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FTX co-founder admits he and Sam Bankman-Fried committed fraud

<i>Elizabeth Williams/AP</i><br/>This courtroom sketch shows Adam Yedidia
Elizabeth Williams/AP
This courtroom sketch shows Adam Yedidia

By Allison Morrow, CNN

New York (CNN) — A key witness for prosecutors in the trial of Sam Bankman-Fried testified that both he and Bankman-Fried committed multiple financial crimes related to their oversight of now-bankrupt crypto exchange FTX.

Gary Wang, who co-founded FTX with Bankman-Fried, told jurors — in compliance with an earlier plea deal — that he was guilty of wire fraud, securities fraud and commodities fraud, and that he committed those crimes under the direction of Bankman-Fried.

Wang’s testimony, along with that of two other close business associates, is a crucial component for the government’s case against Bankman-Fried, 31, whom prosecutors say orchestrated a massive, yearslong scheme to steal from customers and defraud investors.

Bankman-Fried, known as SBF, has pleaded not guilty to seven counts of fraud and conspiracy.

Wang, whose testimony will continue Friday morning, offered an account that closely hews to the government’s claims and corroborates media reports about various special advantages that FTX created — and subsequently hid — for its sister crypto firm, Alameda Research.

FTX’s unusually close financial ties to Alameda are a central issue in the case. Prosecutors contend that FTX routed customer accounts directly into a bank account controlled by Alameda, which was, on paper, not connected to FTX apart from having a common founder. In doing so, the government says, FTX deceived customers about the whereabouts of their funds and how they were being used.

Defense attorneys haven’t yet had an opportunity to cross-examine Wang or call their own witnesses. In an opening statement, lead attorney Mark Cohen previewed a narrative that attempts to disperse blame for what were ultimately bad business decisions, rather than fraud.

Alameda’s ‘unlimited’ slush fund

Unlike regular customers of FTX — a platform for individual investors and institutions to trade crypto — Alameda was allowed to run a negative balance and make “unlimited withdrawals” from FTX customers, Wang said.

Alameda had a $65 billion line of credit to use as collateral when placing bets — a figure that is orders of magnitude larger than the credit that FTX would give to other large investors.

Asked by Assistant US Attorney Nicolas Roos whether those advantages were ever disclosed to customers or investors, Wang replied: “No.”

Wang also said that he personally wrote the computer code for some of the features, and did so at Bankman-Fried’s direction.

The defense has not yet had an opportunity to cross-examine Wang.

While Wang’s admission of guilt was not unexpected, it was the first time the jury, empaneled on Tuesday, had heard directly from a high-level member of Bankman-Fried’s inner circle.

‘We’re not bulletproof this year’

Earlier in the day, jurors heard from another former FTX employee and friend of Bankman-Fried’s, Adam Yedidia.

Yedidia recounted a conversation with Bankman-Fried in which Yedidia alerted SBF about a concerning $8 billion liability hanging over Alameda’s balance sheet.

After a round of paddle tennis on the grounds of the luxury Bahamian apartment complex where they both lived, Yedidia asked SBF about the red flag.

“Are things OK?” Yedidia, who was a senior software developer at the company, recalled asking SBF.

In response, “Sam said something like, ‘We were bulletproof last year; we’re not bulletproof this year,’” Yedidia told the jury.

The $8 billion represented the money that FTX customers would be owed if they decided to withdraw their deposits, Yedidia said. It seemed like a “very large debt,” and Yedidia wanted to know that Alameda could repay it.

But he didn’t press the issue, he said, adding, “I trusted Sam.”

Yedidia said he stood by his friend, whom he has known since they were MIT undergrads, until the moment he learned that Alameda, which was supposed to be a separate company from FTX, used FTX customers’ deposits to pay Alameda’s creditors.

It seemed like a “flagrantly wrong thing to have done,” he told the court.

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