was something that we found very useful.
MR. COHEN: And have you ever heard the term "encryption"?
MR. COHEN: What was your understanding of that term?
SAMUEL BANKMAN-FRIED: "Encryption" refers to effectively the ability to send a message to someone without third parties overhearing that message. It was prominent, you know, in World War Two with the Allied and Axis's messages and code-breaking efforts. In modern internet, I understood it to be a way to communicate messages electronically whereby you would have the message and the recipient would have the message but no one else would be able to see what that message said.
MR. COHEN: And how, if at all, did Slack and Signal relate to encryption?
SAMUEL BANKMAN-FRIED: So both were encrypted from the general public, as in they weren't public messages that you would send. They would only be visible to the intended targets. However, with Slack, the company Slack itself would also have access to those messages. Signal had what was called end-to-end encryption, which meant that even Signal, the company, didn't know what messages were being sent, only the sender and receiver did.
MR. COHEN: And was there a business reason for using this?
SAMUEL BANKMAN-FRIED: Yeah. There were a few different business reasons for using it.
MR. COHEN: What were they?
SAMUEL BANKMAN-FRIED: We were concerned about hacking attempts on ourselves or on third-party providers. There were a few instances where third-party software that we used got hacked and FTX information that it had access to was leaked out to the world.
We were also concerned about ex-employees potentially taking data from the company and selling it to competitors. We had seen that happen in the industry before. And especially when we were headquartered in Hong Kong, there were concerns——
MS. SASSOON: Objection, your Honor. The witness has repeatedly used the phrase "we," "we," "we" here and in other responses, and we'd just like clarification on the "we."
MR. COHEN: I'm happy to follow up, Ms. Sassoon.
JUDGE KAPLAN: Okay.
MR. COHEN: You used the term "we."
MR. COHEN: Who do you refer to?
SAMUEL BANKMAN-FRIED: I apologize. I refer to myself there, to me.
MR. COHEN: Okay.
SAMUEL BANKMAN-FRIED: I have a habit that I still haven't broken of using the term "we" so as to not single out myself or other employees.
MR. COHEN: So going forward, please let us know when you mean "we" and others or "we" yourself.
MR. COHEN: Okay. Did FTX have a——well, let me back up.
Have you ever heard of a data retention policy?
MR. COHEN: What did it mean to you?
SAMUEL BANKMAN-FRIED: It meant a policy about what corporate records needed to be kept for the long-term, which ones had to be deleted promptly, and which fell into neither category.
MR. COHEN: Okay. And did FTX have such a policy?
MR. COHEN: Yes or no: Did you review it?
MR. COHEN: Okay. What was your understanding, Mr. Bankman-Fried, of how the policy worked?
SAMUEL BANKMAN-FRIED: My understanding was that there were groups of documents and records and communications that needed to be preserved for the foreseeable future. Those included various regulatory interactions, they included all official communications and business records on particular topics, especially topics that regulators had expressed interest in to us. And that there were, on the flip side, some sorts of records and communications that had to be deleted after some time period for data sensitivity reasons, and then many that there's no requirement in either direction.
MR. COHEN: Okay. So three categories?
MR. COHEN: Mr. Bankman-Fried, did there come a time that outside investors invested in FTX?
MR. COHEN: Okay. And about when was that?
SAMUEL BANKMAN-FRIED: Other than the seed investment that Binance had made in 2019, the first substantial one was in 2021, the spring of 2021.
MR. COHEN: And do you recall what name was given to that?
SAMUEL BANKMAN-FRIED: It was the series——I believe it was the series B.
MR. COHEN: So it was investors invest——outside investors investing in FTX in a round called series B?
MR. COHEN: Do you recall about how much was invested?
SAMUEL BANKMAN-FRIED: It was around a billion dollars.
MR. COHEN: And that was in mid-2021?
MR. COHEN: Was there another investment by outside investors in FTX?
MR. COHEN: When was that?
SAMUEL BANKMAN-FRIED: There was a follow-on investment a few months after that first investment, and then there was another round that was I believe agreed to in late 2021 and closed in early 2022.
MR. COHEN: Okay. Let me break this down. You used the phrase "follow-on."
MR. COHEN: What do you mean by that?
SAMUEL BANKMAN-FRIED: It was a——I believe we called it the B1 round. It was at effectively the same or very similar terms to the first, the series B investment, for investors who basically needed more time from that round to complete their diligence process.
MR. COHEN: And about how much was the series B1 investment for?
SAMUEL BANKMAN-FRIED: I believe it was around 500 million or so.
MR. COHEN: And about when was that?
SAMUEL BANKMAN-FRIED: That was in the summer of 2021.
MR. COHEN: Okay. And was there another investment in FTX by outside investors?
MR. COHEN: When was that?
SAMUEL BANKMAN-FRIED: That was negotiated and agreed to in late 2021, closed in early 2022.
MR. COHEN: Okay. And did that have a name?
SAMUEL BANKMAN-FRIED: I believe it was——that was a series C.
MR. COHEN: Series C. And about how much was invested in that round?
SAMUEL BANKMAN-FRIED: I think it was around a billion as well.
MR. COHEN: Okay. Now coming back to the series B round, what information, if any, was provided to the investors before they invested?
SAMUEL BANKMAN-FRIED: Before they invested, there were a number of documents and spreadsheets that we sent to prospective investors, and in addition, we had conversations with them.
MR. COHEN: Did you ever hear the term "data room"?
MR. COHEN: What does that mean to you?
SAMUEL BANKMAN-FRIED: It's a——a folder, effectively, posted online, where you can upload a bunch of files and share them with people. In this case, we had a data room for——that we created that we uploaded files to that the investors could look at.
MR. COHEN: And that was for the series B?
SAMUEL BANKMAN-FRIED: Yeah, although we had one for each of the investment rounds.
MR. COHEN: Would the data room get updated from time to time?
MR. COHEN: Okay. What would it be updated with?
SAMUEL BANKMAN-FRIED: It would be updated with new documents and new financials as they came out, or other sort of ad hoc things.
MR. COHEN: On the FTX side, who interacted with outside investors?
SAMUEL BANKMAN-FRIED: Ramnik was the one who did so the most; I did so as well; and then there were some people who occasionally did.
MR. COHEN: Do you remember who they were?
SAMUEL BANKMAN-FRIED: The people who occasionally did?
MR. COHEN: Yes.
SAMUEL BANKMAN-FRIED: There would occasionally be a call for developers, and so I think Nishad was on a couple calls with investors at some point in time. We would sometimes have some someone from our finance team get on the call with prospective investors. I think Jayesh was sometimes on calls with investors. We would sometimes have someone from the US team, from FTX.US, on calls with investors. Brett Harrison and Zach Dexter were both on some calls. We also would sometimes have someone from the legal department on the calls, which would be Dan Friedberg or Can Sun.
MR. COHEN: You mentioned someone named Jayesh.
MR. COHEN: Who was that?
SAMUEL BANKMAN-FRIED: He was the head of finance for FTX International.
MR. COHEN: And what was his last name?
SAMUEL BANKMAN-FRIED: I——Peswani. I'm mispronouncing that, I'm pretty sure.
MR. COHEN: That's okay. And you said on the US team you mentioned a new name, Brett Harrison.
MR. COHEN: Who was that?
SAMUEL BANKMAN-FRIED: He was for a time the president of FTX.US.
MR. COHEN: Okay. Have you ever heard, in connection with an outside investment, the term "valuation"?
MR. COHEN: What does that mean?
SAMUEL BANKMAN-FRIED: That meant the value of the total company according to an investment round. So if investors, for instance, bought 10 percent of a company for $5 million, that would mean the valuation of the total company was 50 million.
MR. COHEN: Okay. And if you recall, sir, what valuation——
JUDGE KAPLAN: Excuse me. Again, to clarify.
MR. COHEN: Sure. Sorry, your Honor.
JUDGE KAPLAN: That's just one way of putting a value on a company that's not publicly traded, right?
SAMUEL BANKMAN-FRIED: That is correct. That is the only way I've ever heard the term "valuation" used in that context, but that does not mean it's the only way one could decide what the company is worth. One could absolutely come up with other metrics that——to value a company.
JUDGE KAPLAN: Let's go on.
MR. COHEN: Thank you, your Honor.
BY MR. COHEN:
MR. COHEN: What valuation were the investors using in the rounds we've just described?
SAMUEL BANKMAN-FRIED: Yeah, so again, using the metric that——that——that I had talked about, the first round, the series B round, was a valuation of roughly $18 billion. The last round, the series C, was of 40 billion.
MR. COHEN: So investors were investing in FTX in the last round at a valuation of 40 billion.
MR. COHEN: Okay.
MR. COHEN: Your Honor, this might be a good time for our afternoon break.
JUDGE KAPLAN: Okay. Fifteen minutes, folks.
COURT CLERK: Will the jury please come this way, bring your notebooks with you.
(Recess)
(Continued on next page)
(In open court; jury not present)
JUDGE KAPLAN: Okay. Everybody here? Please be seated.
Counsel, just so you have it in mind, though I'm not going to say anything to the jury now, I don't know how this is going to go over the next few days, but if we are not done by next Thursday, I'm considering sitting next Friday.
MR. COHEN: Understood, Judge.
JUDGE KAPLAN: Okay.
(Continued on next page)
(Jury present)
JUDGE KAPLAN: The defendant and the jurors all are present, as they have been throughout.
You may continue, Mr. Cohen.
MR. COHEN: Thank you, your Honor.
BY MR. COHEN:
MR. COHEN: Mr. Bankman-Fried, I want to move forward in time now. I want to call your attention to May of 2022. What, if anything, did you——did you observe occurring in the crypto markets at that time?
SAMUEL BANKMAN-FRIED: There was a large decrease in cryptocurrency prices.
MR. COHEN: Okay. Can you give an example of what you saw.
SAMUEL BANKMAN-FRIED: So Bitcoin, the largest cryptocurrency, fell from roughly $40,000 per coin to about 30,000, so 25 percent decrease, and most other cryptocurrencies had similar declines.
MR. COHEN: Can we call up DX 1614, please, in evidence.
MR. COHEN: This is a price, list of prices for Bitcoin. Calling your attention to the May 2022 period, what did you observe, Mr. Bankman-Fried?
JUDGE KAPLAN: Hasn't he just told us precisely that?
MR. COHEN: Well, okay.
MR. COHEN: Let me go further. Did you observe anything beyond May, Mr. Bankman-Fried?
SAMUEL BANKMAN-FRIED: After May, that it——
MR. COHEN: Yeah, in terms of Bitcoin.
SAMUEL BANKMAN-FRIED: Yeah. After dropping to about $30,000 in May, it fell again in mid-June to about $20,000.
MR. COHEN: Okay. We can take 1614 down.
MR. COHEN: And did this have any impact on the market?
SAMUEL BANKMAN-FRIED: Yeah. The whole crypto market fell both times. Many coins fell similar amounts to what Bitcoin had, a few——
MS. SASSOON: Objection, your Honor. I don't think the witness is in a position to opine whether it was this that caused an impact on the market.
JUDGE KAPLAN: Mr. Cohen, what do you say?
MR. COHEN: I think I can get at it a different way, your Honor.
BY MR. COHEN:
MR. COHEN: Mr. Bankman-Fried, were you familiar with a company called Terra and a company called Luna?
SAMUEL BANKMAN-FRIED: It was one ecosystem, but yes.
MR. COHEN: What did you know about them?
SAMUEL BANKMAN-FRIED: Terra was a cryptocurrency, Luna was another cryptocurrency, related to each other. Terra was a volatile cryptocurrency that was, you know, the token representing the value of the project. Luna——sorry. Luna was. I misspoke. Luna was the volatile one. Terra was a stablecoin, which means it——it's——it was intended to maintain a price of about 1 dollar consistently. Its backing was in Luna tokens, however.
MR. COHEN: What, if anything, did you observe with regard to Terra and Luna in the May period?
SAMUEL BANKMAN-FRIED: In May 2022, Luna crashed close to zero from tens of billions of dollars of value, and then Terra, which was backed by the value of Luna, fell close to zero as well, losing its 1 dollar peg.
MR. COHEN: Were you familiar with a company called Three Arrows Capital?
MR. COHEN: What were they?
SAMUEL BANKMAN-FRIED: They were a cryptocurrency trading firm, sort of like Alameda.
MR. COHEN: Did you observe anything happening——what did you observe, if anything, with regard to Three Arrows Capital during this period?
SAMUEL BANKMAN-FRIED: Three Arrows Capital ended up going bankrupt in June of 2022, and I understood that that had been caused by, among other things, them having——
JUDGE KAPLAN: Sir, sir, you were asked what you observed, not what you understood.
MR. COHEN: Just what you observed.
SAMUEL BANKMAN-FRIED: Understood. Three Arrows Capital went bankrupt in June of 2022.
MR. COHEN: Okay. And continuing, I think earlier you mentioned certain crypto lenders——
MR. COHEN: ——do you recall that? And again, who were the large lenders in the space?
SAMUEL BANKMAN-FRIED: Genesis, Celsius, BlockFi, and Voyager were four of the larger ones.
MR. COHEN: What, if anything, did you observe about them in the May to June period?
MS. SASSOON: Objection, your Honor. Vague.
JUDGE KAPLAN: Rephrase, please.
MR. COHEN: Okay.
MR. COHEN: All right. I'll take it one by one then.
Mr. Bankman-Fried, what, if anything, did you observe in the market with regard to Celsius?
MS. SASSOON: Objection, your Honor. Same objection.
JUDGE KAPLAN: Sustained.
MR. COHEN: Were you in communication with any of the lenders during the May to June period?
MR. COHEN: Okay. And did you also observe what was happening to them in the marketplace?
MR. COHEN: Okay. And what——just your personal knowledge, sir. What did you observe?
JUDGE KAPLAN: Sustained.
MS. SASSOON: Objection, your Honor.
JUDGE KAPLAN: Look, if somebody called in a loan on which his company was on the hook, that's one thing, but that's not what you're doing. You're asking much broader questions.
MR. COHEN: Okay, your Honor.
JUDGE KAPLAN: And you're calling for all kinds of hearsay. And opinion.
MR. COHEN: Okay.
BY MR. COHEN:
MR. COHEN: Did the decline in price in Bitcoin have any impact on Alameda?
SAMUEL BANKMAN-FRIED: Yes, it did.
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: Alameda had been leveraged long the market for the prior year. That basically means it had a bunch of assets that were correlated with the market, and it had loans, liabilities, many of which were in dollars, and as the market crashed, the value of its assets fell.
MR. COHEN: Okay. Let me go back. You said Alameda had been leveraged long.
MR. COHEN: What does that mean?
SAMUEL BANKMAN-FRIED: So Alameda had a number of assets. Some of them——a few billion, to my understanding——were from trading profits from arbitrage. Substantially more than that, tens of billions, as of late 2021, were from investments that it had made, venture investments. Those investments, it had financed in part through borrowing of——from third-party lenders like Genesis and Celsius and others. That meant that it had tens of billions, I think, tens of billions——over 40 billion of assets at the peak in late 2021, but it also had substantial liabilities. And it was leveraged long because the exposure it had to the market was that it made money if the market went up and it lost money if the market went down. Many of its assets had that property. Most of them did. And——
MR. COHEN: If I could interrupt.
MR. COHEN: Long meaning you bought the stock?
SAMUEL BANKMAN-FRIED: Right. Long meaning we bought these companies rather than short selling, which would be betting on them to decline. And it was leveraged because it was more than a hundred percent of its value was in its positions, because it had taken on debt to make those investments.
MR. COHEN: You also used the phrase "correlated with the market." What does that mean?
SAMUEL BANKMAN-FRIED: It means that it had historically tended to be the case that if the cryptocurrency market would increase in value——that is, say, if Bitcoin and other major cryptocurrencies went up——that the assets Alameda held would increase in price, and conversely, that if the market overall were to decline, if there were a market crash, that the assets Alameda held would decrease in value.
MR. COHEN: So what happened to Alameda's value around May 2022?
SAMUEL BANKMAN-FRIED: Well, there were, you know, large decreases in——in market prices, Bitcoin fell from $65,000 or so at the peak in late 2021 to 30,000 in May 2022 and 20,000 in June 2022, and as a result, Alameda's net asset value fell from above $40 billion at the peak in late '21 to around $10 billion ultimately in June of 2022.
MR. COHEN: One more term. I'm not sure we defined "net asset value."
SAMUEL BANKMAN-FRIED: Ah, yes. So when a company has assets and also has liabilities, the net asset value is those assets minus those liabilities. So if you had $10,000 of assets but you took out a $2,000 loan to purchase those, your net asset value would be $8,000.
MR. COHEN: Are you familiar with the concept of hedging?
MR. COHEN: What is your understanding of that concept?
SAMUEL BANKMAN-FRIED: Hedging is putting on a trade to protect against the risk of a market move.
MR. COHEN: Did there come a time that you discussed the topic of hedging with anyone at Alameda?
MR. COHEN: Who was that?
SAMUEL BANKMAN-FRIED: Chiefly with Caroline Ellison, sometimes with other people as well.
MR. COHEN: When was the first time you remember discussing hedging with Ms. Ellison?
SAMUEL BANKMAN-FRIED: In late 2021.
MR. COHEN: And what did you say to her?
SAMUEL BANKMAN-FRIED: At that time Alameda was leveraged long the market. It had far more at the time in assets than in liabilities. It had, my understanding at the time, was something like 50 billion of assets against——
MS. SASSOON: Objection. Move to strike. The question was what did he say to her.
JUDGE KAPLAN: The answer is all stricken. The jury will disregard it.
Put the question again. Please read it back to the witness.
MR. COHEN: Sure. Read it back.
(Record read)
MR. COHEN: A. I suggested that Alameda hedge its exposure, its risk of——that could come in a market decrease.
MR. COHEN: Okay. And what was her response?
SAMUEL BANKMAN-FRIED: She discussed it with me. She ultimately weakly said that she would look into doing so but was——I interpreted her to be far less enthusiastic than I was about it.
MR. COHEN: After the conversation in late 2021 about hedging, did you have any other conversations about hedging?
MR. COHEN: Who were they with?
SAMUEL BANKMAN-FRIED: Chiefly with Caroline Ellison, sometimes with other people as well.
MR. COHEN: Okay. About how many other conversations did you have and when?
SAMUEL BANKMAN-FRIED: I had a conversation every month or two with her over the course of 2022.
MR. COHEN: And I don't think we have to go one by one, but generally what was the substance of what you said in these conversations?
SAMUEL BANKMAN-FRIED: I would check in periodically to see if Alameda had in fact hedged, and was told each time that it had not done so but was planning to look into doing so in the near future.
MR. COHEN: As of June 2022, had Alameda hedged against the market?
MR. COHEN: You said you also spoke to other people besides Ms. Ellison. Who was that?
SAMUEL BANKMAN-FRIED: Ben Xie and Sam Trabucco and Ramnik Arora.
MR. COHEN: And again, Ben Xie was?
SAMUEL BANKMAN-FRIED: Head of trading at Alameda.
MR. COHEN: And Sam Trabucco?
SAMUEL BANKMAN-FRIED: He was formerly the co-CEO, although on the way out.
MR. COHEN: Okay. And I think you mentioned——I think we covered Ramnik.
MR. COHEN: Can we bring up for the witness Government Exhibit 36 in evidence.
MR. COHEN: Take a moment. Do you recall seeing this document, Mr. Bankman-Fried?
MR. COHEN: And what was it?
SAMUEL BANKMAN-FRIED: This was a document Caroline put together to discuss how to manage Alameda's risk in late 2021.
MR. COHEN: Okay. And do you recall the context in which this document was prepared?
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: There were multiple pieces of context, one of which was Alameda considering making more venture investments, second one of which was me expressing some concern about Alameda's risk to Caroline.
MR. COHEN: Okay. Take a look in the middle at the entry called main question.
MR. COHEN: It lists five topics. Do you see that?
SAMUEL BANKMAN-FRIED: I do, yes.
MR. COHEN: Do you recall discussing those topics with Ms. Ellison?
MR. COHEN: Okay. Can you go through them for us. Let's start with the first one.
SAMUEL BANKMAN-FRIED: Yeah. Bullet point 1 referred to FTX raising money from equity investors.
MR. COHEN: And what was that a reference to?
SAMUEL BANKMAN-FRIED: That was a reference to the fact that at that point FTX had raised money from equity investors at an $18 billion valuation, and was considering doing another fundraising round.
MR. COHEN: Okay. And what about the second entry, "invest in less ventures"?
SAMUEL BANKMAN-FRIED: That's somewhat straightforward, but do less venture investing, spend less capital on it.
MR. COHEN: These were options you were discussing with her.
MR. COHEN: What about No. 3, "sell more FTT"?
SAMUEL BANKMAN-FRIED: Alameda had a substantial holding in FTT and could have chosen to sell some more of it.
MR. COHEN: And four, get shorter overall.
SAMUEL BANKMAN-FRIED: Yes. That was referring to hedging.
MR. COHEN: Okay. How does shorter refer to hedging?
SAMUEL BANKMAN-FRIED: The particular risk that Alameda had, it was long the market. It had——it owned stakes in assets that were correlated to the market and so it was at risk of losing money if there was a market decrease. Getting shorter means selling assets, so that would have been the direction that would have protected or mitigated that risk.
MR. COHEN: Okay. Did you ever discuss with anyone specific investments that Alameda should hedge?
MR. COHEN: Who did you discuss that with?
SAMUEL BANKMAN-FRIED: Caroline Ellison, Ramnik Arora, and there were a few other people who were listening in.
MR. COHEN: When were those discussions?
SAMUEL BANKMAN-FRIED: Late 2021.
MR. COHEN: And do you recall what specific investments you discussed hedging?
SAMUEL BANKMAN-FRIED: I recall discussing it as a general matter and then specifically with respect to Genesis Digital Assets, GDA.
MR. COHEN: And what was GDA?
SAMUEL BANKMAN-FRIED: That was the Bitcoin mining firm that Alameda invested in.
MR. COHEN: And what did you say about——what, if anything, did you say about hedging GDA?
MS. SASSOON: Objection, your Honor. These refer to conversations with multiple different people and so the question is vague.
JUDGE KAPLAN: Yes.
MR. COHEN: Okay. I'll break it down.
MR. COHEN: The conversation about GDA, who was that with?
SAMUEL BANKMAN-FRIED: I had a conversation with Ramnik and then a conversation with Caroline and Ramnik.
MR. COHEN: Okay. And when were those conversations?
SAMUEL BANKMAN-FRIED: Late 2021.
MR. COHEN: Okay. Let's take the first one with Ramnik. What did you say to him?
SAMUEL BANKMAN-FRIED: I said that I expected that if we invested more in GDA, we would hedge our stake in the company with Bitcoin.
MR. COHEN: Why did you say that?
SAMUEL BANKMAN-FRIED: GDA was a Bitcoin mining firm. That meant that the——the revenue that it made was in Bitcoins, and its future business was in Bitcoins. It, you know, got Bitcoins using computers over time. Because of that, it was very——seemed very clearly to me to be correlated to the market and to Bitcoin in particular. I had felt that the GDA investment was good in that we were buying it for less than I expected it would bring in, in profit, but had strong market risk. And so the trade that I expressed to Ramnik would make sense would be investing in GDA and simultaneously hedging with Bitcoin the market risk from that.
MR. COHEN: And you mentioned a second conversation with Ramnik and Ms. Ellison.
MR. COHEN: What did you discuss with them?
SAMUEL BANKMAN-FRIED: In that conversation I informed Caroline that there was going to be an investment in GDA and suggested that Alameda hedge roughly $2 billion worth for it.
MR. COHEN: Did Alameda put on that hedge?
MR. COHEN: Okay. We can take this down, Brian.
MR. COHEN: Let me call your attention now to June of 2022, Mr. Bankman-Fried.
MR. COHEN: Did an issue arise at that time about Alameda's NAV?
MR. COHEN: Okay. What do you recall happening?
SAMUEL BANKMAN-FRIED: The first thing that I recall happening is I was in the FTX hut as were Gary and Nishad, and Caroline came over to us concerned.
MR. COHEN: Let me stop you for a moment. You mentioned the FTX hut, I believe.
MR. COHEN: What was that?
SAMUEL BANKMAN-FRIED: So this was the FTX Bahamas headquarters. There was a giant parking lot. On that parking lot there were about seven buildings, which we called huts. Each one could fit about 20 people or so. And the main part of the FTX headquarters was one of those huts.
MR. COHEN: Did Alameda also have a hut in that area?
SAMUEL BANKMAN-FRIED: Yeah. One of those seven was Alameda's office.
MR. COHEN: Okay. So you mentioned that Ms. Ellison came over to the FTX office.
MR. COHEN: Who was there?
SAMUEL BANKMAN-FRIED: I was there, Gary and Nishad were there, at least as of later on, Adam Yedidia was there, and there were likely other people in the office as well that I can't remember.
MR. COHEN: What, if anything, did Ms. Ellison say?
SAMUEL BANKMAN-FRIED: She approached us and said that she was concerned that Alameda might have just gone bankrupt.
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MR. COHEN: Did she say anything else?
SAMUEL BANKMAN-FRIED: Yeah. She asked what we should do, what we should tell Alameda's lenders, and if there were other things we should be doing or thinking about.
MR. COHEN: What was your reaction?
SAMUEL BANKMAN-FRIED: I was very surprised and fairly concerned.
MR. COHEN: Why were you surprised?
SAMUEL BANKMAN-FRIED: I had not expected that Alameda would be bankrupt. Bitcoin had just crashed from $30,000 to $20,000, and I did expect Alameda would have a NAV decrease from that, but I had anticipated that it would still have roughly positive $10 billion of net-asset value as of then.
MR. COHEN: How would you describe her demeanor?
SAMUEL BANKMAN-FRIED: She was nervous.
MS. SASSOON: Objection.
JUDGE KAPLAN: Overruled.
MS. SASSOON: She was nervous. It's not a description of her demeanor.
JUDGE KAPLAN: Overruled.
MR. COHEN: What happened next?
SAMUEL BANKMAN-FRIED: I asked her how confident she was that Alameda had just gone nearly bankrupt.
MR. COHEN: What, if anything, did she say?
SAMUEL BANKMAN-FRIED: She had she was not very confident.
MR. COHEN: So what happened next?
SAMUEL BANKMAN-FRIED: I said that before we got into what steps we had to take, we should first figure out what exactly had happened and what Alameda's NAV definitely was.
MR. COHEN: Did you speak to anyone else at the time?
SAMUEL BANKMAN-FRIED: Yes. Gary and Nishad.
MR. COHEN: What happened then? What did you say to Gary and Nishad?
SAMUEL BANKMAN-FRIED: I described the situation, said that Caroline had uncertainties about Alameda's NAV, and she had expressed particular uncertainties about Alameda's balances on FTX, and so asked that they investigate this.
MR. COHEN: What, if anything, did they do?
SAMUEL BANKMAN-FRIED: They spent the next three hours digging into Alameda's NAV in general and its accounts on FTX.
MR. COHEN: And they being Gary and Nishad were in the FTX office?
MR. COHEN: Did Ms. Ellison remain in the office?
SAMUEL BANKMAN-FRIED: For some time, but she later went back to the Alameda office to work on it from there.
MR. COHEN: Prior to hearing this information, what had been your plan for the day?
SAMUEL BANKMAN-FRIED: I had a trip scheduled to Washington, D.C. later that afternoon. I had meetings scheduled with senators and their staff.
MR. COHEN: Why were you meeting with senators and their staff, very briefly?
SAMUEL BANKMAN-FRIED: There was a proposed bill in the senate, senate agriculture committee in particular, that would create a regulatory framework for crypto derivative exchanges.
MR. COHEN: After your conversation with Ms. Ellison and Gary and Nishad, what did you do with respect to this trip?
SAMUEL BANKMAN-FRIED: I put that off. I was not going to fly to D.C. while Alameda might be bankrupt.
MR. COHEN: Now, I believe you said that Gary and Nishad spent about a couple of hours working on the issue?
MR. COHEN: Did anyone else help them?
SAMUEL BANKMAN-FRIED: Caroline did as well, and then later on Adam Yedidia and Andrea.
MR. COHEN: Is that Andrea Lincoln?
MR. COHEN: Did there come a time that they told you what they had found out?
MR. COHEN: Can you go over that for us.
SAMUEL BANKMAN-FRIED: Yeah. After a few hours, they told me that there had been a bug and that Alameda's NAV was about $8 billion higher than Caroline had thought.
MR. COHEN: What was your understanding about a bug?
SAMUEL BANKMAN-FRIED: I didn't --
JUDGE KAPLAN: Could we find out what was said, if that's what you want to elicit.
MR. COHEN: Yes, your Honor. Your question is better than mine.
MR. COHEN: What was said about the bug?
MS. SASSOON: Your Honor, I would just ask for clarification about who is speaking.
JUDGE KAPLAN: Please.
MR. COHEN: Let me start again.
MR. COHEN: Was there a conversation after Gary, Nishad, Adam and Andrea finished their work?
SAMUEL BANKMAN-FRIED: After they finished their preliminary work, yes.
MR. COHEN: Tell us who said what. Please go through that.
SAMUEL BANKMAN-FRIED: Nishad said that there had been a bug that had caused Alameda to miscalculate its balances and that it had $8 billion more than it thought. Caroline said that that, in turn, meant that Alameda's overall net-asset value was roughly positive 8 to $10 billion rather than zero to 2 billion.
MR. COHEN: Did anyone say anything else?
SAMUEL BANKMAN-FRIED: I asked how confident people were in the new number. I wanted to make sure that there wasn't going to be a further revision back down. All of the developers' pricing confirmed that they had looked into this and could each corroborate that the new number was the correct one. I asked Caroline to confirm that this definitely meant that Alameda's NAV was positive 8 to 10 billion, that it hadn't already been taking this into account, and she said that they had in fact confirmed that and that in fact this explained some otherwise confusing decreases in Alameda's assets over the past few months.
MR. COHEN: How would you describe her demeanor?
SAMUEL BANKMAN-FRIED: It appeared to be relieved.
MR. COHEN: How would you describe Nishad's demeanor?
SAMUEL BANKMAN-FRIED: Similar.
MR. COHEN: And Gary?
SAMUEL BANKMAN-FRIED: Similar.
MR. COHEN: After you had this conversation, what happened next?
SAMUEL BANKMAN-FRIED: So after that conversation and after I had confirmed for sure that things were as we understood, a few things happened that day. The first was that Caroline said that, given this update that Alameda was not in fact bankrupt, that it probably made sense to go ahead and send a balance sheet to lenders who were asking for one. I said that sounded right to me. She also said it probably made sense to go ahead and send back loans to lenders who were asking for loans back from Alameda, and I said that that sounded right to me as well.
MR. COHEN: We will come back to that.
Did you have any further discussions with anyone in the room about what to do about -- now that you had found the book?
SAMUEL BANKMAN-FRIED: Yes. With the FTX developers, I suggested, first, that they prioritize fixing this particular bug and making sure that all of the numbers associated with it were correct and, after having done that, that they review whatever system had led to this bug in the first place and strongly consider rewriting that system or cleaning it up because it was probably not a very robust system in my mind if it had led to a very large misreported figure.
JUDGE KAPLAN: Excuse me for a minute.
You used the phrase a minute ago, "send back loans to lenders."
JUDGE KAPLAN: What did that mean?
SAMUEL BANKMAN-FRIED: Yeah. I apologize. I forgot to give context for that.
Some of Alameda's third-party lenders, like Genesis and others, had requested that Alameda return some of the loans that it had taken out from them.
JUDGE KAPLAN: You mean pay them?
JUDGE KAPLAN: Go ahead, counsel.
MR. COHEN: Your Honor, thank you for clarifying.
MR. COHEN: In these discussions after the bug was discovered, did the topic of FTX's accounting come up?
MR. COHEN: What was discussed?
SAMUEL BANKMAN-FRIED: I suggested that it would probably make sense to do a more general overhaul of FTX's accounting, given both this and other things that were going on at the same time.
MR. COHEN: Now, moving forward, did there come a time that the bug was fixed?
MR. COHEN: Who worked on that?
SAMUEL BANKMAN-FRIED: I know that Adam Yedidia and Nishad Singh both worked on it.
MR. COHEN: Do you know if the fix of the bug was recorded anywhere?
SAMUEL BANKMAN-FRIED: Yes. There is a memo they wrote up to memorialize it.
MR. COHEN: Can we call up DX-488 for identification.
MR. COHEN: Take a moment to go through this, Mr. Bankman-Fried, and let me when you have. If you need to see multiple pages, let us know.
SAMUEL BANKMAN-FRIED: Yup, that looks like it.
MR. COHEN: What is this document?
SAMUEL BANKMAN-FRIED: This is that memo that was written up.
MR. COHEN: Did you see it at the time?
MR. COHEN: The defense offers Exhibit 488, not for its truth.
MS. SASSOON: Objection, your Honor.
JUDGE KAPLAN: Ground.
MS. SASSOON: 401 and hearsay.
JUDGE KAPLAN: Mr. Cohen.
MR. COHEN: Your Honor, we are just offering it for the fact that the memorandum was done, not for the content of the memo.
JUDGE KAPLAN: Memorandum being done divorced from the content is not relevant.
MR. COHEN: Not for the -- your Honor, may we come to sidebar?
JUDGE KAPLAN: No. This is straightforward.
Sustained.
MR. COHEN: You also mentioned that one of the follow-up items was the accounting. Do you recall what happened after that?
SAMUEL BANKMAN-FRIED: Yeah. There is -- there are two projects related to FTX's accounting. One of them was to overhaul the entire accounting system and the other was specifically to overhaul the parts of it that were related to bank deposits and withdrawals.
MR. COHEN: Do you know whether that took place?
SAMUEL BANKMAN-FRIED: The second one did take place and was completed. The first one was begone but not fully completed.
MR. COHEN: Who handled the project about bank withdrawals?
JUDGE KAPLAN: I think you misspoke. I think the witness said deposits.
MR. COHEN: I'm sorry, your Honor.
SAMUEL BANKMAN-FRIED: Adam Yedidia.
MS. SASSOON: Your Honor, I want to make a foundation objection. I don't believe it was elicited who was part of the discussions about accounting and how he would know who did this project.
JUDGE KAPLAN: The objection is overruled. The answer is in.
Next question.
MR. COHEN: Mr. Bankman-Fried, did there come a time that you learned about another liability that Alameda owed to FTX?
MR. COHEN: When did you learn about that?
SAMUEL BANKMAN-FRIED: I learned about pieces of it at different points in time. The first pieces of it were on this day in June.
MR. COHEN: Who did you learn about it from?
SAMUEL BANKMAN-FRIED: I learned about it from the developers at FTX, from Gary and Nishad in particular, and then later from conversations with Caroline as well, ultimately from a new database that was created.
MR. COHEN: Let's take them one by one. Take us through the conversations -- let me ask this. The conversations with Gary and Nishad, did you speak with them together?
SAMUEL BANKMAN-FRIED: There were conversations with us together. There were also conversations I overheard.
MR. COHEN: Let's break this down. The conversations you participated in with Gary and Nishad, what was discussed?
SAMUEL BANKMAN-FRIED: The ones in June 2022 or later?
MR. COHEN: Start with June, and then we will move to later.
SAMUEL BANKMAN-FRIED: So in June 2022, around this date, I was told that there was the bug, this $8 billion miscalculation of Alameda's net-asset value. And Gary and Nishad told me in person that day in the conversation that it was stemming from something called fiat@. That was the -- that it was related to bank account deposits and withdrawals and two of those that had gone through Alameda historically.
MR. COHEN: Did you know what fiat@ was at the time?
MR. COHEN: Did you later learn?
MR. COHEN: How did you learn?
SAMUEL BANKMAN-FRIED: I ultimately learned what it was by looking it up in a database that I ultimately got access to, although I had heard bits and pieces about it in the interim.
MR. COHEN: Did Gary and Nishad in that initial conversation discuss the size of the liability?
SAMUEL BANKMAN-FRIED: There were some discussions about liabilities. There was also a lot of uncertainty that they were still looking into. I remember hearing that there was.
JUDGE KAPLAN: Excuse me, please. We will all get done with this more efficiently if you would focus on the question better.
The question was: Did Gary and Nishad in that initial conversation discuss the size of the liability? They either they did, they didn't, or you don't recall, presumably. Would you answer that. A. I don't recall them specifically discussing that liability, no.
MR. COHEN: Did there come a time where you had later conversations with Gary and Nishad where you discussed the liability?
SAMUEL BANKMAN-FRIED: By the liability, are you referring to the fiat@?
MR. COHEN: Yes.
SAMUEL BANKMAN-FRIED: Ultimately, by October of 2022, yes, there were explicit conversations with them about the fiat@ liability.
MR. COHEN: Now, you mentioned you also had conversations, I think you said, with Ms. Ellison?
MR. COHEN: Do you recall those conversations about the liability?
SAMUEL BANKMAN-FRIED: I had conversations with her about Alameda's liabilities and liabilities on FTX. I am not sure I had conversations with her until later on about the fiat@ liability in particular.
MR. COHEN: I think you also mentioned Mr. Yedidia.
MR. COHEN: Same question.
MS. SASSOON: Your Honor, form.
MR. COHEN: Do you recall having a discussion with Mr. Yedidia about the liability, fiat@ liability?
SAMUEL BANKMAN-FRIED: I don't recall having a discussion at the time with him about the fiat@ liability size in particular. I don't recall discussing that with him until November 2022, although I did have other discussions with him.
MR. COHEN: Did there come a time that you learned of the size of the fiat@ liability?
MR. COHEN: What was the size?
SAMUEL BANKMAN-FRIED: Around 8 billion.
MR. COHEN: Who did you learn that from?
SAMUEL BANKMAN-FRIED: I ultimately learned confidently that the fiat@ liability, in particular its size, was 8 billion from a database.
MR. COHEN: Can you explain that.
SAMUEL BANKMAN-FRIED: Yes. In around September and October of 2022, FTX's developers had built a second database, a Google-hosted database that was similar to but different -- but not the same as the AWS primary database. The primary purpose of this was to have a source that nondevelopers could interact with. They had expressed the concerns to me that if I accidentally requested too much data --
MS. SASSOON: Objection. Hearsay.
MR. COHEN: Your Honor, I might be able to streamline this, if I might.
JUDGE KAPLAN: We are all on the same team on that.
MR. COHEN: Thank you.
JUDGE KAPLAN: That's not to say that you can elicit hearsay like this.
MR. COHEN: I understand. I think there is a way to shorten this. We shall see.
MR. COHEN: This database you referred to, Mr. Bankman-Fried, when did that come into effect?
SAMUEL BANKMAN-FRIED: I am not sure when it first came into effect. I believe I got access in October of 2022.
MR. COHEN: Was it a database that had been available to you before October?
MR. COHEN: Did you go on the database?
MR. COHEN: What did you find?
SAMUEL BANKMAN-FRIED: Among other things, I found something called fiat@FTX.com.
MR. COHEN: What did you conclude after finding that?
SAMUEL BANKMAN-FRIED: That there was an account with a negative $8 billion balance that was a subaccount of an Alameda affiliate.
MR. COHEN: What was your reaction, if any, of finding out that Alameda had a liability of $8 billion?
SAMUEL BANKMAN-FRIED: I was very surprised.
MR. COHEN: Why was that?
SAMUEL BANKMAN-FRIED: I had certainly, as of prior to this sequence, been under the belief that Alameda's total liability to FTX was reflected in the info@ account that I had looked at. That was Alameda's primary trading account on FTX. I had seen liabilities of roughly $2 billion in that account and far more than that in assets. Now I had come to realize that the total liability was far more than that.
MR. COHEN: How did this liability compare to what you had seen on the info@ account?
SAMUEL BANKMAN-FRIED: So this liability was larger. It was about 8 billion instead of about 2 billion, making roughly 10 billion in total, and without substantial collateral posted directly on the FTX account.
MR. COHEN: Upon seeing this, what was your reaction?
SAMUEL BANKMAN-FRIED: I was surprised. I reached out to developers to confirm what this was, and I started to think through what the implications of it were.
MR. COHEN: Did you believe that it could be paid back?
MR. COHEN: What did you base that on?
SAMUEL BANKMAN-FRIED: I had confirmed multiple times, and I did again, that Alameda's net-asset value had already included all liabilities, including this one, in other words, that Alameda had approximately 10 billion more in the value of its assets than in its liabilities, including this liability. As such, I was of the view that Alameda had plenty in asset value to be able to cover the liability.
MR. COHEN: Did you consider any other assets?
SAMUEL BANKMAN-FRIED: By other assets, can you clarify, other than what?
MR. COHEN: Of Alameda.
SAMUEL BANKMAN-FRIED: Yes. I looked at obviously the collateral on FTX. I looked at its off-FTX assets, and I also looked into Paper Bird and a few other things not on Alameda's balance sheet.
MR. COHEN: Let me break that down. What was Paper Bird?
SAMUEL BANKMAN-FRIED: Paper Bird was a company that held my equity stake in FTX.
MR. COHEN: Why were you looking at Paper Bird in connection with this liability?
SAMUEL BANKMAN-FRIED: In connection with this liability, I wanted to check basically, is Alameda going to be able to be good for it. Does Alameda have enough in value to cover a total liability of $10 billion. And that meant doing a more comprehensive view of what assets it had access to.
Traditionally it had not put my holding in FTX equity through Paper Bird on its balance sheets. It had treated those as separate, but I was more than happy to pledge everything I had, including that, as security for any of Alameda's liabilities, including this one, and so it could potentially act as backup security for liabilities.
MR. COHEN: Let me go back for a moment. I meant to cover this.
You recall a conversation in June with Ms. Ellison about repaying Alameda's lenders?
MR. COHEN: Did that repayment take place?
SAMUEL BANKMAN-FRIED: Repayments did take place, yes.
MR. COHEN: How much was repaid?
SAMUEL BANKMAN-FRIED: My understanding was, it was initially around a billion, in total about two billion in June.
MR. COHEN: How, in your experience, did that compare with other loans that Alameda had paid back to lenders?
SAMUEL BANKMAN-FRIED: It was a sizeable but not extremely anomalous loan recall amount.
MR. COHEN: Where did you believe the funds to pay the lenders were coming from?
SAMUEL BANKMAN-FRIED: From Alameda's assets. Alameda had at the time 5 to $10 billion of highly liquid assets off of FTX in its wallets, bank accounts, and other exchange accounts.
MR. COHEN: Now, I think we discussed earlier that from time to time Ms. Ellison would send you balance sheets.
Do you recall that?
MR. COHEN: How regularly would she do that?
SAMUEL BANKMAN-FRIED: Every month or two.
MR. COHEN: What would the balance sheets show?
SAMUEL BANKMAN-FRIED: They would show Alameda's net-asset value and a consolidated summary of its assets and liabilities.
MR. COHEN: How long would they be?
SAMUEL BANKMAN-FRIED: The ultimate balance sheets would usually be one page, maybe two pages.
MR. COHEN: During the summer of 2022, do you recall speaking with Alameda's lenders yourself?
SAMUEL BANKMAN-FRIED: I did, yes.
MR. COHEN: Who did you speak with?
SAMUEL BANKMAN-FRIED: I had conversations with Genesis, with BlockFi, with Celsius, and with Voyager.
MR. COHEN: Let's stay with Genesis. Who did you speak with at Genesis?
SAMUEL BANKMAN-FRIED: I spoke with two people: Matt Ballensweig, who had been one of Alameda's account managers there, and I spoke with their ultimate CEO, so the CEO of the company that owns Genesis.
MR. COHEN: First of all, who initiated the conversation with the CEO?
SAMUEL BANKMAN-FRIED: Genesis. Matt Ballensweig actually reached out to set that up.
MR. COHEN: What did you discuss with the CEO?
SAMUEL BANKMAN-FRIED: We had a phone call. We touched on Alameda's borrowing from Genesis, though it was not the primary topic. The primary topic was Genesis talking about potentially raising equity capital.
MR. COHEN: From whom?
SAMUEL BANKMAN-FRIED: From me.
MR. COHEN: Me, meaning you personally?
SAMUEL BANKMAN-FRIED: Me personally, FTX, Alameda, or any source.
MR. COHEN: Did FTX ultimately invest in Genesis --
MR. COHEN: -- or provide capital?
Did you have a conversation with anyone from BlockFi during the summer of 2022?
MR. COHEN: Who did you speak with?
SAMUEL BANKMAN-FRIED: I spoke with Zac Prince, CEO, and a number of other people in their management team.
MR. COHEN: What was the topic of that discussion?
SAMUEL BANKMAN-FRIED: The topic was BlockFi potentially raising capital from FTX.
MR. COHEN: Did FTX ever provide capital to BlockFi?
MR. COHEN: How did that come about?
SAMUEL BANKMAN-FRIED: After a number of discussions over a fairly brief time period, we understood that it was urgent. We gave a substantial line of credit, I think a couple of hundred million dollars, to BlockFi in return for options to acquire the company.
MR. COHEN: Did you have conversations with anyone from Celsius during this period?
MR. COHEN: Who did you speak with at Celsius?
SAMUEL BANKMAN-FRIED: I spoke with the board of directors.
MR. COHEN: What was the topic of that conversation?
SAMUEL BANKMAN-FRIED: They were looking for emergency capital.
MR. COHEN: Did FTX provide any capital to Celsius?
MR. COHEN: Finally, did you have conversations during this period with anyone from Voyager?
MR. COHEN: Who were those conversations with?
SAMUEL BANKMAN-FRIED: Its CEO.
MR. COHEN: What was the topic?
SAMUEL BANKMAN-FRIED: Voyager was looking for emergency capital.
MR. COHEN: Did FTX provide any capital to Voyager?
SAMUEL BANKMAN-FRIED: It provided a small amount and did not ultimately provide more.
MR. COHEN: Now, let's return back to June of 2022. You mentioned that you would get balance sheets on a regular basis from Ms. Ellison, is that correct?
MR. COHEN: Do you recall receiving a balance sheet from her in or about June 2022?
SAMUEL BANKMAN-FRIED: Yeah, roughly then.
MR. COHEN: Do you recall discussing it with her?
SAMUEL BANKMAN-FRIED: Not in depth, but briefly, yes.
MR. COHEN: Tell us what you remember about that conversation.
In fact, hold on.
MR. COHEN: Let's pull up GX-44.
MR. COHEN: This is GX-44 in evidence. Do you recognize this, sir?
SAMUEL BANKMAN-FRIED: Yes, I do.
MR. COHEN: What is this?
SAMUEL BANKMAN-FRIED: This is the balance sheet that she sent me around then.
MR. COHEN: And this being the one that's displayed, alt 7?
MR. COHEN: Do you recall discussing it with her at the time?
SAMUEL BANKMAN-FRIED: Briefly, yes.
MR. COHEN: Tell us what you remember about the discussion.
SAMUEL BANKMAN-FRIED: She said that she was preparing balance sheets for lenders. This was late June. The second quarter ended at the end of June, so Alameda was going to send an update to most of its lenders in the week or two after this. She sent me this as a balance sheet that she was planning to send to Alameda's lenders.
MR. COHEN: What, if anything, did you say to her or she to you about this balance sheet?
MS. SASSOON: Your Honor, objection. Vague. He is saying this balance sheet. There is a full government exhibit, Government Exhibit 44, on the screen. He has also referred to a single tab. So I would ask for clarification.
MR. COHEN: Sure. I thought I had clarified, but I can clarify again.
MR. COHEN: We are talking about what's displayed on the government exhibit at alt 7.
SAMUEL BANKMAN-FRIED: That's what I recall, yes. It may have been this larger -- as part of this larger spreadsheet.
JUDGE KAPLAN: The exhibit appears to contain six or seven parts, and the witness is testifying as if the exhibit is one thing.
MR. COHEN: Right. I'm getting to that, your Honor.
JUDGE KAPLAN: That would be a very good idea.
MR. COHEN: You read my mind.
JUDGE KAPLAN: No, I didn't.
MR. COHEN: Maybe it's unreadable.
MR. COHEN: At the bottom -- if you could lift it up a little bit, Brian -- you notice that there are a number of tabs?
MR. COHEN: Just for identification, just go to alt 1 and alt 2, alt 5, and so on.
MR. COHEN: Mr. Bankman-Fried, do you recall talking about each of the entries on this spreadsheet?
MR. COHEN: Do you recall whether the topic of Paper Bird came up?
MR. COHEN: How did it come up?
SAMUEL BANKMAN-FRIED: I asked her whether Paper Bird was included in the balance sheets. I believe I had asked this once or twice before as well.
MR. COHEN: And what did she say?
SAMUEL BANKMAN-FRIED: She said that, no, it was not included in the spreadsheets because she didn't view it as a subsidiary or part of the Alameda group.
MR. COHEN: What was your reaction?
SAMUEL BANKMAN-FRIED: I said it was totally her call, but that she could consider doing it.
MR. COHEN: Did the topic of limiting any of the materials sent to the lenders come up?
MS. SASSOON: Objection. Leading.
JUDGE KAPLAN: Sustained.
MR. COHEN: What else did you talk about with Ms. Ellison?
SAMUEL BANKMAN-FRIED: To be clear, this is talking on or around June 20?
MR. COHEN: Yes. In connection with this spreadsheet.
MS. SASSOON: Again, objection to this spreadsheet.
MR. COHEN: To alt 7.
SAMUEL BANKMAN-FRIED: I recall her saying that she was tentatively planning on sending something like this out, that she had thought about a few different ways of constructing it. I don't remember any detail being discussed about that. And I remember looking over it and saying that it seemed reasonable to me.
MR. COHEN: Let's move forward to July and August, Mr. Bankman-Fried.
Do you recall having a conversation with Mr. Yedidia in which the term bulletproof came up?
MR. COHEN: First of all, do you remember where that conversation took place?
SAMUEL BANKMAN-FRIED: No, I don't.
MR. COHEN: But you recall what the subject matter of the conversation was?
MR. COHEN: Why don't you tell us.
SAMUEL BANKMAN-FRIED: Adam had asked me what Alameda's risk profile had looked like after the market crash in -- crashes in May and June of 2022. I said that I thought that it -- in effect that it thought it was decent but not bulletproof anymore.
MR. COHEN: What did you mean by not bulletproof?
SAMUEL BANKMAN-FRIED: I meant that I thought that there was some risk associated with Alameda at that point, that I could conceive of a way in which it could reasonably have serious risk further down the road if action weren't taken.
MR. COHEN: What kind of risks?
SAMUEL BANKMAN-FRIED: The risk I was thinking about chiefly at the time was the risk of a future market crash. Its NAV had fallen from about 40 billion to about 10 billion since late 2021, as Bitcoin fell about 70 percent. I had been of the view that if Bitcoin fell another 50 percent from then, in addition to the 70 percent it had already fallen, as if it had fell down to about $10,000 per coin, that Alameda might then be roughly insolvent.
MR. COHEN: Let's move forward to August of 2022.
You recall mentioning a project to work on the accounting for Alameda's NAV, correct?
MR. COHEN: What, if anything, did you notice about Alameda's NAV in August 2022?
SAMUEL BANKMAN-FRIED: To be clear, its overall NAV or its NAV on FTX?
MR. COHEN: Its NAV on FTX. I'm sorry.
MS. SASSOON: Objection. Form.
JUDGE KAPLAN: Ground.
MS. SASSOON: What did you notice about the NAV? It's not something you can see in front of you, so there is no foundation, and the form.
JUDGE KAPLAN: Sustained as to form.
MR. COHEN: Maybe we could do it another way.
MR. COHEN: Did there come a time, Mr. Bankman-Fried, that you observed anything regarding interest payments on Alameda's account?
MS. SASSOON: Objection. Leading.
JUDGE KAPLAN: Sustained.
MR. COHEN: Did you have a conversation with Nishad Singh in or around October -- August 2022?
MS. SASSOON: Objection.
JUDGE KAPLAN: Overruled.
MR. COHEN: What was the subject of that conversation?
JUDGE KAPLAN: Was there one conversation or more than one?
MR. COHEN: I was going to take them one by one, your Honor.
MR. COHEN: Go ahead. More than one?
SAMUEL BANKMAN-FRIED: I had many -- on what topic in particular?
MR. COHEN: On the Alameda account.
MR. COHEN: What was the subject of that conversation?
SAMUEL BANKMAN-FRIED: I had noticed that the amount of revenue FTX was collecting from interest had suddenly increased by a substantial amount. I had brought that up with Nishad as just a flag. It was something I frequently did when I saw it, significant changes in data, so that people would investigate if there was something unexpected going on.
MR. COHEN: What, if anything, did Nishad say to you?
SAMUEL BANKMAN-FRIED: He said, after a little bit of investigating, oh, yeah, I know what's going on there. I'll deal with that.
MR. COHEN: Did he tell you what it was?
SAMUEL BANKMAN-FRIED: I believe he said something about interest payments in Alameda. I don't remember there being detail.
MR. COHEN: Did there come a time when you found out the detail?
MR. COHEN: When was that?
SAMUEL BANKMAN-FRIED: That was in, I believe, late October of 2022.
MR. COHEN: Who did you find it out from?
SAMUEL BANKMAN-FRIED: I found it out from Nishad.
MR. COHEN: What did he tell you?
SAMUEL BANKMAN-FRIED: The fiat@ account, the one that had the $8 billion liability, had been moved from its own separate account to becoming a subaccount of info@ of Alameda's primary trading user, which had resulted in a substantial increase in line-of-credit interest payments on that user. It had then subsequently been moved to a different Alameda affiliated account in -- I don't remember exactly when that second move happened.
MR. COHEN: Did Nishad tell you why it had been moved?
SAMUEL BANKMAN-FRIED: He said that it had been moved in response to interest payments.
MR. COHEN: Did you ever hear the term around this time the Korean account?
MR. COHEN: What was your understanding of that?
SAMUEL BANKMAN-FRIED: That was that second Alameda affiliated account. It had an email address which was roughly seoyun88, I think, and was referred to a few times as the Korean account, and I think I referred to it that way as well.
MR. COHEN: Continuing in August of 2022, did the topic of hedging come up again with anyone?
JUDGE KAPLAN: I'm sorry. I thought we were just discussing October.
MR. COHEN: I had to go back and cover this.
JUDGE KAPLAN: So we are not continuing in August of '22. We are returning, going back.
MR. COHEN: Can we step back.
JUDGE KAPLAN: Return to the future.
MR. COHEN: Thank you, your Honor.
MR. COHEN: Stepping back.
MR. COHEN: Did the topic of hedging come up again?
MR. COHEN: Who did it come up with?
SAMUEL BANKMAN-FRIED: Chiefly with Caroline.
MR. COHEN: Can you tell us what was discussed with Caroline.
SAMUEL BANKMAN-FRIED: Yes. Subsequent to the June market crash and the fiat@ bug and fix, I became fairly concerned about Alameda's risk. It had fallen 75 percent in asset value since late the previous year as a result of market crashes. It had not hedged against those market crashes, despite the many conversations, and I was very concerned that if there was one or two more market crashes subsequent to that, Alameda might go bankrupt.
MR. COHEN: What would a hedge have done in connection with Alameda's NAV?
SAMUEL BANKMAN-FRIED: Had there been a sufficient quantity of hedges late the previous year, its NAV would still have been --
MS. SASSOON: Objection.
JUDGE KAPLAN: What's the objection?
MS. SASSOON: Speculative to say what exact effect a hedge would have.
JUDGE KAPLAN: I think that's for cross-examination. He has already qualified it by saying, a sufficient amount of hedges. Who knows what that means.
MS. SASSOON: Yes, your Honor.
JUDGE KAPLAN: Let's go ahead.
MR. COHEN: Please finish your answer, sir.
SAMUEL BANKMAN-FRIED: Its NAV would have fallen not very much from the previous year. It would still be many times higher than it was that day. In other words, it would have offset much of the losses that its assets had suffered.
MR. COHEN: Can we call up GX-25B in evidence, please. These are notes by Ms. Ellison.
Can we turn to the second page, please. Pull up the paragraph entitled: Things Sam is freaking out about. First entry is hedging.
MR. COHEN: Do you recall discussing this with Ms. Ellison?
MR. COHEN: Were you freaking out?
SAMUEL BANKMAN-FRIED: I don't tend to show a lot of freakoutness, but relative to my standard, yes.
MR. COHEN: We can take that down.
MR. COHEN: Now let's move to September, Mr. Bankman-Fried.
MR. COHEN: Did there come a time when you considered shutting down Alameda?
MR. COHEN: Why were you considering shutting it down?
SAMUEL BANKMAN-FRIED: There were a few concerns that were combining in my mind. One was that it hadn't hedged. It had a large decrease in value from that, and I was concerned about future risk of its positions and also concerned about its risk management capabilities at that point in time.
At the same time, I had the impression at the time that its culture had been decaying somewhat, that it was harder and harder for Alameda to hire good employees, chiefly because they kept going to FTX instead, and that there might not be the right management in place for Alameda to justify its risk going forward.
MR. COHEN: If we could call up GX-18 in evidence, please.
MR. COHEN: Did you write a memo about this?
SAMUEL BANKMAN-FRIED: Yes, I did.
MR. COHEN: Is this the memo?
MR. COHEN: Call out the second line. But I think it might be time for Alameda Research to shut down. It is the second line from the top. Can you highlight that, Brian.
Brian, you can drop that down. Go back to the reasons.
MR. COHEN: These were the reasons you have discussed about why you were considering shutting down Alameda?
SAMUEL BANKMAN-FRIED: Yes. Those and some that I have not yet mentioned.
MR. COHEN: If we can call out number 2, Brian, and 2A, please, and highlight it.
MR. COHEN: You said: The fact that we didn't hedge as much as we should have alone cost more in EV than all the money Alameda has ever made or ever will make, and that's the kind of critical mistake we're likely to make if I'm not actually running the show here.
What did you mean by that, sir?
SAMUEL BANKMAN-FRIED: I had meant that Alameda had, on the one hand, lost a very large amount of value by not hedging, probably north of $10 billion, that, in addition to that, I was concerned that in the future it might make similar mistakes, that those both had negated directly a lot of the value, that Alameda had made all the money that it had made over time, and that any amount of risk that it had caused was a big concern in my mind above and beyond the actual direct money loss so far.
MR. COHEN: What did you mean by EV?
SAMUEL BANKMAN-FRIED: Sorry. Expected value.
MR. COHEN: We can take this down.
MR. COHEN: Now, this memo we were just looking at, who did you send it to?
SAMUEL BANKMAN-FRIED: I sent this to Gary and Nishad.
MR. COHEN: And did you have conversations with them about it, either in person or over Signal?
SAMUEL BANKMAN-FRIED: I did over Signal. I am not sure that I did in person.
MR. COHEN: What did you say to them and they to you?
SAMUEL BANKMAN-FRIED: I sent this to them. I said, roughly, just throwing this out here, interested in your guys' takes on it.
MR. COHEN: What was their reaction?
SAMUEL BANKMAN-FRIED: They took a little bit to discuss it. They said that they were talking with Caroline about it as well, and they ultimately came back and said they didn't think it was a good idea.
MR. COHEN: Did they tell you why?
SAMUEL BANKMAN-FRIED: I at the time did not feel confident that I had gotten a clear reason why. I do believe that they said something about it being difficult to shut Alameda down.
MR. COHEN: Do you recall at a certain point that Caroline was included in the conversations you were having?
SAMUEL BANKMAN-FRIED: There were -- there was a separate conversation that did include her ultimately, yes.
MR. COHEN: Let me just lay the foundation. This separate conversation, who was on that?
SAMUEL BANKMAN-FRIED: Myself, Caroline, Gary and Nishad.
MR. COHEN: What was discussed in that one?
SAMUEL BANKMAN-FRIED: It was on the same topic of whether or not to shut Alameda down.
MR. COHEN: What was Caroline's view on whether to shut Alameda down?
SAMUEL BANKMAN-FRIED: She did not think we should.
MR. COHEN: Did you end up shutting Alameda down in September?
MR. COHEN: Continuing in September, do you recall having a conversation with Nishad with regard to Alameda's condition?
MR. COHEN: How did that come about?
SAMUEL BANKMAN-FRIED: I was -- I believe I was traveling. Some day in September I received a message from him that he wanted to talk to me when I got back. I got back fairly late that evening, and he asked to talk to me on the balcony of the Orchid.
MR. COHEN: I'm sorry. I didn't hear. Someone was coughing. You said the Orchid?
SAMUEL BANKMAN-FRIED: I'm sorry. The Orchid 6, the Orchid penthouse.
MR. COHEN: Did you speak with him on the balcony?
MR. COHEN: What did he say to you and you to him?
SAMUEL BANKMAN-FRIED: He said that he was very concerned about a number of topics. He said he was concerned about liabilities, about Alameda, and about marketing, and wasn't sure what to do.
MR. COHEN: Let's take those one at a time.
Nishad said he was concerned about liabilities?
MR. COHEN: What did he say to you? What did you say to him?
SAMUEL BANKMAN-FRIED: He said -- and I don't remember it being specified more clearly than what I'm about to say -- that liabilities had gotten far larger than they had used to be or then we had thought they were.
MR. COHEN: Was he referring to liabilities of Alameda or FTX?
MS. SASSOON: Objection.
JUDGE KAPLAN: Sustained.
MR. COHEN: Keep going, Mr. Bankman-Fried. What else did he say, if anything, about liabilities?
MS. SASSOON: Objection.
JUDGE KAPLAN: Ground.
MS. SASSOON: Form.
JUDGE KAPLAN: Overruled.
SAMUEL BANKMAN-FRIED: He said that he didn't know what to do and wanted my thoughts on the scale of liabilities, and I think he may have thrown out a number of 8 billion or so.
MR. COHEN: What did you say to him?
SAMUEL BANKMAN-FRIED: I said, effectively, that I was also concerned about Alameda's liabilities, that they were larger than I would have wanted them to be, larger than I had thought they were.
I also said that I felt that Alameda still was quite net positive in value, that its net-asset value was around positive $10 billion, that it was still making money trading, and that -- yeah. Sorry. On the topic of liabilities. That's what I remember him saying.
MR. COHEN: You said the topic of marketing came up.
MR. COHEN: What was discussed?
SAMUEL BANKMAN-FRIED: Nishad expressed concern about marketing expenses.
MR. COHEN: What did he say?
SAMUEL BANKMAN-FRIED: He said that he was skeptical and concerned with our marketing. He mentioned FTX's brand partnerships and endorsements. He mentioned K5, Kives' firm, and thought that they were bad and didn't make sense.
MR. COHEN: What, if anything, did you say?
SAMUEL BANKMAN-FRIED: I said that my impression, although I wasn't confident, was that the more recent marketing opportunities that we found didn't seem very good but that we hadn't been doing many of them for that reason, that the marketing team was a little bit of a mess, in my opinion, at that point in time, and that was one of the reasons I didn't particularly trust the new opportunities they were finding and didn't want to greenlight significant new marketing.
I also said that I thought some of the older marketing expenses hadn't turned out to work, that there were some duds there, but that it had been my impression that if you added it up all together, it actually looked quite effective and that, in addition to being very effective, it was a reasonable expense relative to the size of FTX, that FTX was making about a billion a year in revenue, spending 1 to $200 million a year on marketing all told, and that the impact from that put together, I thought, had been quite large and very successful, that a number of our earlier deals -- the FTX Arena being one, the Tom Brady partnership being another one, the MLB umpire patches being the third one, and the Super Bowl commercial being the fourth -- had together been extremely valuable and effective and more than outweighed the other ones, but that I wasn't confident about any piece of that, and that if he and/or Claire, who was his partner and had been looking into this to some extent at the time, want to take charge of this, look into it, come up with the recommendations, make decisions, I would be really happy for them too.
MR. COHEN: Let me just back up. Who was Claire?
SAMUEL BANKMAN-FRIED: This was Claire Watanabe, Nishad's romantic partner at the time.
MR. COHEN: Did she live in the apartment with you?
MR. COHEN: What connection, if any, did she have to marketing?
SAMUEL BANKMAN-FRIED: She had been doing a review of the marketing team at both her own and my initiative because of our suspicions that it was not functioning very well at the moment.
MR. COHEN: How would you describe Nishad's demeanor during this conversation?
SAMUEL BANKMAN-FRIED: I interpreted him to be very nervous, very halting.
MR. COHEN: How did you leave things at the end of the conversation?
SAMUEL BANKMAN-FRIED: I asked if he had any thoughts or suggestions or ideas. He said he really appreciated the thought of looking into marketing more and that either he or Claire would do so, that he understood my points about it, and he asked me what I thought he should focus on. I said that there were a huge number of things he could focus on and that he should focus on what he wanted but that, for what it was worth, I thought the most valuable thing that he had been doing by far was the value he had been providing to FTX, both in terms of its code base and in terms of his management and employees.
MR. COHEN: Your Honor, this might be a natural breaking point.
JUDGE KAPLAN: All right, ladies and gentlemen, Monday morning, 9:30.
Counsel remain.
Enjoy the weekend, folks.
(Jury not present)
JUDGE KAPLAN: Mr. Cohen, this is time to play guess the question.
MR. COHEN: Yes. I think I know what your Honor is going to ask.
I would say, your Honor, assuming nothing unusual, extended sidebars, evidentiary issues, and we will take up -- over the weekend we will think about your Honor's point about the balance sheets and whether we want to submit anything or not. I think I will finish in the morning on Monday.
JUDGE KAPLAN: A little finer than that, please, if you can.
MR. COHEN: I think maybe by 11:30, maybe sooner.
JUDGE KAPLAN: What do you anticipate, Ms. Sassoon?
MS. SASSOON: Significant cross-examination, your Honor.
JUDGE KAPLAN: I got that on one.
MS. SASSOON: Sorry. I missed the end of what you said.
JUDGE KAPLAN: I got that on one.
MS. SASSOON: I would like to --
JUDGE KAPLAN: I am not going to hold you to it. I just want to try to plan the week.
MS. SASSOON: I don't think anyone would benefit from a day and a half of cross-examination, so I will try to keep it streamlined, and it obviously depends on when the defense finishes. But if it is midday on Monday, I expect the cross will continue into Tuesday.
JUDGE KAPLAN: Any current view of whether there will be a rebuttal case and, if so, how long?
MR. REHN: Your Honor, we are expecting a brief rebuttal case, probably less than two hours total of testimony.
JUDGE KAPLAN: So that gets us all the way through Tuesday, yes?
MS. SASSOON: Yes.
JUDGE KAPLAN: One more question. Give me an idea of what each side is going to want in terms of closing argument.
JUDGE KAPLAN: Plus rebuttal, yes? Is that what you have in mind?
JUDGE KAPLAN: Mr. Cohen.
MR. COHEN: About the same for the defense, your Honor.
JUDGE KAPLAN: Putting aside a charge conference, which I anticipate might be somewhat protracted, given the track record in this case, I don't see any real chance of the case going to the jury before Thursday or even Friday.
Anybody disagree with that?
MR. ROOS: No. Depending on what your Honor is thinking for the charge conference, I think there is --
JUDGE KAPLAN: I think it ought to be 10 minutes, and I have tried bigger and harder cases than this with charge conferences that long, but I'm not very sanguine here.
MR. ROOS: Depending on whether the closings would start sometime on Wednesday and carry into Thursday or start on Thursday and likely end on Thursday, I think your Honor is right, that likely the jury is not going to get the case until sometime Thursday or Friday.
JUDGE KAPLAN: Or conceivably Monday.
MR. ROOS: Or conceivably Monday. Although I think, as your Honor indicated, I think Friday, it would be -- it would make sense, given how things are going, to sit Friday of next week, or at least allow them to deliberate that day.
JUDGE KAPLAN: I'm certainly leaning that way, but I imagine delivering the charge is going to take a matter of hours in this case. I would like it to be much shorter, but that has been significantly within the hands of counsel. We may have a lot of disagreements about it, but you've asked for a lot of things.
OK. Anything else we can accomplish this afternoon?
MR. ROOS: Just on the subject of the charge conference, does your Honor want to just wait until we are done, or schedule it now for some time next week?
JUDGE KAPLAN: I am not going to do it until the fat lady has sung.
MR. COHEN: Your Honor, we have one last point.
JUDGE KAPLAN: Yup.
MR. COHEN: If the government is going to go ahead with a rebuttal case, we would ask that the identity of the witnesses be provided to us in advance and not the night before.
MR. ROOS: I think the point of rebuttal is rebuttal to whatever the defense has done. Since they are still putting on their case, we can't really know, and it may be the night before. We will keep it in mind. They gave us maybe 24 hours before they put on their case who the witnesses were, so we will keep that in mind and try to act reciprocally.
JUDGE KAPLAN: All I am going to say about it is, I understand Mr. Cohen's point. And if I were in his shoes, I would ask for the same thing. I understand Mr. Roos' point. And if I were in his shoes, I would give you the same answer.
Treat each other with respect, which you have almost uniformly done in this case, and any lapses have been uncharacteristic and inadvertent, I know.
Thank you. Good weekend.
(Adjourned to October 30, 2023 at 9:30 a.m.)