Coinfeeds Daily → Former FTX CEO Testifies in Court on Fraud and Misuse of Funds Charges

Former FTX CEO Testifies in Court on Fraud and Misuse of Funds Charges

Published: Oct 27, 2023 | Last Updated: Mar 17, 2024
Moyi Dang
Bankman Fried testifies in court. Photograph: Jane Rosenberg/Reuters
Image: Bankman Fried testifies in court. Photograph: Jane Rosenberg/Reuters

Bankman Fried: borrowing customer funds was permitted, and there was no risk management

Bankman-Fried Testifies in Court

Sam Bankman-Fried, the former CEO of FTX, a cryptocurrency exchange, has testified in a New York courtroom regarding allegations of fraud and misuse of customer funds. Bankman-Fried is facing multiple charges, including wire fraud, money laundering conspiracy, and campaign finance law conspiracy.

Allegations Surrounding FTX Deposits

One of the main allegations against Bankman-Fried is that he used customer funds from FTX to make investments through Alameda Research, a quantitative trading firm. He defended his actions in court, claiming that he believed taking FTX deposits through Alameda was "permitted". He explained that because Alameda was a customer of FTX, they were allowed to borrow from it.

“So long as we believed that the risk was being managed, which is to say, so long as we believed its assets were greater than its liabilities, we didn’t care if the user, you know, withdrew funds and used them to buy muffins, to pay business expenses, to invest or anything else,” - Sam Bankman-Fried

He also denied knowledge of why the crypto exchange began moving user funds to a firm called North Dimension, which is allegedly used for money laundering. He suggested that banks may have been more comfortable with North Dimension compared to well-known hedge funds connected to crypto.

No Dedicated Risk Management Team

Bankman-Fried said that he made mistakes both large and small, and "the largest mistake was we didn’t have a dedicated risk management team". He admitted that when FTX started in 2019, there was no risk management at all.

Bankman-Fried Denies Defrauding Customers

Bankman-Fried denied claims of defrauding customers and using stolen funds for political donations. He acknowledged that "a lot of people got hurt" by the company but maintained his innocence.

20% Chance of Being Successful

Bankman-Fried said that he knew basically nothing about crypto before starting Alameda Research and later FTX. “I had absolutely no idea how they worked,” he told his lawyer on the stand. “I just knew they were things you could trade.”

there was “maybe a 20 percent chance” that FTX would be successful and “maybe an 80 percent chance…that we’d fail.” - Sam Bankman-Fried

The case against Bankman-Fried highlights the risks and regulatory challenges associated with the rapidly evolving cryptocurrency industry. As the trial unfolds, it will likely set precedents for how legal systems handle cases involving cryptocurrency exchanges and customer funds.

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