The former chief financial officer of cryptocurrency exchange FTX, Gary Wang, testified in Manhattan Federal Court on Thursday that he had participated in financial crimes alongside company co-founder Sam Bankman-Fried. Bankman-Fried is currently facing charges of defrauding FTX clients and investors, diverting billions of dollars from the company to pay off the debts of his hedge fund Alameda Research.
Prosecutors have alleged that Bankman-Fried funneled up to $10 billion from FTX to fund his lavish lifestyle and cover the debts of his hedge fund. This included hobnobbing with celebrities like Larry David and Tom Brady. Wang, who served as FTX’s CFO, and Bankman-Fried’s ex-girlfriend Carolyn Ellison, the former CEO of Alameda Research, have both pleaded guilty to fraud charges and are cooperating with the authorities. Ellison is expected to be a key witness in the trial.
During his testimony, Wang admitted to committing financial crimes while at FTX. He revealed that he designed a code that allowed Alameda Research to withdraw funds even when the account had a negative balance due to an excessively high $65 billion line of credit. This revelation points to a deliberate effort to deceive and defraud FTX customers.
Adam Yedidia, a former software developer at FTX, also testified that he had discovered Alameda’s use of FTX customer deposits to repay its loans. Yedidia had initially fixed a glitch in FTX’s code that inaccurately stated the amount of money owed by Alameda to FTX customers. However, in the process, he uncovered that Alameda owed customers around $8 billion, raising concerns about the company’s financial situation.
Yedidia confronted Bankman-Fried about the issue, who acknowledged that there might be trouble at the company. Bankman-Fried reportedly said, “We were bulletproof last year, but we’re not bulletproof this year,” and was uncertain about when the company would regain its financial stability.
Yedidia initially expressed trust in Bankman-Fried and assured him of his loyalty despite customer withdrawals during a market downturn. However, he resigned from FTX shortly afterward when he learned that Alameda Research had used customer profits to repay its loans. He described this action as “flagrantly wrong.”
Bankman-Fried now faces seven charges of wire fraud and conspiracy, with a potential sentence of more than 100 years behind bars if found guilty. He is also set to face a second trial in 2024 for additional charges related to FTX. As the trial continues, the testimonies from Wang and Yedidia shed light on the alleged financial crimes committed by Bankman-Fried and the damaging impact they had on FTX customers and investors.
The trial is a significant event in the cryptocurrency industry as it highlights the need for transparency and accountability within exchanges. It serves as a reminder to investors and users to conduct thorough due diligence and exercise caution when engaging with cryptocurrency platforms.