Sam Bankman-Fried Is Losing His Trial By a Score of 10-2
For SBF, desperate times might call for desperate measures
By: Zack Guzman
October 23, 2023
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The trial of FTX founder Sam Bankman-Fried is moving along faster than many anticipated.
For SBF, that’s not a good thing — as he’s now losing his trial by a score of 10-2, according to our baseball scoreboard (and on-chain voting from the Coinage community.)
Now, in order to turn things around, he’s going to have to make a tough call in the bottom of fifth inning: Does he want to call himself out of the bullpen to testify?
It’s a risky strategy that could spectacularly backfire seeing as it will open himself up to a grueling cross-examination from the prosecution, which has so far proven themselves to be every bit deserving of saying they are the government’s top lawyers.
But turns out, when you’re losing a game 10-2 and you’re running out of time to even the score, you’re usually forced to shake things up. In the first frame, I scored the trial at 5-0, due to a weak performance from SBF’s legal team. This week was the third week of action from the Manhattan courtroom, and if you weren’t able to attend in person for the drama, let me catch you up to speed on the biggest runs and errors:
After hearing earlier testimony from two of SBF’s alleged co-conspirators, Alameda CEO Caroline Ellison and FTX co-founder Gary Wang, this week’s headliner was the last of the trio: FTX’s former director of engineering Nishad Singh.
From what SBF told me when I visited him under house arrest, Nishad is a very idealistic 28-year-old who apparently took FTX’s collapse the hardest.
He testified that he was suicidal as it became clear the walls were closing in on FTX last year. But, he also testified that he continued to take personal loans out from the company even after he came to know there was a growing hole that jeopardized customer deposits (something I awarded the defense points for by later hammering home during their cross-examination.)
His testimony featured much of what Coinage has already exclusively reported on, including how money flowed from SBF’s trading firm Alameda Research to FTX, and how Nishad had built the code that allowed Alameda’s trading balances on FTX to dip negative. As he explained, this was originally only built to allow for short-term temporary negative balances to support Alameda’s role as FTX’s original market maker. Later, he would testify that the feature he implemented would come to be abused beyond its temporary nature, though he stayed on with the company even after learning of it.
Nishad was also instrumental in everything else at the heart of how FTX came to suffer the fate of being $8 billion short when customers rushed to withdraw their deposits from the exchange last November. What he told prosecutors under direct examination, including his reservations about everything along the way in meetings with SBF, painted a picture of the worried friend in the horror movie who keeps saying, “Guys, maybe we should turn back” but, you know, keeps going anyways. That person is usually the first to go down. And indeed, Nishad Singh has already pleaded guilty along with the other Alameda and FTX executives who have testified.
What matters in this trial is not Nishad Singh’s fate – but SBFs. And put even more precisely, what matters now is what the jury hears in relation to how they might rule on the charges SBF now faces.
As Coinage and I highlighted in our exclusive preview of SBF’s defense, his team had one shot at mounting any sort of defense. It would require undermining the believability of the 3-on-1 testimony against Sam’s side of the story. When I asked Bernie Madoff’s former prosecutor Marc Litt how Sam’s team might be able to attack the credibility of three alleged co-conspirators, his answer was simple: “One at a time.”
The defense missed the mark with both Caroline and Gary, but finally came to play on Tuesday with Nishad on the stand – albeit with a classic objection and quip from Judge Kaplan after Sam’s attorney Mark Cohen asked Nishad to read from a spreadsheet:
Cohen: Do you see that, sir?
Judge Kaplan: Well, just a minute. We're not performing eye examinations here.
What followed was the most on-point we have seen Mark Cohen operate a cross examination since the trial began. Not only did he point out that Nishad Singh continued to take out loans, he also on multiple occasions pointed out his recollection may not have been so clear. And then, he grilled Nishad on the decision to buy a $3 million dollar home in weeks with a loan from FTX just weeks before it would file for bankruptcy. And what about the other loans he took out as well?
“You said it was to donate to charity?” Cohen asked about a portion of the $477 million Nishad borrowed from FTX.
“Yes,” Nishad replied.
“Did you ever do that?” Cohen asked.
And then, just when you thought Sam’s defense may have finally impugned a witness just enough by undermining their presentation of his facts after months of meeting with prosecutors to discuss a plea deal, the prosecution brings in an expert witness that Sam’s defense team had fought tooth and nail to prevent even before the trial began.
On Wednesday, the prosecution called Notre Dame accounting Professor Peter Easton. He was also an expert witness in the Enron and WorldCom cases. In his testimony, he systematically walked through a slide deck analysis of how much was spent by Alameda/FTX accounts relative to the accounts that were supposed to be holding customer deposits. His work showed that the shortfall in what Alameda/FTX should have held in its accounts essentially dated back all the way to March 2021.
“The amount of customer deposits held in Alameda Research and FTX.com accounts was way less than was owed to customers on FTX. And then the question, of course, is what happened to that money. Well, Alameda Research used it for their own expenditures,” Easton said.
What followed was arguably the most damning and simple to follow presentation of the entire trial. One by one, Professor Easton walked through examples of investments being made at the direction of SBF and traced money back to show funds moving out of the accounts meant to hold customer deposits.
First up was the example of Sam’s investment into Anthony Scaramucci’s SkyBridge Capital.
“You'll see it says $45 million on September 7th from Alameda Research, and that amount was in turn used on the next day to invest in Skybridge Capital.
Prosecution: What's your conclusion about the source of [the investment]?
Professor Easton: Customer funds.
And how about SBF's deal to buy back their competitor’s stake in FTX?
Prof. Easton: This shows that of the $2.2 billion — a little more than half of that $2.2 billion, came from customer funds on the FTX exchange.
And finally, what about those political donations?
“The bottom line of all of this is that we have got ‘other inflows’ of $0.2 million funding $0.5 million contribution to the GMI PAC, and, therefore, at least three-fifths of that contribution must have come from customer funds,” Easton said.
Now, admittedly, having seen SBF’s defense documents ahead of the trial, I walked in with an open mind about what an objective jury might come to think. Sure, FTX went down. Sure, about $8 billion in customer deposits were unaccounted for. But in this country, a defendant is afforded the luxury of innocence until they are proven guilty. That means the government has to prove their side of the facts beyond a reasonable doubt.
But as presented by the prosecution, the flurry of these examples (and more) one after another (after also hearing testimony from SBF’s three alleged co-conspirators) removed almost any room for doubt about what Sam knew at the time of his actions and what funds were being used.
The last hope that remains, if you recall the advice from Bernie Madoff’s former prosecutor Marc Litt, is now whatever proof the defense can muster to show SBF didn’t operate with criminal intent. In other words: Perhaps, yes, FTX had suffered from a series of bad decisions in a moral gray area that soon ballooned to a point of no-return when the market turned.
Could Sam testifying about what his experience was like as he tried to undo the hole he caused for customers change anything? Maybe. Or, maybe the jury would even more clearly see it was the hole he caused that was the problem the whole time.
The trial resumes on Thursday after a week-long break.
Sam’s defense team has yet to inform the court about whether they plan to call witnesses, but would begin after lunch on the 26th if they do. It’s also still unclear if Sam plans to take the stand.
For more on SBF's trial, check out our earlier episodes, or our discussion above:
Disclosure: Alameda Ventures is one investor among many in Trustless Media, the production company behind Coinage.