Gary Wang, a key witness for prosecutors in the trial of his former partner, Sam Bankman-Fried (SBF), revealed that he and SBF committed multiple financial crimes related to their oversight of the now-bankrupt crypto exchange, FTX. This admission, according to a report by CNN, comes as a significant twist in the legal battle, shedding light on a massive, years-long scheme to deceive customers and defraud investors.
Prosecutors claim that FTX directed customers' funds straight into a bank account controlled by Alameda Research, which was not related to FTX except for a common founder. This action, they argued, misled customers about where their money was and how it was being used, creating a web of deception. Unlike regular FTX's customers, Alameda enjoyed the privilege of running a negative balance and making "unlimited withdrawals" from FTX's accounts.
Claims FTX's Hedge Fund Had $65B LOC
Furthermore, prosecutors stated that Alameda had access to a line of credit of up to $65 billion to use as collateral when making bets. This sum greatly exceeded the credit provided by FTX to other major investors, raising questions about preferential treatment. When asked whether these advantages were openly shared with customers or investors, Wang pointed out it was not. Additionally, Wang revealed that he personally wrote computer code for specific features under SBF's guidance.
Initially, the special privileges extended to Alameda were intended to be limited by FTX's revenue. However, Wang disclosed that Alameda's spending expanded beyond these restrictions, according to a report by Coindesk. He approached SBF multiple times when he realized that the spending exceeded the agreed limits.
“We’re Not Bulletproof Anymore”
Another significant moment in the trial came with the testimony of Adam Yedidia, a former employee of FTX and a close friend of SBF. Yedidia reportedly recounted a conversation where he raised concerns about a looming liability of $8 billion over Alameda's balance sheet, the Financial Times reported. This $8 billion represented the funds FTX's customers would be owed if they chose to withdraw their deposits. Yedidia's trust in SBF was shaken when he learned that FTX customers' deposits were used to pay Alameda's creditors, which he considered wrong.
Yedidia's testimony exposed an important conversation six months before FTX's collapse. This conversation occurred during a game of paddle tennis as Yedidia and SBF sought shelter from the Bahamas sun in the luxurious Albany resort where they shared a penthouse worth $35 million.
Yedidia recalled asking SBF if everything was okay, expressing concerns about Alameda's acceptance of bank transfers from FTX customer funds before securing its own bank accounts. SBF's response was: "We were bulletproof last year, but we're not bulletproof anymore," suggesting he was aware of the impending financial challenges facing the crypto exchange.
This article was written by Jared Kirui at www.financemagnates.com.
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