Stay Updated on Developing Stories

Bankman-Fried says he worried his company's management team 'might not be great'

What we covered here

  • Sam Bankman-Fried took the witness stand Friday for the first time in front of jurors in his criminal fraud trial.
  • In his first statements, he testified that he "knew nothing" about crypto prior to starting his crypto exchange, FTX, and that he did not defraud anyone.
  • Bankman-Fried, 31, has pleaded not guilty to seven counts of federal fraud and conspiracy related to the collapse of FTX and its sister trading house, Alameda Research, nearly a year ago.

4:55 p.m. ET, October 27, 2023

Bankman-Fried says he worried Alameda's management team "might not be great"

In September 2022, two months before the collapse of Alameda Research, Sam Bankman-Fried wrote a memo suggesting it may be time to shut it down. 

In testimony Friday, he said that due to turmoil in the crypto market at the time, he was worried there were serious risks for Alameda. If bitcoin were to fall another 50%, for example, “Alameda might be roughly insolvent," he said.

Bankman-Fried recalled his concern that then-CEO of Alameda, Caroline Ellison, had not hedged against market crashes despite many conversations he said he had had with her about hedging. "I was worried Alameda might go bankrupt," he told the court.

Referring to a document Ellison wrote at the time, titled "Things Sam is freaking out about," defense counsel Mark Cohen noted that the first entry on the list was "Hedging."

"Were you freaking out?" he asked his client. 

"I don’t tend to show a lot of freakout-ness, but relative to my standard, yes."

SBF said he worried that Alameda's "culture had been decaying somewhat," and he worried there "might not be great management in place."

In the memo, SBF had written that "current Alameda leadership is good, but not good enough to be able to trust with such a big operation."

In June last year, Bankman-Fried recalled, Ellison told him "Alameda may have just gone bankrupt."

It turned out there was an accounting bug that caused an $8 billion overstatement in Alameda's liabilities. After the bug was fixed, he said, the firm's net asset value was between $8 billion and $10 billion.

5:14 p.m. ET, October 27, 2023

Bankman-Fried will be back on the stand Monday

Court has adjourned for the day and week.

Sam Bankman-Fried will be back in court Monday to continue his testimony. Cross-examination is expected to start in the second half of the day and into Tuesday, prosecutors said Friday.

3:04 p.m. ET, October 27, 2023

Bankman-Fried addresses questions about his personal style

Bankman-Fried, wearing shorts and a T-shirt, in Hong Kong on May 11, 2021. Lam Yik/Bloomberg/Getty Images/FILE

Sam Bankman-Fried's casual wardrobe and wild curly hair were a subject of discussion in court on Friday.

After Caroline Ellison, SBF's ex-girlfriend and the former CEO of Alameda Research, testified earlier this month that Bankman-Fried's style was part of a marketing strategy to look like an eccentric startup founder, SBF's lead attorney Mark Cohen sought to undermine that on Friday.

"Why did you wear the shorts and T-shirts?" Cohen asked.

“I found them comfortable,” Bankman-Fried replied.

Cohen also asked about the hair.

“I was kind of busy and lazy and didn’t bother getting a haircut for long periods of time," Bankman-Fried said.

Overall, SBF said he never intended to be the public face of FTX. It was "an accident" at first, he told the court.

“I hadn’t intended to be a public face of anything,” he said, adding that he is "somewhat introverted."

2:11 p.m. ET, October 27, 2023

SBF slips in a dig at the KC Royals

When shopping for an arena with which FTX could launch a a brand partnership, Bankman-Fried said his company had talks with a few different sports venues.

Eventually, they settled on the home of the Miami Heat, which was eventually christened the FTX Arena.

Others that didn't work out included football stadiums for the New Orleans Saints and the Kansas City Chiefs, as well as the Kansas City Royals' baseball stadium. 

"No offense to the Kansas City Royals, but we didn’t want to be known as the Kansas City Royals of crypto exchanges," SBF said Friday afternoon.

The FTX Arena was later renamed the Kaseya Center, following the company's collapse last fall. 
2:31 p.m. ET, October 27, 2023

SBF talks about Caroline Ellison, his ex-girlfriend and star witness for the prosecution

\Bankman-Fried testifies federal court in New York City, on Friday, October 27 Jane Rosenberg/Reuters

Bankman-Fried discussed Caroline Ellison, his ex-girlfriend and whom he appointed co-CEO of Alameda. Ellison is the prosecution's star witness, who offered damning testimony earlier in the trial that cast Bankman-Fried as a criminal mastermind.

SBF said Friday she was a competent manager and trader who could also interface with developers. But he also alluded to what he saw as some blind spots, such as not being as adept at risk management and hedging. 

He said he "didn’t have the time or the energy" to put in what he believed Caroline Ellison wanted from a relationship, telling the court: "She wanted more from it than I was willing to give."

Defense lead Mark Cohen asked him about philosophical conversations the two had as a couple, which SBF said were usually initiated by Ellison. SBF stated that often she would stake out a contrarian philosophical position, "and we would debate it." 

12:26 p.m. ET, October 27, 2023

SBF implies he didn't know about Alameda's "back door" access to FTX customer funds

Former crypto billionaire Sam Bankman-Fried's testimony aims to highlight his view that other executives at FTX and Alameda often acted independently, without direct oversight from Bankman-Fried, who was the CEO of both companies for a time. 

"Ultimately, I had authority," he said. "On the other hand, I wasn’t much of a programmer," and didn't directly supervise the work of developers who were building FTX's code. 

Bankman-Fried is essentially saying that he wasn't aware of the so-called back door that Alameda used to withdraw FTX customer funds — a key issue in the case. 

"I wasn’t entirely sure what was happening," Bankman-Fried said.

12:45 p.m. ET, October 27, 2023

How a bug nearly blew up FTX

Omar Marques/SOPA Images/Sipa USA

At one point, in the early days of crypto exchange FTX, its automated "risk engine" suffered an error that turned a routine liquidation of a few thousand dollars into an almost catastrophic series of trades.

Within the company, they called it the "auto-deleveraging event," FTX founder Sam Bankman-Fried said Friday in testimony in his criminal fraud trial.

As FTX grew, the volume of trades strained the company's computer systems, and the "risk engine was effectively sagging under the weight of that growth." The engine was an automated program that would liquidate positions that were at risk of going negative. 

Because of a delay of a few minutes, the risk engine closed a "relatively small position" over and over. To correct its error, it had to buy back the erroneous sales. The engine wound up in a feedback loop that wound up moving "trillions" of dollars.

"That caused downstream issues, unsurprisingly. It was ridiculous." The trading became so large, it had to go to a backstop liquidity provider, in this case Alameda, because it was the largest account on FTX. That caused Alameda’s account to go under water, triggering a potential liquidation of Alameda’s account.

"The whole thing shouldn’t have happened," Bankman-Fried testified Friday.

FTX leaders had to shut the exchange down for an hour to fix the problem.

"It was scary," SBF said, because it exposed a larger concern "that if there were an erroneous liquidation of Alameda, it would have disastrous consequences."

11:38 a.m. ET, October 27, 2023

SBF thought there was an 80% chance FTX would fail

When Sam Bankman-Fried and Gary Wang started FTX in 2019, there were already dozens of crypto exchanges. However, SBF said Friday that he felt their "design philosophies" were "clunky" and "didn't make a lot of sense." 

"If you wanted to trade, there were hundreds of wallets you had to manage for a single account," he said. The goal of FTX was to set up an exchange that was more seamless and approachable for traders.

Bankman-Fried testified Friday that he initially envisioned quickly selling FTX to cryptocurrency exchange Binance, since he "had no idea how we would get customers."

However, Binance ended up using an internal team to build out its own exchange platform. And the more he thought about it, Bankman-Fried said, the more he became convinced that he could grow FTX despite the challenge of attracting customers.

It began to feel "less hopeless, like maybe we could figure it out," SBF said. 

"I thought there was maybe a 20% chance of success," and an 80% chance it would shut down after a few months, he told jurors. “Even that 20% chance was a huge opportunity, given that the biggest exchanges at the time were multibillion-dollar companies."

10:28 a.m. ET, October 27, 2023

Alameda used to be headquartered in a rented two-bedroom home

The first office for Alameda Research was a two-bedroom Airbnb in North Berkeley, California, Bankman-Fried said Friday.

"There were three of us, but it had an attic. So that seemed like a third bedroom to us." 

The name, he said, came from Alameda County.

“I’m not very good at naming things,” SBF said. At the time, the firm wanted to be under the radar, he said.

"I didn’t want to call it 'Sam’s crypto trading firm' or anything like that," because there was a lot of budding competition in crypto. “Research” was a generic term that filled out the name of the company. 

It was a more sensible name than what they'd been calling their operation internally: “Wireless Mouse.”

Outbrain