Speaker 1: The first week of Sam Bankman Freed's trial on charges
Speaker 1: of orchestrating a year's long fraud and bilking investors and
Speaker 1: customers out of billions of dollars offered critical insight into
Speaker 1: the strategies of the prosecution and the defense In the
Speaker 1: weeks ahead. Prosecutors emphasized allegations that Bankman Freed knew he
Speaker 1: was committing fraud by stealing billions of dollars from customers
Speaker 1: to help fund a grand lifestyle full of luxury real
Speaker 1: estate purchases, celebrity hangouts, and massive political donations. The defense
Speaker 1: painted a very different picture of Bankman Freed, arguing that
Speaker 1: he was a hard working math nerd who simply got
Speaker 1: caught up in a crypto market crash that took down
Speaker 1: multiple startups. Three of the main witnesses against Bankman Freed
Speaker 1: have pleaded guilty and are cooperating with the government, including
Speaker 1: the government's star witness Caroline Ellison, a former girlfriend of
Speaker 1: Sam Bankman Freed, and the former Alamated chief executive officer.
Speaker 1: Joining me is Bloomberg legal reporter Ava Benny Morrison, who
Speaker 1: was in the courtroom every day. Was the courtroom packed
Speaker 1: every day? How much attention was this pase drawing.
Speaker 2: The first week of their Sam Bateman free trial was
Speaker 2: getting a lot of attention. There were journalists lining up
Speaker 2: downstairs from about six am in the morning hoping to
Speaker 2: get a seat in the courtroom. There were crypto bloggers, commentators,
Speaker 2: podcast researchers. Even convicted criminal Martin Squarely turned up to
Speaker 2: have a look and was giving his analysis on Twitter
Speaker 2: about the case. So there was intense interest in what
Speaker 2: was going on. It was difficult to get a seat
Speaker 2: in the court. The judge only reserved a certain number
Speaker 2: of seats for media. There was also an overflow room
Speaker 2: with another forty to fifty journalists inside there. So it
Speaker 2: was a very eventful first week.
Speaker 1: Briefly, tell us about the prosecutions opening. Did they paint
Speaker 1: this whole collapse of FTX as the fault of Sam
Speaker 1: Bankman freed. Yes.
Speaker 2: They pinned him up as the orchestrator of this multi
Speaker 2: billion dollar fraud at FTX, painted him as a bit
Speaker 2: of a criminal mastermind who made these executive decisions that
Speaker 2: eventually led to ftx's and alimeter researchers downfall last year.
Speaker 2: They said that he had power and wealth and influence,
Speaker 2: but it was all built on wives. They accused him
Speaker 2: of siphoning billions of dollars in FTX customer funds from
Speaker 2: the exchange over years and pushing it into alimeter research.
Speaker 2: From there, the funds were used allegedly for high risk trades,
Speaker 2: to buy property in the Bahamas, where FTX was based,
Speaker 2: and on political and charitable donations. The prosecutor alleged that
Speaker 2: Statement Freed made those political donations to buy influence in Washington, DC.
Speaker 2: It was quite a dramatic opening address from the assistant
Speaker 2: US attorney. At one point he pointed his finger at
Speaker 2: Bankment Freed. He was sitting between his two lawyers at
Speaker 2: the defense table, and said, this man committed fraud, and
Speaker 2: he has lied to the public and to customers as well.
Speaker 1: And so how did the defense respond?
Speaker 2: The defense's opening statement was a lot less dramatic in comparison.
Speaker 2: Bankman Freed's defense attorney, Mark Cohen, spoke to the jury.
Speaker 2: He was quite softly spoken, he was very measured, and
Speaker 2: he spoke quite slowly. He said that the prosecution had
Speaker 2: painted Sam as a villain, almost a cartoon villain, someone
Speaker 2: who was the only person working at FTX. But Cohen
Speaker 2: said that Sam trusted some of his gives and mentioned
Speaker 2: Caroline Ellison. Caroline Ellison, as we know, was the chief
Speaker 2: executive officer of Alameda Research, and she was also Sam's
Speaker 2: ex girlfriend. She's a key witness in this case. Mark
Speaker 2: Cohen said that Sam had approached Caroline in twenty twenty
Speaker 2: two when he was worried about the impacts of market
Speaker 2: volatility on Alometer Research and its physicians. He asked Caroline
Speaker 2: to hedge against that market exposure. But according to Mark Cohen,
Speaker 2: Caroline didn't do that, and that contributed to what ended
Speaker 2: up being sort of the perfect storm that brought down
Speaker 2: FTX and Alimeter. Mark also said that Sam wasn't this
Speaker 2: criminal mastermind. He was a mass nerd who went to university,
Speaker 2: didn't party, didn't drink, who worked really hard to build
Speaker 2: up two multi billion dollar companies. Mark said that he
Speaker 2: put everything that he had into trying to save those companies,
Speaker 2: but obviously it was unsuccessful.
Speaker 1: Did Sam bagman Fried look different from the way we've
Speaker 1: seen him before.
Speaker 2: His arrest, Yes, definitely. That was one of the things
Speaker 2: that first struck me when he walked in the courtroom.
Speaker 2: He looked a lot thinner than he has in the past.
Speaker 2: Several months, and his trademark hair was no longer. It
Speaker 2: was cut a lot shorter. You might remember he's always
Speaker 2: had this very messy, curly head of hair. And the
Speaker 2: weight loss, I guess has happened over the past several
Speaker 2: weeks when he's been in the Metropolitan Detention Center in Brooklin.
Speaker 2: His lawyers have complained that he's only been able to
Speaker 2: eat peanut butter and bread and water because he's a
Speaker 2: vegan and they don't have any meals that accommodate him.
Speaker 2: In terms of his mannerism, he seemed pretty cool, calm
Speaker 2: and collected. He engaged a lot with his lawyers. He
Speaker 2: was keeping notes on his own laptop in a XL
Speaker 2: spreadsheet and.
Speaker 1: Tell us about the jury of nine women and three
Speaker 1: men that were selected.
Speaker 2: Most of them are in public service jobs worked for
Speaker 2: the government, and there is a train conductor on the jury,
Speaker 2: a retired corrections officer who used to work in a prison,
Speaker 2: a special ed teacher, someone who works at a hospital.
Speaker 2: So it was a real mix, but it was a
Speaker 2: very long process to get there.
Speaker 1: You heard from three witnesses the first week, and two
Speaker 1: were former friends of Sam Bankman Freez.
Speaker 2: That's right. Two of Sam's former friends testified, and I'd
Speaker 2: say they were definitely the most interesting. The first one
Speaker 2: was a man called Adam Ydidia. He was a developer
Speaker 2: at FTX. He first met Sam at MIT and then
Speaker 2: came to work for him a couple of years after graduating.
Speaker 2: He said that he discovered Alameda had borrowed about eight
Speaker 2: billion dollars from FTX, and he approached Sam about that
Speaker 2: debt in about middle of twenty twenty two. They were
Speaker 2: in the Bahamas at the time, and according to his testimony,
Speaker 2: Sam told Adam, we were bulletproof last year, but we're
Speaker 2: not bulletproof this year. Adam said he took that to
Speaker 2: refer to the liability that Alameda had to FTX. He
Speaker 2: said that Sam was a bit nervous and a bit
Speaker 2: seemed to be concerned when they were having this conversation.
Speaker 2: As well, then we heard from former FTX executive Gary Wong.
Speaker 2: Gary also went to MIT with Sam, and he and
Speaker 2: Sam actually started FTX together. He was a brilliant coder.
Speaker 2: He was the chief technology officer at FTX. He was
Speaker 2: in charge of fixing all the bugs and problems in
Speaker 2: the code at all hours of the day or night.
Speaker 2: He is one of the three key cooperating witnesses that
Speaker 2: we were all really looking forward to hearing from. He
Speaker 2: pleaded guilty to fraud last year in exchange for cooperating
Speaker 2: against Sam. Bateman freed for the government, and Gary gave
Speaker 2: a painstaking recollection of how he changed ftx's code, allegedly
Speaker 2: at Sam's direction, to give Alameda a secret backdoor to
Speaker 2: use customer funds whenever it wanted. He spoke about lifting
Speaker 2: the limit for the amount of customer funds that Alameter
Speaker 2: could borrow from one billion and then to eventually to
Speaker 2: sixty five billion. One of the most interesting parts of
Speaker 2: his testimony was the timing of this. He says that
Speaker 2: he and another executive, Mischad Singh, actually changed his code
Speaker 2: as far back as twenty nineteen, and that Alimeter Research
Speaker 2: was tapping into customer funds for years essentially. He also
Speaker 2: said that he knew Sam was lying when FTX was
Speaker 2: in the middle of colapsing in November last year and
Speaker 2: he was tweeting to the public that FtF is fine,
Speaker 2: the assets are fined. Gary said that, you know, he
Speaker 2: knew that this was a lie. He also said that
Speaker 2: Sam wanted him to transfer whatever remained of ftx's assets
Speaker 2: after for bankruptcy to regulators in the Bahamas because he
Speaker 2: wanted to stall regulators in the US because he thought
Speaker 2: the Bahamas would give him a better chance of remaining
Speaker 2: in control of FTX.
Speaker 1: So he was part for many years then of this fraud.
Speaker 1: How did the defense handle the cross examination?
Speaker 2: We didn't get too far down the road with cross examination.
Speaker 2: We heard about maybe half an hour from defense attorney
Speaker 2: Christian Evidell. He questioned Gary Wong a lot on those
Speaker 2: secret privileges of special privileges that Alameda had on FTX.
Speaker 2: He asked Gary whether these were really worth special privileges
Speaker 2: or if it was just to give Alimeter the right
Speaker 2: conditions for it to be act as a market maker
Speaker 2: on FTX. So we didn't get too far in terms
Speaker 2: of exploring what kind of strategy the defense is going
Speaker 2: to take with Gary Wong, but we expect to hear
Speaker 2: more of that on Tuesday.
Speaker 1: So these two were good friends of Sam Bagman freed
Speaker 1: for quite a while. Was their tension in the courtroom
Speaker 1: when they took this down. Did they interact with him
Speaker 1: in any way?
Speaker 2: It was interesting when Adam Yadidia walked in the room.
Speaker 2: On the second day of his testimony, there almost seemed
Speaker 2: to be this sort of mutual acknowledgment between him and Sam.
Speaker 2: There was sort of a slight nod before Adam kept
Speaker 2: walking and took his seat on the witness stand. It
Speaker 2: was almost like that they'd forgotten that they were in
Speaker 2: a courtroom, and Sam was sort of in a fight
Speaker 2: for his life to stay out of prison. With Gary,
Speaker 2: it was the complete opposite. There was no real acknowledgment
Speaker 2: between Gary and Sam Adam or when he walked in.
Speaker 2: At one point, the federal prosecutor asked Gary to point
Speaker 2: out Sam in the courtroom. Gary sort of looked over
Speaker 2: the sea of lawyers in front of him trying to
Speaker 2: find Sam, and found him and pointed him out very briefly.
Speaker 2: But that was as far as the acknowledgment went.
Speaker 1: How did the prosecution handle the fact that Gary had
Speaker 1: made this deal with them to lessen his sentence.
Speaker 2: From the get go? The prosecution asked Gary, did you
Speaker 2: commit financial crimes, to which Gary answered yes. Who did
Speaker 2: you commit them with? Gary answered Sam, Caroline Ellison, and
Speaker 2: Mishad Singh. And then Gary explained that he had pleaded
Speaker 2: guilty to broad offenses last year. I think the prosecutor
Speaker 2: was very upfront with wanting to present that background to
Speaker 2: the jury so they could judge his evidence on that
Speaker 2: going forward. Towards the end of his direct examination, the
Speaker 2: prosecutor also asked Gary, you know, why did he plead
Speaker 2: guilty to crimes? Why did he agree to cooperate with
Speaker 2: the government, And Gary said that one it felt like
Speaker 2: the right thing to do, and two he wanted to
Speaker 2: try and stay out of prison.
Speaker 1: I know there was only part of the defense. The
Speaker 1: defense has yet to finish its cross examination. But did
Speaker 1: the defense get into that plea deal?
Speaker 2: No, not yet.
Speaker 1: So now, after Gary Wong gets off the stand, who's
Speaker 1: the next witness?
Speaker 2: We're going to hear from Gary Wang for a little
Speaker 2: bit longer on Tuesday when the trial reconvenes, and then
Speaker 2: we're going to hear from CAROLINEA. Elison. And this is
Speaker 2: the witness that we've all been waiting to hear from
Speaker 2: and waiting to see. No one has really seen her
Speaker 2: since FTX collapsed in November, and then it emerged that
Speaker 2: she was cooperating with federal prosecutors against Sambankment freed. She
Speaker 2: wasn't meant to be immediately after Gary. There was going
Speaker 2: to be two other witnesses, but the prosecutors indicated on
Speaker 2: Friday afternoon in court that she would be called after
Speaker 2: Gary was done. So we're really looking forward to hearing
Speaker 2: what she has to say.
Speaker 1: So we've discussed before Eva that the judge issued several
Speaker 1: rulings before the trial that were detrimental to Sam Bankman
Speaker 1: freed in throwing him back in jail. Has there been
Speaker 1: any conflict or frustration between the judge and the defense
Speaker 1: attorneys during the trial.
Speaker 2: There has been some early frustrations between the judge and
Speaker 2: the defense team. The judge seems to have become a
Speaker 2: little bit annoyed of the defense when they've been asking
Speaker 2: questions during cross examination of witnesses, saying to the defense attorneys,
Speaker 2: we've already heard this before this came out in the
Speaker 2: prosecutor's direct examination. You're being repetitive. The judges sustained a
Speaker 2: lot of the prosecutor's objections, sometimes even saying sustained before
Speaker 2: the prosecutors had a chance to stand up at the
Speaker 2: bar table and explain what the grounds are for the
Speaker 2: actual objection. You could tell that there was a little
Speaker 2: bit of frustration on the behalf of the defense who
Speaker 2: are trying to sort of redirect their line of questioning
Speaker 2: in line with the judges' frustrations and guidance. I guess
Speaker 2: on stopping on trying to stop repeating information that the
Speaker 2: jury already knows about.
Speaker 1: Thanks so much, Eva, I know you'll be back in
Speaker 1: the courtroom tomorrow and we'll check in with you. That's
Speaker 1: Bloomberg Legal Reporter Eva Benny Morrison, and that's it for
Speaker 1: this edition of The Bloomberg Law Show. Remember you can
Speaker 1: always get the latest legal news on our Bloomberg Law Podcast.
Speaker 1: You can find them on Apple Podcasts, Spotify, and at
Speaker 1: www dot Bloomberg dot com, slash podcast slash Law, and
Speaker 1: remember to tune into The Bloomberg Law Show every weeknight
Speaker 1: at ten pm Wall Street Time. I'm June Grosso and
Speaker 1: you're listening to Bloomberg