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