Sam Bankman-Fried knew FTX wasn’t ‘bulletproof’ months before collapse, witness says

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Sam Bankman-Fried discussed the massive debt owed by his private trading firm Alameda to customers of his FTX cryptocurrency exchange in June 2022, six months before FTX collapsed, according to testimony from one of the disgraced tycoon’s former roommates. 

Adam Yedidia, who had worked at FTX, on Thursday described the conversation that took place after a game of paddle tennis, hiding from the Bahamas sun in a shelter on the ground of the luxurious Albany resort where he lived with Bankman-Fried in a $35mn penthouse. 

“Are we OK?” Yedidia said he asked Bankman-Fried, expressing concerns about the $8bn liability created by Alameda’s acceptance of bank transfers of FTX customer money — before the exchange was able to secure its own bank accounts. 

“We were bulletproof last year, but we’re not bulletproof anymore,” Yedidia recalled Bankman-Fried saying. 

The testimony, given under a grant of immunity from prosecution, suggests Bankman-Fried knew about how FTX customer money had flowed to Alameda’s accounts long before the company collapsed in November 2022. 

Yedidia’s account came on the third day of Bankman-Fried’s closely watched criminal trial in a Manhattan courthouse, as the former crypto billionaire battles charges that he defrauded customers, lenders and investors in his companies. 

On cross examination, Yedidia said he did not press Bankman-Fried to specify what he meant by “bulletproof”.

Yedidia said he wanted immunity because he “was concerned that as a developer at FTX I may have unwittingly written code that contributed to the commission of a crime”. 

Bankman-Fried, who has pleaded not guilty, has referred to “the poorly labelled internal bank-related account” in his telling of how the exchange collapsed, but has downplayed how much he knew about this banking arrangement and when he became aware of the scale of the liability. 

A friend of Bankman-Fried’s since university, Yedidia lived with the FTX boss and co-founder Gary Wang in the same coeducational fraternity at MIT. He joined FTX as a developer in early 2021.

Yedidia testified that he had been aware of how FTX customer money was being sent to bank accounts controlled by Alameda, and worked on the system that settled customer deposits. He said he assumed that Alameda was holding the funds and would be able to return them to customers if needed.  

He told the jury that in June 2022 he observed a meeting between Bankman-Fried and his top three executives — Wang, Nishad Singh and Caroline Ellison — that resulted in a “full accounting” of both companies’ financial situation. 

After this, Yedidia said Bankman-Fried instructed him to correct a bug in FTX’s code that caused Alameda’s obligation to FTX customers to be overstated. Yedidia said he learned that the true liability was $8bn, and wrote a postmortem report that he sent to Bankman-Fried. The report did not specify the size of the liability, Yedidia said on cross-examination.

“The number seemed large to me,” he said, prompting him to raise concerns with Bankman-Fried on the paddle tennis court, who he said reassured him.

“I trusted Sam. I hoped that Sam, Caroline and others at Alameda would handle the situation,” Yedidia said.  

He remained at his friend’s side as the crisis engulfed FTX in November 2022. Yedidia described a message he sent to Bankman-Fried as employees began quitting FTX en masse: “I love you. I am not going anywhere. Don’t worry.” 

Days later, however, Yedidia quit after he “learned that Alameda Research has used FTX customer deposits to pay back its loans to creditors”. He said the information leaked out among FTX employees from a staff meeting Ellison held at Alameda.

The court on Thursday also heard from Matt Huang, co-founder of Paradigm, one of the most prominent venture capital investors in crypto, which invested a total of $278mn in FTX. Huang, a former Sequoia Capital partner, said he met Bankman-Fried on “a handful” of Zoom calls before investing but was assured that Alameda got no special access to FTX.

Prosecutors began questioning Wang, one of their star witnesses, late on Thursday. His testimony will continue on Friday.

Additional reporting from George Hammond in San Francisco