Let’s say I’m the owner of a hedge fund, and one fine day in June my employees come up to me and say, “Hey, Liz, we have an accounting problem. We are missing out on a few billion dollars.” How would I respond?
I’ve been wondering about this since Danielle Sassoon guided Sam Bankman-Fried on his response to the FTX software bug fixed by Adam Yedidia. In my case there would probably be shouting? Like a lot of yelling. I would also probably have my assistant figure out which law enforcement agency to call immediately. Misplacing $900 million is a five-alarm fire even for Citibank; misplaced several billions kicks over a lantern in Chicago in 1871.
Clearly, this is not how Bankman-Fried responded to the software bug that overestimated the amount Alameda owed FTX by about $8 billion. It’s also not how he reacted when he discovered that even after the bug was fixed, Alameda still owed FTX about $8 billion. Instead, Bankman-Fried instructed alleged co-conspirator Caroline Ellison to repay third-party loans and continued making investments.
Bankman-Fried said he became aware of the fiat@ftx account — which is the account that kept track of how much Alameda owed FTX — in June 2022 while his senior staff was working on resolving the software bug. However, he only discovered what the bill was for in October. I know this sounds unbelievable, but this is his real testimony.
His staff told him “they were busy and I had to stop asking questions because it was distracting.”
Simple questions nailed Bankman-Fried to the wall. Had he instructed his employees at Alameda not to issue FTX customer deposits? Did he implement policies to prevent Alameda employees from spending FTX customer money? Has he taken steps at Alameda to protect FTX customer money? No, no, and no. Oh, but him used to be testify to Congress about keeping customer money safe.
Who made the decisions to spend $8 billion in customer funds? Bankman-Fried couldn’t remember knowing anything about it. Were there any rules or requirements for how money borrowed from FTX would be repaid? Were there risk management rules? “I dealt with overall risk management,” Bankman-Fried said.
But it was the testimony about June 2022 that appealed to me most. Didn’t Bankman-Fried ask what “fiat@ftx” was? He did. But – I heard these words said out loud in court this morning, I’m not creative enough to come up with things like this – his staff told him, “they were busy and I had to stop asking questions because it was distracting.”
Yedidia — Bankman-Fried’s college friend, roommate in the Bahamas and employee at FTX — had testified that he asked Bankman-Fried in June or July about the $8 billion hole on a padel tennis court at their luxury complex. In testimony today, Bankman-Fried appeared to try to deny that any conversation ever took place. It wasn’t until Judge Lewis Kaplan intervened to ask whether Bankman-Fried had done that ever had been told about that money by Yedidia, either in words or in the contents, and Bankman-Fried admitted that he had been told.
I have come to believe that if you know the meaning of the word “epistemology,” you absolutely should not testify in your own defense
“So it is your testimony that your supervisees told you to stop asking questions?” Sassoon asked. She could have filed her nails, her tone was so flat. Had Bankman-Fried called someone to ask who had spent $8 billion? “I didn’t mean to build up guilt for it,” he said. He was focused on solutions! Did he fire anyone? No!
We also saw an Alameda balance sheet dated June 13, 2022, which included the money it borrowed from FTX as “ftx loans.” Bankman-Fried seemed pretty fuzzy on this too.
If you’re wondering how Bankman-Fried’s parents responded to this, I can’t tell you: they weren’t there. I couldn’t really blame them. I wouldn’t want to watch my child undergo a vivisection either. However, the judges watched the operation intently. I guess for most of us, $8 billion is a way to focus the mind.
Look, uttering phrases like “hole isn’t really the word I would use” and responding to a question by saying you wanted to “get a few more qualifications and look into that” generally doesn’t bode well for your credibility. Yes, this will win certain types of nerd arguments. But this is a courtroom, and I have come to believe that if you know the meaning of the word “epistemology,” you absolutely should not testify in your own defense.
“His name is Ryan Salame :p”
Bankman-Fried, like Elizabeth Holmes of Theranos before him, took the stand to speak directly about his state of mind in a way that no other witness can. But telling your side of the story will expose you to a host of questions that you may not want to answer on cross-examination. I’ve seen a lot of crosses. This was the dirtiest thing I’ve ever seen, I think.
The charges in this case are based on conspiracy and… on purpose deception. Just now to lose $8 billion is not a crime, but it is very embarrassing. (Even losing $900 million is very embarrassing, because people will joke about it forever!) But as Bankman-Fried lied to customers and lenders about what he did and how safe FTX was, that is a crime.
Establishing that would have been enough, but Sassoon also managed to make some noise about Bankman-Fried’s relationship with the power of the Bahamas. For example, she asked him if he had made any comments about paying down the Bahamian national debt. (You’ll be shocked to find out he didn’t remember.) Then we saw an internal FTX group chat called “Project Chinchilla Chatter,” in which another member asked who in the Bahamian government they should talk to for the project. “His name is Ryan Salame :p,” Bankman-Fried replied. Salame was one of FTX’s executives.
In another part of the chat, Bankman-Fried noted that the Bahamian Prime Minister was sitting in FTX seats with his wife inside the FTX arena.
Then we saw a Nov. 9 email from Bankman-Fried to Ryan Pinder, Attorney General of the Bahamas, saying “we are very grateful” for what the Bahamas has done for FTX. As a token of that gratitude, Bankman-Fried wrote:
We would like to open withdrawals to all Bahamian customers on FTX so that they can fully withdraw all their assets tomorrow, making them fully intact. It is your decision whether you want us to do this, but we are happy to do so and consider it the least of our duty to the country, and can open it immediately if you reply that you wish to do so. If we don’t hear from you, we’ll do it tomorrow.
Bankman-Fried has indeed opened withdrawals for Bahamian customers. The upshot of this testimony seemed to be that Bankman-Fried had a cozy, perhaps even inappropriately cozy, relationship with the Bahamian government — for which he won’t stand trial, but which probably doesn’t make him look any better to a jury.
Sassoon successfully established yesterday that Bankman-Fried has a long history of dishonesty. Today, through a series of questions about what Bankman-Fried did and did not do, she determined that the story he told upon direct examination was absurd. After a briefly diverted investigation by Bankman-Fried’s lawyers, which was resplendent with word salad, Bankman-Fried resigned and the defense rested their case.
Closing arguments will begin tomorrow, after which the case will be handed over to the jury. In the meantime, I will continue to consider the appropriate response to the $8 billion misplacement. To cry? Pass out? Maybe it’s actually padel tennis, I don’t know. Net sports is not my field, and no one has ever given me $8 billion to lose.