Chelsea Jia Feng/Insider
- Sam Bankman-Fried tweeted that Alameda Research got the same treatment as every other customer.
- The same day, the FTX rolled out a feature allowing Alameda to get an unlimited line of credit.
- The testimony contrasts with past claims that he did not know or understand how intermingled finances were.
On the same day that Sam Bankman-Fried took to Twitter to defensively claim that the FTX sister company Alameda Research got the same treatment as any other customer, the crypto exchange rolled out a new feature that proved the opposite, FTC cofounder Gary Wang testified Friday.
In mid-summer 2019, Sam Bankman-Fried responded to a tweet from someone concerned about the conflict of interest between FTX and Alameda Research, both of which belonged to SBF and even worked out of the same open-plan office.
"Alameda is a liquidity provider on FTX but their account is just like everyone else's. Alameda's incentive is just for FTX to do as well as possible; by far the dominant factor is helping to make the trading experience as good as possible," said Bankman-Fried's July 31, 2019 tweet, which was presented as evidence by the prosecution Friday.
But that was a lie, prosecutors said in Manhattan federal court, calling witness Wang to prove their point.
The same day, the company implemented a new feature in its code that permitted Alameda, its subsidiary accounts, and a select few other accounts to have a negative balance, meaning they could withdraw an unlimited amount of funds, Wang testified on Friday.
The code was created and implemented by Nishad Singh, another former FTX executive on the witness list, at Bankman-Fried's direction, Wang said. It was uncommon because nearly all the other customer accounts with FTX had to have a positive balance in order to withdraw or trade on the exchange, Wang said. If the accounts approached zero, they would be automatically liquidated.
"If an account went negative, that would mean that FTX was on the hook for the money," Wang testified, adding that Bankman-Fried "told me to make sure Alameda's account was never liquidated."
Bankman-Fried faces seven criminal charges, including fraud, conspiracy to commit securities fraud, and conspiracy to commit money laundering.
Wang previously pleaded guilty to financial crimes in the scheme, including fraud and conspiracy charges.
On Friday, Wang described enhancing Alameda's unlimited line of credit multiple times at Bankman-Fried's direction. Only a few dozen other accounts had lines of credit with FTX (to the tune of single or double-digit millions), but Alameda's line of credit was over $65 billion, he said.
Those other accounts signed a line of credit agreement, but Alameda was never required to sign such an agreement, Wang testified. He increased Alameda's line of credit incrementally to a few million, a few hundred million, a billion, and eventually tens of billions.
When Wang told Bankman-Fried he was upping the line of credit to $65 billion, he said he was "OK with that," Wang testified.
Alameda could also place orders slightly faster than other customers, Wang said.
The testimony contrasts with past claims from Bankman-Fried and his defense team that he did not know or understand how intermingled FTX and Alameda's finances were, placing blame on fellow executives like his ex-girlfriend, Caroline Ellison.
Wang also described overhearing a phone call between Bankman-Fried and an Alameda trader, who asked whether it was permissible for Alameda to continue withdrawing from FTX. Bankman-Fried said as long as what Alameda was withdrawing from FTX was less than the company's overall revenue, "it's fine," Wang testified.
At some point before FTX crashed, Wang checked Alameda's balance and noticed it was negative.
"I was surprised because it didn't line up with what Sam said earlier," Wang testified. Bankman-Fried instructed Wang to also include Alameda's holdings of FTT, FTX's cryptocurrency token, in his math, as well as FTX's total revenue. Even doing so, Wang said Alameda's balance was still negative, meaning the money was coming from FTX customers.
"I wasn't sure which interpretation was correct, and I trusted his judgment," Wang said, referring to Bankman-Fried. The conversation of the negative balance came up with SBF "a few times."
Wang is the second FTX employee to be called as a witness. The prosecution previously called Adam Yedidia, a software developer who described confronting Bankman-Fried about an $8 billion hole in the company's finances representing Alameda's liabilities.
When Yedidia asked Bankman-Fried about the extensive hole, the CEO replied that the company was "bulletproof last year, but we're not bulletproof this year."