FTX founder Sam Bankman-Fried faced cross-examination in a Manhattan federal court, where he provided often curt answers, occasionally denying recall of specific evidence and testimony. He appeared anxious and occasionally stammered. Bankman-Fried denied recalling receiving a spreadsheet with doctored finances from Alameda Research CEO Caroline Ellison but was contradicted by metadata proving he opened it. When questioned about repaying third-party loans with FTX funds, he suggested it "very well could be a margin trade."

Understanding of Margin Trading

The prosecution revisited a June 2022 incident where Bankman-Fried allegedly approved repaying third-party loans despite needing more funds from FTX. When asked to clarify if repaying with FTX funds constituted margin trading, Bankman-Fried speculated it "very well could be a margin trade" but quickly labeled it as "speculative."

Alameda Research's "Special Privileges"

In September 2022, Bankman-Fried proposed shutting down Alameda Research and replacing it with Modulo Capital, an undisclosed investment. He argued that Modulo had a lower PR cost, admitting to spending billions on PR for his crypto empire. Refusing to acknowledge the risk of repaying Alameda's loans with FTX funds, he distanced himself from Alameda's $65 billion line of credit, claiming suggestions given to Alameda's CTO and head of engineering were "interpreted."

Co-Founder Gary Wang's Testimony

Gary Wang, Alameda Research and FTX co-founder, testified about special privileges coded into FTX's platform for Alameda as early as July 31, 2019. Alameda could have a negative account balance, allowing it to withdraw more funds than it had. Wang explained that Alameda's withdrawals, funded by FTX customer deposits, reached $8 billion, emphasizing that Alameda's account was immune to liquidation due to the coded "allow_negative" feature.

Alameda enjoyed a $65 billion line of credit, surpassing any other customer on the exchange, initially starting at a few million dollars. Wang detailed Bankman-Fried's involvement in seeking a complete picture of Alameda's balances and instructing the repayment of Alameda's loans from FTX customer deposits. Wang also highlighted Bankman-Fried's proposal to shut down Alameda Research, favoring Modulo Capital.

After FTX's bankruptcy filing, Wang claimed Bankman-Fried and Bahamian officials instructed him to transfer FTX assets to Bahamas regulators, defying U.S. regulators' instructions. Wang later cooperated with the U.S. government, pleading guilty to felonies and agreeing to testify against Bankman-Fried.

Trial Highlights and Tension

Judge Kaplan expressed displeasure with repetitive defense questions, and tension arose during cross-examination. Wang admitted to committing wire, securities, and commodities fraud with Bankman-Fried, Nishad Singh, and Caroline Ellison. The defense faced objections and criticism from the judge for repeated inquiries, and the trial is set to continue after a Monday holiday.

The U.S. government's case against Bankman-Fried centers on witnesses demonstrating fraud at his direction. The prosecution highlighted the special privileges Alameda had in its relationship with FTX, particularly the ability to draw billions in FTX customer funds unchecked.

On July 31, 2019, a feature allowed Alameda to withdraw more funds than it had, funded by FTX customer deposits. The defense attempted to portray Alameda's privileges as related to its role as a market maker on FTX.

FTX co-founder Wang detailed internal financial advantages for Alameda, including undisclosed privileges and a $65 billion line of credit. He revealed the company's name strategy to avoid negative connotations, and Wang's testimony is expected to continue.