Sam Bankman-Fried, founder of the now-bankrupt cryptocurrency exchange FTX, testified in his fraud trial on Thursday without the jury present so the judge overseeing the case can first decide what portions of his testimony are admissible.
U.S. District Judge Lewis Kaplan’s decision to hear the 31-year-old former billionaire outside the jury’s presence came after prosecutors finished presenting their case accusing Bankman-Fried of stealing billions of dollars from customers and the defense presented its first two witnesses.
The judge released the jurors for the rest of the day following a lunch break and instructed them to return on Friday morning. The unusual move came after Bankman-Fried’s lawyers said they planned to elicit testimony about the involvement of FTX lawyers in key company decisions like document retention and in crafting of loans to executives that prosecutors have said was one way Bankman-Fried stole funds.
Defense lawyers said the involvement of these lawyers showed that Bankman-Fried was acting in good faith, but Kaplan said he needed more information before deciding whether the testimony could be given to jurors.
Bankman-Fried began by testifying about FTX’s use of encrypted messaging platforms like Signal and Slack. He said he believed the use of such platforms was in line with FTX’s policies, which were crafted by lawyers. Prosecutors have argued that Bankman-Fried encouraged employees to use such platforms to hide their tracks.
Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy. If convicted, he could face decades in prison. Prosecutors have said Bankman-Fried used the misappropriated funds to prop up his crypto-focused hedge fund, Alameda Research, make speculative venture investments and donate more than $100 million to U.S. political campaigns.
The prosecution rested its case after presenting 12 days of testimony in federal court in Manhattan in which former close FTX colleagues told the jury he directed them to divert customer funds to his hedge fund and lie to investors and lenders. Bankman-Fried’s risky decision testify gives prosecutors the chance to cross-examine the 31-year-old former billionaire about those claims that he told colleagues to commit crimes.
His lawyers have said three of his former colleagues, who have pleaded guilty and agreed to cooperate with prosecutors, tailored their testimony to implicate Bankman-Fried in the hopes of receiving lenient sentences.
Defense lawyer Mark Cohen said Bankman-Fried’s direct testimony could last close to five hours, before prosecutors get a chance to cross-examine him.
After the prosecution rested its case, U.S. District Judge Lewis Kaplan denied a defense request to acquit Bankman-Fried before the case goes to the jury. Cohen argued that prosecutors had not set forth “viable legal theories” of wire fraud, which prosecutor Nicolas Roos disputed.
The final prosecution witness, FBI agent Marc Troiano, testified about Bankman-Fried’s use of the encrpyted messaging application Signal when the trial resumed on Thursday morning after a week-long break.
Troiano said Signal groups that Bankman-Fried was in with colleagues often were set to delete messages automatically, as jurors saw screenshots from a phone belonging to Caroline Ellison, the former chief executive of Bankman-Fried’s Alameda Research hedge fund and his on-and-off girlfriend.
Bankman-Fried has maintained that while he made mistakes running FTX, he never intended to steal funds.
Legal experts have said Bankman-Fried has little to lose by bucking conventional wisdom and testifying, given weeks of the testimony against him by insiders painting an unflattering portrait of his character.
FIRST DEFENSE WITNESSES
Bankman-Fried took the stand after the defense presented its first two witnesses: Krystal Rolle, Bankman-Fried’s lawyer in the Bahamas; and database expert Joseph Pimbley.
Rolle, the first defense witness, testified that the day after FTX declared bankruptcy on Nov. 11, 2022, authorities in the Bahamas – where FTX was based – directed Bankman-Fried to hand over remaining assets to regulators in the Caribbean country.
The defense could argue that Rolle’s account undercuts prosecution testimony from Gary Wang, FTX’s former chief technology officer, that Bankman-Fried told him he transferred assets to the Bahamas because “they seemed more likely to let him stay in control of the company, compared to the U.S.”
Pimbley, the second defense witness, testified that most FTX customers had a type of account that allowed their funds to be lent to other users. Bankman-Fried’s lawyers could argue that shows that Alameda’s use of FTX customer funds was not improper.
That would include any testimony about the involvement of FTX lawyers in structuring loans from Alameda to FTX executives, which prosecutors have said was a key way the defendant and others took funds from unwitting customers.