3.Defense Opening Statement

MR. COHEN: Thank you, your Honor. Good morning, ladies and gentlemen. Really, good afternoon. I'm Mark Cohen, and I'll be presenting the case, the defense on behalf of Mr. Bankman-Fried, along with my colleague, Mr. Everdell. We are privileged to do so. We are grateful to you for your service. As the evidence comes in before you in this case, we ask you to consider it based on your real-world experience. We submit that when you do that, you will see that it tells a very different story than the government claimed in its opening statement. How shall we answer these allegations? Let's start with the basics. Sam didn't defraud anyone. Sam didn't intend to defraud anyone. Sam acted in good faith in trying to build and run FTX and Alameda. You know, in its opening statement the government used the phrase over and over again that Sam committed theft, that he stole funds. They claim that, under Sam, FTX stole funds from its customers and improperly loaned them to Alameda. But there was no theft. Rather, you will learn that Sam believed, reasonably believed, that loans that FTX made to Alameda were permitted and backed by reasonable security and collateral. And far from being secret, they were open and known within both companies. As well, Sam believed that the loan funds were not spirited away but remained in investments, and Sam did not steal from anyone. He did not intend to steal from anyone. Now, I am not going to address every single point in the government's opening statement or talk about every piece of evidence you will see over these many weeks. That's not the purpose of this opening statement. Rather, the purpose is to give you, members of the jury, a context for what really happened at the time and suggest ways for you to think about the evidence as it comes in before you. So what will the evidence show about what really happened? This case is in many ways about the crypto world from 2017 to 2022. You will learn that crypto was not for everyone. On the one hand, it was new and exciting. Now people could use a currency like Bitcoin to buy and sell things. They could trade in Bitcoin and other cryptocurrencies, buy and sell it, but, on the other hand, many factors that nobody controlled could make crypto go up or down in value. So two crypto companies themselves could rise and fall very quickly. Sam entered this world in 2017. In the government's opening they'd have you think he was quite the villain or, more precisely, almost a cartoon of a villain. Think of the photo they chose to show you of him. You will see many other photos like that. But the evidence will give you a very different context. The evidence will show that Sam was someone who worked very hard to try and build things, not harm them. He was a math nerd who didn't drink or party. He went to college at NYT. He worked for a few years for a traditional trading firm on Wall Street, and then, in 2017, he got into the new world of trading, in crypto, by founding Alameda. Brian, could we get the next slide, please. What was Alameda? The government made it sound like it was this dark secret company, that it only existed to accept transfers from Sam in the dark of night. But that's not true at all. You will learn that Alameda was a trading firm called a hedge fund and it traded in cryptocurrency, so it was called a crypto hedge fund. And over time Alameda grew to more than 30 employees, traders, computer developers, and settlements people who handled the details of the trades. Alameda became successful in a short period of time. It ultimately traded in hundreds of millions of dollars and earned billions in profits. And along the way, to build the business, Alameda raised funds by borrowing from lenders who specialized in crypto and wanted to be involved because they believed in crypto and they thought Alameda was a new and exciting company. There is nothing wrong with that. After all, that was the lender's business. In 2019, based on the success, Sam founded FTX, which was a foreign company. FTX was a crypto exchange. Now, an exchange sits between buyers and sellers and let's them make transactions from each other. The New York Stock Exchange, just a few blocks south of here, is one of the most famous exchanges. At the time there were already a lot of crypto exchanges out there. As it grew, FTX tried to stand out and be different, to be more innovative. Many people have heard of Bitcoin, but, as it turns out, you will learn there were thousands of cryptocurrencies.

MR. COHEN: So FTX offered its customers the ability to trade in many of them. It provided other innovations as well. As you see on the slide, one thing it offered its customers was the ability to take something called margin loans, which you will hear about in this case. What is a margin loan? Well, at a high level, it's a loan that an exchange makes to a customer where the customer puts up collateral, and FTX every customer who wanted to take a margin loan also agreed that under certain circumstances his or her collateral could be used to cover the losses of other customers who also had margin accounts. Brian, the next slide. No need to study this now, but this is a section of the terms of service of FTX that relates to margin trading and what I just talked about. Again, there was nothing wrong with margin trading or margin loans, nothing wrong with this. From a business point of view, the issue was whether the customer taking the margin loan had sufficient security or collateral for that loan. Now, FTX grew rapidly in just a period of a few years, but it was a start-up company too. You know there is an expression about startup companies that you all may have heard. Working on a startup or at a startup is like building a plane as you are flying it. You will learn that happened here as well. Sam and his colleagues were building the plane as they were flying it. They had to figure out how to navigate a world where they were running FTX, building out its systems, dealing with hacking threats, managing the credit risk of their customers, managing hundreds of employees, all while building up their actual exchange. You will learn that, as FTX grew, it hired more and more people to address these matters, ultimately reaching 350 employees. To listen to the government's opening, there were no employees. It was Sam doing everything by himself. That wasn't true. No one person, no CEO, certainly not Sam, could be everywhere and do everything, particularly at such a fast-growing, complex business, and they built out a team. Things were happening quickly, very quickly. Sam and others made hundreds of decisions a day. At any given point in time there are dozens of things on his to-do list and on others too, everyone else's too. As a result, some things got overlooked, some things were still in progress, things a more mature company, an older company would have built out over time. But at FTX they were still works in progress, building the plane as you're flying it. For example, you will learn that FTX had not yet built out a fully-developed risk management team. It didn't have a chief risk officer, which became an issue later on, when the storm hit. Even so, in a few years FTX became very successful. This was a very real, innovative, successful company. As you can see on the slide, it had 6 million registered users, handled over 15 billion in trades per day, and over 3 million in revenues per day. As it grew, in order to build the company still further, FTX sought to raise funds from investors. Nothing wrong with that. FTX would announce an offering to investors, would provide them with standard data and materials, and within days that offer would be sold out because if you wanted to invest in crypto, with all its risks, FTX had huge potential. So it was FTX, the crypto exchange, and there was Alameda, the crypto trading hedge fund. Did they have business relationships with each other? Yes, they did. In its opening the government claimed that from the very beginning these relationships were corrupt and part of a fraud, a dark and secret fraud. But to the contrary, during this trial you will learn that these business relationships were reasonable under the circumstances. Let me just go through them for you quickly. Customer. You will learn that Alameda was one of the many customers of FTX. It had its own account on FTX which was called the Alameda info@ account. Nothing wrong with that. It was open and known. The employees at Alameda could access this account. At FTX many of the company could see this account just as they could see any other customer's account. As I mentioned a moment ago, FTX offered all its customers the ability to take margin loans. As a customer, Alameda signed up for and took margin loans. Alameda was a big customer, so it took big margin loans, but it also posted large amounts of security or collateral. Again, nothing wrong with that. Market maker. What's that? In order to run an

MR. COHEN: exchange, FTX needed to provide liquidity. If an exchange has more people who want to buy something than sellers who want to sell it, the whole system can freeze up. The way the exchange deals with it is by having companies act as market makers who step in, buy for their own account when there are no other available buyers. When FTX opened, it was starting from scratch. It needed a way to have liquidity for its customers, so Alameda took on the role of market maker. Nothing wrong with it doing so. The hope was that over time the exchange would become successful and it would be able to track other companies to also be market makers and that's what happened. By 2022, Alameda handled less than 5 percent of that activity, and other market makers had stepped in to handle the rest. Payment agent, what's that? Well, back when FTX started in 2019, it didn't have its own bank account to receive dollars, which in the crypto world you will learn are called field. As more and more customers wanted to send in dollars, there needed to be a way to receive them. The idea was this would be short term until FTX could get its own bank accounts, which it later did. FTX would ask customers who wanted to open accounts to send their dollars to an Alameda bank account or an associated account. From the customer viewpoint they were getting what they requested. They were able to wire dollars from their institutions to Alameda in order to set up their FTX Trading account, and there was no secret that the funds for their FTX account were being wired to an Alameda account. We can look at the next slide, Brian. Here you see just one example, wire instructions from June 24 of 2020. Customer wants to open an account at FTX, is told if he or she wants to do that they have to wire the funds to Silvergate Bank in the name of Alameda. Nothing secret about that. Now, what happened? The funds went into the bank account at Alameda, and they were tracked on a ledger entry at FTX called the fiat@ entry, and we will hear a lot about this fiat@ account. This was tracked in a way similar to if the customer had paid in his or her dollars using PayPal or a credit card. The fiat@ account was open and known. But as we will get to in a moment, due to the lack of a fully built-out risk management function, this fiat@ entry was not tracked and not reconciled as it should have been, which became an issue later on when the storm hit. Now, what can FTX do -- we are not up to that, Brian. Sorry. What could FTX do with the funds that came in, the fiat@, the dollars that came in. You heard from the government this morning their view that it would it not have been invalid for Sam to believe that they could be loaned out. It would not have been invalid for him to believe in good faith that FTX could do so. But what will the evidence show? Again, the evidence will show that Sam reasonably believed that there were no laws or provisions in the terms of service that prohibited FTX from loaning out these deposits, whether loans went to Alameda or to other customers. And for Sam, as the CEO, from a business perspective, the issue was whether the borrower had sufficient security or collateral to pay back any loans. As you listen to this evidence, think about this. If Sam believed in good faith the funds were permitted to be loaned by FTX to Alameda, then there was nothing wrong with Alameda using them, provided there was sufficient assets for them to be paid back. So given Sam's good-faith belief, how could there be a theft. There wasn't. In short, you will learn that each of these business relationships between FTX and Alameda were in keeping with business practice. They were not set up to create some grand fraudulent scheme. Over time Sam stepped away from the day to day at Alameda because he was running FTX, which was more than a full-time job. In 2021, he gave up his role as CEO of Alameda and turned it over to Caroline Ellison and another person and ultimately to just Ms. Ellison. Did he stay involved? Of course he did. He was still the majority owner of Alameda, still interested in its performance. But he relied on her and he trusted her to act as the CEO and manage the day to day of trading management, preparing financial documents, handling lender relationships, and he stayed involved as owners do. As I mentioned, 2021 ended on a high note for FTX and Alameda, and the crypto world was booming. But you will learn that, based on his overall view of the market, Sam became

MR. COHEN: concerned. What would happen if things changed? What if the price of Bitcoin and other cryptocurrencies that Alameda was invested in were to go down? What if it were to go down a lot? As the majority owner of Alameda, he spoke to Ms. Ellison, the CEO, and he urged her to put on a hedge, something that would protect against such a downturn. She didn't do so at the time, and this also becomes an issue later on, when the storm hit. OK, Brian. That brings us to 2022, in many ways the turning point year in the case. And what happened from May to November? As I mentioned, Sam and the others had been building the plane as they flew it, but now, unknown to them, they were about to fly into the perfect storm. In May, you will learn that a series of market shocks took place. The price of Bitcoin, the leading cryptocurrency, dropped by 70 percent. Further drops were coming, could be coming. The entire crypto world was affected. Many crypto companies suffered great shocks and losses and wound up going out of business. What did this mean for Alameda, the crypto hedge fund? Well, Alameda was a hedge fund that traded in crypto. And if crypto was going down in value, plummeting, that meant Alameda was losing value. Some of the lenders recalled their loans to Alameda, in other words, asked to be paid back. And what happened? Well, you will learn that Sam and Ms. Ellison discussed the situation and Sam didn't say, well, to heck with the lenders, don't pay them, put them off. You will learn that Sam believed in good faith that, consistent with Alameda's business and assets, this could be done. So Alameda paid the lenders back on time, in full. As you listen to that evidence come in, ask yourselves, how can these lenders be victims of fraud when they were paid back this way. They weren't. Now, the government in its opening claimed that Sam also directed the creation of false statements or false documents to be sent to these lenders, and you will learn during this trial that that's not what happened. But staying in this period from May forward, where you see all the price of Bitcoin plummeting, another issue developed. Remember that fiat account I told you about. This was the account set up to receive the bank account set up to receive -- the account set up to receive dollars back in 2019, when FTX didn't yet have its own bank accounts. Now, FTX had since gotten its own bank accounts and Sam reasonably believed that Alameda had stopped taking deposits from FTX customers. And even though this fiat@ account had been in place for three years, it hadn't been dealt with. It should have been from a risk management viewpoint. Again, this was part of the claim that they didn't get built out while they were flying it, but it hadn't. Now this fiat@ account had a large balance in it, 8 to $10 billion. Alameda had assets, but many of them were not liquid. They couldn't be quickly turned into funds. Now, Alameda owed payments on back to FTX, which would be used to pay FTX's customers if they asked to withdraw the funds. Well, how did Sam react? During this trial we will go through the details with you, but for now we ask you to think about the big picture as you hear the evidence from that period, and it's this. Sam acted in good faith and took reasonable business measures. He reviewed financial documents for both Alameda and FTX and believed they had the assets to weather the storm. Things were tight, much tighter than they had been at the beginning of the year, and tight because earlier in the year Ms. Ellison had not put on the hedges for Alameda, which would have offset some of this. But Sam still believed in good faith that both companies remained good, innovative profitable companies that were dealing with a liquidity crisis that they could get through it. He took reasonable steps in good faith. Among other things, Sam began speaking to outside investors to line up capital if necessary. He always kept nearly all of his own assets in the companies, and now he was willing, if necessary, to give up everything he owned personally in order to make things work. That brings us to November 2022, which you also heard about from the government. In particular, you will hear a lot about the period from November 1 to November 11. No question, a lot happened in those 11 days. As you hear the evidence about this time, consider the following. Things were changing moment to moment, minute to minute. Alameda and FTX came under attack in crypto media.

MR. COHEN: Then the CEO of Binance, the largest crypto exchange and FTX's fierce competitor, put out a tweet attacking Alameda. Because of Alameda's association with FTX, this triggered a run on the bank at FTX. Now, many customers sought to withdraw their funds. Normally, FTX would see around 50 million flowing in and out of the company in a day normally. But now, on November 7, it saw billions of dollars of withdrawals in a single day. At the same time, the market fear caused a crash in Alameda's assets. Its value fell dramatically over a 12-hour period. What did this all mean? Well, Alameda had liabilities, but its assets were investments that weren't liquid, which meant that if it had to pay back all of its loans to FTX immediately, it couldn't. In a matter of months, weeks, years, sure, but they wanted to process all the withdrawals -- if they wanted to process all the withdrawals of U.S. dollars that week, they couldn't. And, again, what did Sam do? In the face of this liquidity crisis, he didn't run away. He addressed it in good faith and put measures in place to attempt to stabilize the company and repay customers. This was a frenetic time. The plane was going into the very eye of the storm. As you hear the evidence of these days, you must consider what Sam did and said in real time and the context that shows about his state of mind. You will learn that his approach was the opposite of someone who intended to harm. Well, that's certainly a different narrative than you heard from the government, isn't it. As I mentioned, I am not going to go through everything they said in their opening statements, but let me mack a few points about their case. As you listen to their evidence, we ask you to consider this. A lot of their case is what we would call a hindsight case. The approach goes like this. FTX was worth billions and ultimately filed for bankruptcy, alameda was worth billions and went out, people lost money, so Sam must have committed fraud. Of course it's not a crime to be the CEO of a company that later files for bankruptcy. It's not a crime to run a business in good faith that winds up going through a storm. What does the government do? It points to various business practices that were reasonable at the time and says, well, in hindsight, given what we know now about what happened, it must have been part of a fraudulent scheme. I won't go through every example now, but let me just touch on a few. You heard multiple times in the government's opening about the apartments in the Bahamas, the spending on the apartments in the Bahamas. Because that's what a bad guy does, he steals money, goes to the Caribbean and buys apartments. Well, is that what the evidence will show you? Here is what the government didn't say in its opening. FTX bought those apartments, not Sam, and they were bought for FTX employees in order to attract the best and the brightest who worked at places like Google and Facebook to see if they could get them to move to the Bahamas. As to meetings with famous people, television ads, these have also been taken out of context to make Sam look like a bad guy. At the time they were appropriate business and advertising expenses. It's not a crime to try to get Tom Brady to go on ads for your company. The government also referred to loans that Alameda made to Sam and others claiming they proved Sam committed a crime. But wait a minute. As I mentioned, Alameda was a private company, it was worth billions, and Sam was the majority owner. He was permitted to take such loans. They went along with what Alameda could do and used them for benefits that would benefit Alameda and FTX and the remaining value for the companies. Nothing wrong with that. What else did the government tell you? We heard multiple times, my hand wasn't keeping up, but at least four or five about special secret privileges in the Alameda code base, special secret privileges. Remember back when FTX started it needed liquidity, so Alameda served as its primary market maker. You will learn that Mr. Wang and Mr. Singh put certain things in the code base to allow Alameda to function as a market maker. Now today they are called special secret privileges. In fact, you will learn that they were done for reasonable purposes at the time related to the market maker role and they were far from secret. Any senior computer developer at FTX could see them. The government also referred to the terms of service,

MR. COHEN: but they failed to tell you that the terms of service didn't apply to the fiat transfers or margin loans we just talked about, and they claimed another bad act that Sam misused auto delete at the company and that was bad. But you will learn that what the company used were forms of communication called Slack and Signal that were used to talk internally and with other companies all over the world and that the approach which was ultimately taken at FTX regarding what to delete and what to keep was reasonable under the circumstances. And there are many more examples like this, but you have the point. Taking something out of context and in hindsight and calling it improper is not proof beyond a reasonable doubt. That's critical because, as Judge Kaplan told you, the government has the burden of proving its case beyond a reasonable doubt. He told you, and he is right, of course, that a criminal case is different, very different, and rightly so. A life is at stake. In a criminal case the government must prove its case beyond a reasonable doubt. These are not just words but the bedrock of our system. What does it mean? It means if the government doesn't prove its case beyond a reasonable doubt, you must find Sam not guilty, period. The government has the burden of proof. It never shifts to the defendant and it's a very heavy burden. We just told you about what really happened at FTX and Alameda and the perfect storm, but in fact we weren't even required to do that. We are not required to ask a single question or offer any evidence at all. And the burden of proof also means that if Sam in good faith made business decisions that didn't work out or ended up poorly or turned out to be mistaken, this is not the stuff of a criminal case. You must also keep the burden of proof in mind when you consider the government's evidence, and there are many gaps and limitations in its case in addition to what I have pointed out. Now, Mr. Rehn mentioned documents and other things, and you will certainly see plenty of those. But, in the end, this case turns on the testimony of the witnesses and three witnesses in particular who we referred to, Ms. Ellison, Mr. Wang, and Mr. Singh. You will evaluate them. You will evaluate all the witnesses for yourself. But let me suggest a way to think about their testimony and other testimony as it comes in before you. Each of them has pleaded guilty to various offenses. It took them a while to get to that. Their own pleas have no bearing to the case, but it is relevant to the context of the testimony. You will learn that they entered into cooperation agreements and, as a result of their pleas, they face potentially very serious consequences unless they cooperate and satisfy those agreements. Let's face it. Here in the real world cooperation means testifying against Sam in a way that supports the government case. It overhangs everything they will say to you. So be careful as you hear from them to think about what they did and said then and what they are saying now. As you hear their testimony, ask yourselves, are they saying that Sam was part of the conversations and they don't really remember, saying Sam did things that he didn't really do when they are guessing he did. Are they pointing to out-of-context or ambiguous statements that now they are saying led to black-and-white conclusions? Perhaps, most of all, are they spinning things that Sam said and did at the time that were good-faith business decisions that they themselves were fine with and now claiming they were sinister and deceitful and they knew it all along. Ask the same questions when you hear from the other government witnesses as well. In the end, Sam started and built two billion-dollar companies in the span of a few years. They both grew very quickly, maybe too quickly, a little too quickly. Then building a plane as they were flying it. And part of their management was not fully developed. A giant market crash wiped out the crypto sector. FTX survived that. But, in November, a follow-on crash specifically hit FTX and Alameda. Even then Sam took reasonable measures under the circumstances. He didn't steal any money. He invested nearly everything he had in the companies, and when they faced a crisis he was the first to lose and that each point in time he made business decisions that he thought were right when he made them. We will have another opportunity to speak with you in the closing statement. When we do, we will ask you to find

MR. COHEN: that the government has not met its very heavy burden of proof beyond a reasonable doubt, and we will ask you to find Sam not guilty on all counts. Thank you.