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NEW YORK (Reuters) -FTX founder Sam Bankman-Fried was challenged on Monday over interviews following the cryptocurrency exchange’s collapse, in which he said he was not involved in his Alameda Research hedge fund’s trading.
The questioning by prosecutor Danielle Sassoon, on the second day of Bankman-Fried’s testimony in his own defense at his fraud trial, was part of an effort to undercut the 31-year-old former billionaire’s credibility after he told jurors last week he did not steal customers’ money.
Bankman-Fried has said he had stepped back from running Alameda, which he founded in 2017, after launching FTX two years later. He testified on Friday that he was “very surprised” to learn in October 2022 - a month before FTX declared bankruptcy - that Alameda had borrowed $8 billion from the exchange.
Sassoon kicked off her cross-examination by asking about his involvement in Alameda’s trading.
“I was not generally making trading decisions, but I was not walled off from Alameda,” Bankman-Fried testified.
Sassoon then played him a clip from a podcast from December 2022 in which he said he had not been involved in trading at Alameda “for years” and showed a Financial Times article from the same month in which he was reported as saying he had walled himself off from Alameda’s trading.
Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy. Prosecutors have said he looted billions of dollars in FTX customer funds to prop up Alameda, make speculative venture investments, and contribute to U.S. political campaigns. If convicted, he could face decades in prison.
Bankman-Fried’s decision to testify in his own defense is risky, as it opens him up to probing cross-examination. But legal experts told Reuters he may have viewed taking the stand as his best shot at countering testimony three cooperating witnesses - former Alameda CEO Caroline Ellison and former FTX executives Gary Wang and Nishad Singh - that he directed them to commit crimes.
Under questioning by Sassoon, he often said he could not recall specific details.
“I’m not sure exactly what you are referring to, I made a lot of public statements,” Bankman-Fried said when asked whether he had touted FTX as a safe platform.
$8 BILLION SHORTFALL NOT A ‘CRISIS’
Earlier on Monday, under questioning by his own defense lawyer Mark Cohen for a second day, Bankman-Fried sought to dispute prosecutors’ argument he misled the public about the exchange’s health to try to slow a tsunami of customer withdrawals.
“My view at the time was the exchange was okay, and there was no hole in terms of assets,” he said, referring to his state of mind when he tweeted on Nov. 7, 2022, four days before the exchange declared bankruptcy, “FTX is fine. Assets are fine ... we don’t invest client assets.
Bankman-Fried said that after he posted the tweet, Alameda took a 50% hit when the price of cryptocurrencies it was heavily invested in plummeted. Alameda owed billions of dollars to FTX at the time, which he said changed his thinking about the exchange’s solvency. He deleted the tweet the next day.
A key piece of Bankman-Fried’s defense is making clear to the jury that FTX customers, including Alameda, were allowed to trade on margin, which meant borrowing from other customers’ deposits.
The Massachusetts Institute of Technology graduate told jurors that Ellison had failed to make trades that would offset the risk of falling cryptocurrency prices starting in mid-2022.
But he later said none of the usual hedging strategies would have spared the fund from a narrow crash in prices of specific cryptocurrencies it had invested heavily in that began in November of that year. Because Alameda had borrowed so heavily from FTX, the fund’s collapse brought down the exchange, Bankman-Fried has said.
“The hedges that would have been helpful against the prior crashes that happened had effectively no benefit here,” he said.
Ellison has pleaded guilty to fraud and testified against Bankman-Fried earlier this month.
Reporting by Luc Cohen and Jody Godoy in New York; Editing by Will Dunham and Nick Zieminski
