In a high-profile trial in federal court in Manhattan, Gary Wang, a former top executive at the now-defunct FTX cryptocurrency exchange, made startling allegations against the company’s founder, Sam Bankman-Fried. According to Wang, Bankman-Fried was the ultimate decision-maker at FTX and directed a closely affiliated hedge fund to improperly utilize billions of dollars in funds from FTX customers, potentially causing collective personal losses exceeding $100 million to more than 1,000 companies.
Wang’s testimony, which lasted for over six hours, revealed that Bankman-Fried was fully aware that a sister cryptocurrency trading firm, Alameda Research, had siphoned off $8 billion in customer funds from FTX. He claimed that Bankman-Fried had misled the public in November by asserting that FTX customer assets were safe and secure.
Wang, aged 30, a co-founder of FTX and the programmer behind its code base, is a crucial witness in Bankman-Fried’s criminal fraud trial. Wang is one of three close advisers to Bankman-Fried who have pleaded guilty and agreed to cooperate with prosecutors. They are accusing the entrepreneur of orchestrating a conspiracy to divert up to $10 billion of FTX customer funds for personal projects.
The saga of FTX’s rise and fall has captivated the public, characterized by corporate hubris and personal intrigue. Since the exchange’s collapse in November, Bankman-Fried has become emblematic of the excesses in the crypto industry. His trial is seen by some as a litmus test for the digital currency industry’s credibility.
Last year, a run on deposits exposed an $8 billion shortfall in FTX’s accounts, largely attributed to “special privileges” that allowed Alameda to access FTX customer funds. Subsequently, FTX filed for bankruptcy, and Bankman-Fried faced a slew of charges, including wire fraud, securities fraud, money laundering, and conspiracy. He has pleaded not guilty and could face a substantial prison sentence if convicted.
In the wake of FTX’s implosion, Wang, along with two other top executives, Nishad Singh and Caroline Ellison, pleaded guilty and are cooperating with authorities.
Wang and Singh have admitted to creating a secret backdoor that allowed Alameda to borrow an almost unlimited sum from the exchange, a key element of the scheme to pilfer customer accounts, according to prosecutors. Bankman-Fried’s defense team contends that FTX and Alameda had a legitimate business relationship and were not involved in a fraudulent scheme.
During his testimony, Wang recounted FTX’s early days in 2019 to its dramatic collapse last year. He revealed that he and Singh had written FTX’s computer code to grant Alameda special privileges at Bankman-Fried’s direction in 2019. These privileges allowed the trading platform to make unlimited withdrawals from the exchange, information that was not disclosed to customers, investors, or lenders.
Despite Bankman-Fried’s claims of being vaguely aware of Alameda’s borrowing from the exchange, Wang testified that Bankman-Fried had Alameda’s balance visible on one of his computer screens. Furthermore, a meeting in June 2022 allegedly involved discussions about using customer funds to repay Alameda’s creditors.
Under cross-examination, Wang acknowledged that some special privileges granted to Alameda were related to its role as a trading partner facilitating cryptocurrency transactions for FTX customers. The trial will resume on Tuesday with further questioning of Wang by defense lawyers.
Wang and Bankman-Fried were classmates at the Massachusetts Institute of Technology before co-founding FTX in 2019. Both became incredibly wealthy, with Wang’s estimated net worth nearing $5 billion. While Bankman-Fried was the public face and spokesperson of FTX, Wang was known as the reserved coder who often worked late into the night.
Their friendship and shared living arrangement in a luxurious penthouse in the Bahamas came to an end when Wang pleaded guilty to federal fraud charges in December, acknowledging that his actions were wrong.
Before Wang’s testimony, Adam Yedidia, one of Bankman-Fried’s M.I.T. classmates and a developer at FTX, recounted a conversation in mid-2022 where Bankman-Fried admitted that the company was on shaky ground. According to Yedidia, Bankman-Fried said, “We were bulletproof last year, but we’re not bulletproof this year.” He suggested that it might take up to three years to make the company “bulletproof again.”
The trial also featured Matt Huang, a founder of Paradigm, a venture capital firm that was a significant backer of FTX. Huang stated that he would have had reservations about investing in FTX had he been aware of the full extent of the exchange’s relationship with Alameda.
