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FTX co-founder Sam Bankman-Fried faces seven federal charges in a criminal trial taking place in Manhattan. The former crypto exchange exec is accused of misappropriating billions of dollars of customer funds for real estate, donations, political contributions and investments.\u00a0<\/em><\/p>\n The current state of play: Caroline Ellison\u2019s time in the courtroom is over after a short cross-examination. A former Alameda employee took the stand after her to recount a November 2022 all-hands meeting. Former BlockFi CEO Zac Prince began his testimony yesterday, which continues today. Read more here<\/a><\/em>.<\/p>\n The end of week two saw the conclusion of ex-BlockFi CEO Zac Prince\u2019s testimony. He was one of the first government witnesses to really speak to the jury, rather than just the courtroom or lawyers.\u00a0<\/p>\n Prince confirmed that BlockFi started lending to Alameda at the end of 2021. He added, though, that had BlockFi known that Alameda was borrowing from FTX, then \u201cI think we wouldn\u2019t have worked with them.\u201d<\/p>\n Unfortunately for Prince, they didn\u2019t know and ended up lending around $1 billion to Alameda because they were a \u201cgood borrower.\u201d<\/p>\n At one point, as Prince was discussing both due diligence and know-your-customer (KYC) policies, Bankman-Fried appeared to scribble on a post-it and passed it to his lawyer. Oh to be a fly circling around SBF? You get the point, we want to see the Post-it.<\/p>\n Prince was also engaging enough for SBF to let his laptop screen turn off from inactivity, though he was seen shaking his head at certain points \u2014 including when Prince was discussing FTX US.<\/p>\n The former CEO confirmed that balance sheets were one of the primary ways for BlockFi to gauge the health of Alameda specifically. Ellison, earlier this week, testified that she \u2014 for Genesis, not BlockFi \u2014 once came up with seven different balance sheets for Bankman-Fried to pick from and share with the lender.\u00a0<\/p>\n Prince testified that the balance sheet he received from Alameda made BlockFi believe that the former firm \u201cremained a good candidate for lending.\u201d\u00a0<\/p>\n Bankman-Fried\u2019s father, who had been in attendance pretty much every day of the trial, left the courtroom during Prince\u2019s direct examination.\u00a0<\/p>\n SBF\u2019s team took a crack at Prince to end the day.\u00a0<\/p>\n Prince confirmed to Cohen that BlockFi \u201cfrequently received\u201d audited financials, though crypto firms were \u201cmajority unaudited\u201d because crypto firms struggled to make deals with auditors. Prince added that it was possible to only choose to lend to audited borrowers. Lesson learned?<\/p>\n Cohen also introduced an internal credit memo where BlockFi\u2019s risk management team advised against lending to Alameda because of its exposure to FTT months before BlockFi eventually gave Alameda a loan.\u00a0<\/p>\n At the end of the day on Friday, prosecutors teased FTX\u2019s former chief of engineering, Nishad Singh, as a possible witness next week. Two former FTX customers, an FBI agent, and an FTX employee named Delaney Ornelas are also slated to testify.<\/p>\n Week two solidified the current approaches of both the prosecution and defense teams.\u00a0<\/p>\n The approaches, like anything in a trial this big, are subject to change \u2014 especially as we expect a six-week long trial.\u00a0<\/p>\n But, for now, the prosecution came out with a very clear strategy: put their biggest witnesses \u2014 the former Alameda CEO, Caroline Ellison, and FTX co-founder Gary Wang<\/a> \u2014 up first.\u00a0<\/p>\n Opinion editor Molly Jane Zuckerman commented on the defense\u2019s strategy<\/a>, saying that the defense\u2019s initial crack at Ellison contained repeated misstatements and conflations of different FTX money accounts. This led the prosecution to declare that the cross-examination was confusing, a point that Judge Lewis Kaplan agreed with.<\/p>\n To learn more, Blockworks reporter Ben Strack conferred with Jack Sharman<\/a>, a white-collar attorney on the strategy.<\/p>\n \u201cIf I had to place a wager right now, it\u2019s still early days, but I think I\u2019d bet on a conviction,\u201d Sharman told Strack.\u00a0<\/p>\n Sharman noted that, in his experience, jurors can be skeptical of the CEO attempting to argue that they didn\u2019t know what the subordinates were doing.\u00a0<\/p>\n \u201cUnless there\u2019s some real evidence I think you can bring out on [cross-examination] to establish that, I think most jurors don\u2019t like that,\u201d Sharman said.<\/p>\n In Thursday\u2019s cross-examination, SBF lawyer Mark Cohen tried to do just that with Ellison<\/a>. Cohen, through questioning, was able to get Ellison to admit that Bankman-Fried wasn\u2019t always looking over her shoulder.\u00a0<\/p>\n A point that the prosecution made sure to make fairly quickly in their direct examination of the ex-Alameda CEO.\u00a0 Former BlockFi CEO Zac Prince is testifying this morning to kick off what will be a short day in court. On Thursday, Judge Lewis Kaplan said he wants to end the court day at 1 pm ET.<\/p>\n Prince\u2019s name was floated by prosecutors at the end of the week, though he was switched out for ex-Alameda CEO Caroline Ellison.\u00a0<\/p>\n BlockFi declared bankruptcy<\/a> in late November 2022, just weeks after FTX fell apart. In the eight minutes of testimony from Prince yesterday, he very quickly focused on how the FTX and Alameda collapse impacted BlockFi.\u00a0<\/p>\n \u201cAs a result of FTX and Alameda\u2019s bankruptcy, because of our lending to Alameda but also some exposure we had to the FTX platform, BlockFi was forced into\u2026bankruptcy,\u201d Prince<\/a> said.<\/p>\n Prince\u2019s short testimony backs up what the committee of unsecured BlockFi creditors found when they released a 92-page investigation<\/a> into the firm\u2019s collapse back in July.\u00a0<\/p>\n However, while the report detailed the relationship between the former lender and crypto hedge fund, it also found that the risk management team warned Prince of potential risks related to the Alameda loans.<\/p>\n Read more:<\/strong> White-collar defense lawyer weighs in on SBF trial: \u2018If I had to place a wager\u2026\u2019<\/a><\/p>\n A 2021 memo from BlockFi<\/a>\u2019s credit risk team cautioned that Alameda had \u201cwrong-way risk, had unaudited financials, relied on illiquid tokens, and was offering volatile collateral.\u201d\u00a0<\/p>\n Former Chief Risk Officer Rene van Kesteren, according to the investigation, was \u201cuncomfortable with the risk profile presented by additional FTT as collateral.\u201d\u00a0<\/p>\n Prince reportedly \u201cexpressed interest\u201d in doing more business with Alameda<\/a>. Per the report, he even \u201cpushed to increase exposure to (and revenue from) Alameda by allowing Alameda to use FTT as collateral, despite concerns from the risk management team regarding its illiquidity.\u201d<\/p>\n In his testimony Thursday, Prince admitted that \u201cthere was a time that we called back all the open-term loans that we had to Alameda, which was in June of 2022.\u201d\u00a0<\/p>\n And yet, by the time Alameda declared bankruptcy, the firm owed BlockFi a staggering $650 million.<\/p>\n Don\u2019t miss the next big story \u2013 join our\u00a0free daily newsletter<\/a>.<\/strong><\/p>\n
\n1:45 pm ET: Court adjourns for the weekend<\/h2>\n
12:00 pm ET: Could the prosecution\u2019s strategy pay off?<\/h2>\n
\u201cThere were times when\u201d Bankman-Fried wouldn\u2019t be paying much attention to Alameda, Ellison said. However, Ellison also claims that she committed crimes at SF\u2019s direction and that Bankman-Fried told her to send falsified balance sheets<\/a> to deceive both investors and lenders.<\/p>\n10:30 am ET: Zac\u2019s back<\/h2>\n
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