Crypto founder Bankman-Fried's fraud trial begins

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Crypto founder Bankman-Fried's fraud trial begins

Sam Bankman-Fried's fraud trial began Monday and already jurors have heard testimony from one of his closest business partners, who said, in essence, we did the crimes and we did them at SBF's direction.

Gary Wang, the co-founder of now-bankrupt crypto exchange FTX, is the first of what is expected to be three key witnesses for the prosecution of the crypto firm's leadership, who will say under oath that the crypto firm's leadership defrauded investors and stole from customers in a multibillion-dollar scheme involving FTX and its sister trading house, Alameda Research.

Over nearly six hours of testimony, Wang recalls the rise and fall of FTX, with Bankman-Fried calling the shots on just about everything, including deceiving everyone outside of his inner circle about what was really happening at the firm.

Bankman-Fried, who is awaiting trial for seven counts of fraud and conspiracy, stands alone in his view of his business empire's collapse. SBF has vowed not to depict himself as a CEO who simply got in his head since his arrest in December last year. Things were'moving quickly' in the volatile world of crypto, his lead defense attorney, Mark Cohen, said in his opening statement Wednesday. They were building the plane as they flew it, and some things were ignored.

The defense has not yet presented its case to the court, which could last up to six weeks. Bankman-Fried is not likely to testify, but it is not clear whether he will testify.

The first week in the court was marked by some highlights.

Two of the witnesses so far have been former FTX employees who testified on crucial aspects of the government's case. The jury found out that FTX and Alameda, which were ostensibly separate companies that were founded by Bankman-Fried, were effectively heavily intertwined.

In crypto markets, Alameda was doing complex, highly risky bets. FTX was the customer-facing business that was more transparent - if you wanted to trade crypto you just create an account, deposit some money on the platform and have at it. FTX earned a lot by collecting fees on those trades.

FTX did not tell its customers that the money they sent to FTX was actually being held in a bank account controlled by Alameda. The individuals running FTX were also secretly letting Alameda access FTX as a slush fund from which it could borrow a virtually unlimited amount of money.

Alameda also used FTX like other businesses and individual investors did, he said. As part of a plea deal, Wang testified that he personally wrote some of the computer code that allowed Alameda backdoor access to FTX money, including customer deposits.

He also said Alameda had a $65 billion line of credit from FTX - a figure that was meant to be so big it couldn't be breached. Alameda was the only FTX customer allowed to carry a negative balance.

Bankman-Fried lawyers challenged Wang's characterization of Alameda's privileges, saying Alameda controlled the bank account that FTX funds were deposited to, because FTX, the newer company, was having difficulties finding a banking partner.

Defense counsel Christian Everdell, in cross-examining Wang, said that Alameda's ability to go negative and take out a large line of credit were functional necessities related to its role as a'market maker' on FTX rather than a nefarious plot. Everdell referred to past conversations in which Wang told prosecutors that the 'allow negative' function was necessary to fulfilling Alameda's role as a market maker.

What SBF said as FTX foundered?

Prosecutors are seeking to demonstrate that Bankman-Fried did not only steal customer money to splurge on luxurious real estate and private jet trips, but also that he lied to investors, clients and the public about all of it.

FTX did not have enough assets to cover all of its client holdings because Alameda had withdrawn all of it, he said.

Caroline Ellison, the former CEO and Bankman-Fried's on-and-off girlfriend, is expected to take the stand when the court resumes on Tuesday.

Ellison, 28 is known as the prosecution's star witness, given her position as the head of Alameda and her personal knowledge of Bankman-Fried's behavior. As part of a plea deal, Wang pleaded guilty to several fraud charges.

One of the key moments prosecutors said they will address with Ellison is an audio recording of a meeting in which Ellison told Alameda employees that the fund borrowed money from FTX customer accounts to pay back lenders. When one employee questions who made the decision, Ellison responds: ''No, you don't have to do it,'' according to court documents.