Sam Bankman-Fried demanded special privileges for his fund, ex-colleague testifies

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By Luc Cohen and Jody Godoy NEW YORK (Reuters) – Sam Bankman-Fried’s college roommate and ex-colleague, Gary Wang, testified on Thursday at the FTX cryptocurrency exchange founder’s fraud trial that Bankman-Fried told him to give a hedge fund they co-owned special trading privileges on FTX. The special privileges granted to the hedge fund, Alameda Research, included a $65 billion line of credit, several orders of magnitude bigger than the amount other users were able to borrow, he said. Alameda had withdrawn $8 billion from FTX by the time of the exchange’s bankruptcy in November 2022, Wang testified. “It withdrew so much that FTX was not able to repay customers who were trying to withdraw,” Wang, FTX’s former chief technology officer, said on the stand. He added that Bankman-Fried had directed him to implement the changes giving Alameda special privileges. Wang, 30, is the first of three former close associates of Bankman-Fried to testify at the trial, which began on Tuesday. All three have pleaded guilty to fraud charges and agreed to cooperate with prosecutors. Bankman-Fried’s trial kicked off nearly a year after FTX froze customer withdrawals and declared bankruptcy in a dramatic collapse that shocked financial markets and left its founder’s reputation in tatters. Federal prosecutors in Manhattan say the 31-year-old former billionaire stole billions of dollars in FTX customer deposits to plug losses at Alameda, buy real estate and donate to U.S. political candidates. Bankman-Fried has pleaded not guilty. His lawyer, Mark Cohen, said in his opening statement that cooperating witnesses like Wang may be “spinning” Bankman-Fried’s decisions they agreed with at the time as “sinister.” Earlier on Thursday, Matt Huang, the head of a crypto-focused hedge fund, Paradigm, which invested in FTX, said he was told Alameda received “no preferential treatment” on the platform. Huang said he was concerned about links between the two firms, but said Paradigm was “assured that they would become less linked over time.” Paradigm invested $278 million in FTX starting in 2021, but has now written off the investment entirely, Huang said. ‘NO ONE DOESN’T LIKE RESEARCH’ Wang said he was born in China and moved to the United States at age 7. He met Bankman-Fried at a math camp in high school and they later became roommates at the Massachusetts Institute of Technology. Prosecutors showed the jury a picture of the pair smiling outdoors at MIT, with Wang wearing a green T-shirt and Bankman-Fried in a blue T-shirt. He and Bankman-Fried founded Alameda in 2017. While both moved on to FTX after it was founded in 2019, they remained Alameda’s sole owners, with Bankman-Fried owning 90% and Wang the remaining 10%. They were among 10 roommates at a $35 million penthouse in the Bahamas, where FTX was based. Wang said Bankman-Fried decided to name the firm Alameda Research because it “makes it easier to do business if the name doesn’t mention trading or cryptocurrency.” Prosecutors then played the jury a recording of an interview in which Bankman-Fried said he knew banks would not work with Alameda if it were called “Shitcoin Daytraders Inc.” “But no one doesn’t like research,” Bankman-Fried said in the recording. Wang is expected to continue testifying on Friday. The trial is expected to last up to six weeks. Other cooperating witnesses set to testify include Nishad Singh, FTX’s former engineering chief, and Caroline Ellison, Alameda’s former chief executive officer and Bankman-Fried’s on-and-off girlfriend. BANKMAN-FRIED’S PARENTS PASS NOTES Earlier on Thursday, jurors heard from Adam Yedidia, a former FTX computer programmer who reported to Wang and was also friends with Bankman-Fried at MIT. Yedidia said that in fixing an error in FTX’s code in June 2022, he saw that Alameda owed FTX $8 billion. The debt had arisen because the exchange could not open its own bank accounts and had instructed FTX’s users to wire money to Alameda, he said. But Yedidia grew concerned that the debt was too large, and asked Bankman-Fried about it while playing padel tennis at their Bahamas apartment complex. He said Bankman-Fried appeared worried as well. “Sam said something like, ‘we were bulletproof last year, but we’re not bulletproof this year,'” Yedidia testified on Thursday. At the trial on Thursday, Bankman-Fried took a break from typing on a laptop on the defense table in front of him to look up at Yedidia as he walked by before testifying. Yedidia did not turn to look at him. The defendant’s parents, the Stanford Law School professors Joseph Bankman and Barbara Fried, took notes on a yellow legal pad that they passed back and forth to each other as Yedidia testified. (Reporting by Luc Cohen and Jody Godoy in New York; Editing by Amy Stevens and Matthew Lewis)

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