Gary Wang, the co-founder of FTX, made startling revelations during a recent court appearance, confessing that both he and the platform’s former head, Sam Bankman-Fried, were involved in wire fraud.
Wang detailed to the court how they engaged in dubious financial activities and deceptive tactics that eventually led to the downfall of the FTX cryptocurrency trading platform.
Being the chief technical officer at FTX and also a co-owner of Alameda Research, the cryptocurrency hedge fund he co-founded with Bankman-Fried in 2017, Wang admitted to several counts of fraudulent activities. These included wire fraud, securities fraud, and commodities fraud.
Wang elaborated on the magnitude of their fraudulent activities, revealing that they unlawfully siphoned a staggering $8 billion from FTX’s coffers through Alameda Research. He also asserted that it was Bankman-Fried who orchestrated these unauthorized transactions.
This dramatic disclosure took place on the second day of a trial, which is anticipated to span up to six weeks.
Prosecutors are building a case against Sam Bankman-Fried, alleging that he engaged in a systematic embezzlement of billions from both investors and clients of FTX.
The prosecution alleges that Bankman-Fried misappropriated these funds for personal gains: acquiring lavish beachfront estates, padding his own wealth, and making political donations upwards of $100 million in an attempt to sway cryptocurrency regulatory decisions.
Bankman-Fried, who has been detained since August, was brought from the Bahamas to the US last year after being indicted in a Manhattan federal court. Despite the gravity of the charges, he has entered a plea of not guilty.
In the lead-up to the trial, which began on Tuesday, the prosecution signaled their intent to bring forward key figures from Bankman-Fried’s close professional circle. They aim to showcase testimonies that will solidify their claims of his intentional theft from FTX’s stakeholders.
Conversely, the defense is positioning their argument around the absence of any criminal intent on Bankman-Fried’s part. They assert that his actions, which might appear questionable, were merely attempts to keep his ventures afloat amidst the tumultuous downturn of the cryptocurrency market.
Alameda Could Withdraw Unlimited Funds From FTX
In a pointed testimony, Wang confirmed that both he and Bankman-Fried knowingly permitted Alameda Research to siphon funds from FTX without any imposed limits, while intentionally keeping the public in the dark.
“We sanctioned Alameda’s unrestricted fund withdrawals,” Wang shared. He elaborated on the extent of this privilege, mentioning that the hedge fund was allowed to run negative balances and have unlimited open positions. The computer code that oversaw its activities was explicitly crafted to extend a line of credit that astonishingly reached $65 billion.
Stunned by the sheer scale of this number, Judge Lewis Kaplan interjected, seeking to confirm from Wang that he was indeed alluding to billions rather than millions.
Wang also added that these unique allowances in the computer code were directly instituted under the guidance of Bankman-Fried.
Wang and Bankman-Fried’s relationship traces back more than a decade when they first met at a summer camp during their teenage years.
In his testimony, Wang divulged details of his compensation and stake in the companies. He had a salary of $200,000 and held a 10% share in Alameda Research and 17% in FTX. These stakes could have propelled him into the billionaire bracket, had the enterprises not faltered.
Wang is merely the opening act in a series of testimonies against Bankman-Fried. He’s the initial one of three high-ranking ex-executives set to testify.
All of these individuals, including Wang, have admitted to the fraud charges. In exchange for their testimonies and cooperation, they have entered agreements that might lead to lighter sentences.
The subsequent witnesses slated to take the stand are Carolyn Ellison, previously the CEO of Alameda Research and also Bankman-Fried’s ex-partner, and Nishad Singh, who served as the engineering director at FTX.
During the earlier stages of the trial, Adam Yedidia, a former software developer for FTX, shared his experiences and concerns. He mentioned that his decision to part ways with FTX in November was precipitated by the revelation that Alameda had redirected investor funds to settle debts with creditors.
Yedidia brought up memories from mid-2022, around June or July, when he cohabitated with Bankman-Fried and several other senior executives. During that time, he confronted Bankman-Fried about Alameda’s significant outstanding debts to FTX.
In response, Bankman-Fried candidly recognized the precarious position they were in. He estimated a timeframe of anywhere from three months up to three years for the company to regain a stable financial footing.