Crypto
Former cryptocurrency billionaire Sam Bankman-Fried has testified at his fraud trial. Here’s what he said
Former billionaire Sam Bankman-Fried is currently standing trial for fraud in New York.
He is accused of stealing billions from his cryptocurrency fund’s customers to pay the bills for his other ventures.
The case sent shock waves through the financial sector and saw him arrested in the Bahamas before being extradited to the United States.
The saga is continuing to unfold in a Manhattan Court, with the FTX founder giving his much-anticipated version of events.
Here are the key moments from his testimony.
Who is Sam Bankman-Fried and what’s he accused of?
He was the founder of a cryptocurrency exchange called FTX that, at one point, was the second-largest cryptocurrency exchange in the world.
The 31-year-old was once one of the world’s wealthiest people on paper, with an estimated net worth of $32 billion, when his cryptocurrency businesses collapsed last November.
FTX unravelled when a run on deposits and falling crypto prices left the company with an $US8 billion ($11 billion) shortfall.
Mr Bankman-Fried is accused of stealing billions of dollars in FTX customer funds to plug losses at his crypto-focused hedge fund, Alameda Research.
He is facing criminal charges including wire fraud, money laundering and conspiracy to commit fraud on the United States.
He has pleaded not guilty to all the charges, arguing that while he made mistakes running FTX, he never intended to steal funds.
If convicted, Mr Bankman-Fried could face decades in prison.
What has Sam Bankman-Fried said in his defence?
In his first day of testimony on Friday, Mr Bankman-Fried said a “lot of people got hurt” when the cryptocurrency exchange collapsed last year, but insisted he did not defraud anyone or steal billions of dollars from customers.
He fielded questions from his own lawyer, admitting to making “mistakes” such as not putting in place a risk-management team.
“We thought that we might be able to build the best product on the market,” Mr Bankman-Fried said during his 6 hours of testimony.
“It turned out basically the opposite of that.
“A lot of people got hurt — customers, employees — and the company ended up in bankruptcy.”
He thought hedge fund had assets to cover $8 billion debt
Back in the witness box on Monday, Mr Bankman-Fried said he believed his Alameda Research hedge fund had enough assets to cover an $8 billion debt to the cryptocurrency exchange up until days before both collapsed.
He said he was surprised, but not alarmed, upon learning in October 2022 that Alameda had borrowed $8 billion from deposits that FTX customers sent to the exchange.
“If it were far larger, I would have been calling a crisis,” Mr Bankman-Fried said in response to questions from his defence lawyer, Mark Cohen.
‘Margin trade’ called into question
Mr Bankman-Fried also emphasised that FTX was a “margin” exchange, where many customers, including Alameda, borrowed money from other users to place bets.
On cross-examination, prosecutor Danielle Sassoon asked Mr Bankman-Fried about the testimony of his ex-girlfriend and former chief executive of Alameda Research, Caroline Ellison.
She is one of three ex-members of the former billionaire’s inner circle who have pleaded guilty to fraud charges and agreed to cooperate with the Manhattan US Attorney’s office — making her a key witness for the prosecution.
Earlier this month, Ellison told the court that Alameda Research borrowed money from FTX customers to repay its lenders in June 2022.
Ms Sassoon asked Mr Bankman-Fried several times whether taking FTX funds to repay lenders was margin trading.
“It’s my testimony that it depends on the details but that it very well could be a margin trade,” Mr Bankman-Fried said, sighing.
“I’m not saying that’s what happened, and I’m not saying that’s not margin trading.”
Mr Bankman-Fried said some of Alameda’s debt to the exchange was the result of FTX customers depositing their money into Alameda bank accounts — which was necessary because the exchange did not have its own bank accounts.
Ms Sassoon asked Mr Bankman-Fried if he could identify FTX customers besides Alameda who received deposits on behalf of other customers.
“Not with 100 per cent confidence,” he said.
He trusted his deputies
In his testimony, Mr Bankman-Fried portrayed himself as a hands-off CEO who frequently left operational details to others.
FTX computer programmers Nishad Singh and Gary Wang — who have pleaded guilty and agreed to cooperate with prosecutors — testified that Mr Bankman-Fried directed them to grant Alameda special trading privileges on FTX that prosecutors say allowed the fund to siphon off customer funds.
During Friday’s testimony, Mr Bankman-Fried said he asked Wang and Singh to prevent Alameda from getting liquidated by mistake, but did not know their solution was to let Alameda run a negative balance.
On Monday, prosecutor Ms Sassoon challenged that assertion.
“You did not learn the details for the code change that you directed?” she asked.
“That’s correct,” Mr Bankman-Fried said.
“I trusted Gary and Nishad.”
The Manhattan trial will continue into November.
Reuters/ABC
Crypto
Crypto lender Genesis to return $3 billion to customers in bankruptcy wind-down
Crypto lender Genesis Global received a significant victory in bankruptcy court on Friday, securing approval for its liquidation plan that will return approximately $3 billion in cash and cryptocurrency to its customers. The ruling, however, delivers a blow to Genesis’s owner, Digital Currency Group (DCG), which will receive no recovery from the bankruptcy.
U.S. Bankruptcy Judge Sean Lane overruled DCG’s objection to the plan, which centred on the valuation of crypto assets. DCG argued that customer claims should be capped at the value of cryptocurrencies in January 2023, when Genesis filed for bankruptcy. Crypto prices have surged since then, with Bitcoin, for example, rising from $21,084 in January 2023 to its current price of around $67,000.
Judge Lane rejected DCG’s argument, stating that even with the lower valuation, Genesis would have to prioritise paying other creditors, including federal and state financial regulators with claims totalling $32 billion, before distributing funds to its equity owner.
“There are nowhere near enough assets to provide any recovery to DCG in these cases,” Judge Lane wrote in his ruling.
Genesis aims to return funds to customers in cryptocurrency wherever possible, although it lacks sufficient crypto assets to fully repay all outstanding claims.
Sean O’Neal, an attorney representing Genesis, refuted DCG’s assertion that customers could be paid in full based on the lower January 2023 valuations. “We don’t buy into the idea that claims are capped at the petition date value,” O’Neal stated.
Genesis initially estimated in February that it could repay up to 77% of the value of customer claims, subject to future fluctuations in cryptocurrency prices.
This court approval marks a significant step forward in the resolution of Genesis’s bankruptcy, providing much-needed relief to its customers while leaving its owner, DCG, without any financial recovery.
Crypto
Venezuela to shut down cryptocurrency mining farms
Venezuela’s Ministry of Electric Power announced it would disconnect all cryptocurrency mining farms from the national power grid (SEN, Sistema Electrico Nacional). The measure aims to control the high energy demand from these mining farms and ensure reliable service for citizens.
AlbertoNews, a local media outlet, reported the announcement on May 18.
“The purpose is to disconnect all cryptocurrency mining farms in the country from the SEN [National Electrical System], avoiding the high impact on demand, which allows us to continue offering an efficient and reliable service to all the Venezuelan people,”
the Ministry reported in its account in Instagram.
Notably, the announcement followed the seizure of 2,000 cryptocurrency mining machines in the country. This action is part of the government’s ongoing anti-corruption campaign. Leading to the arrests of several officials from state institutions.
Corruption with the National Superintendency of Cryptoassets
The National Superintendency of Cryptoassets (Sunacrip) has been under a restructuring board since the arrest of Superintendent Joselit Ramírez. Ramírez has connections to Tareck El Aissami, former Petroleum Minister and former president of Petróleos de Venezuela (PDVSA).
On that note, El Aissami was charged with treason, embezzlement, misuse of influence, money laundering, and criminal association.
Venezuela power grid issues and cryptocurrency mining
Venezuela has faced an ongoing electricity crisis since 2009, worsened by massive blackouts in 2019 that left cities without power for up to seven days. Frequent power outages have negatively affected the country’s quality of life and economic activities.
Therefore, Governor of Carabobo state, Rafael Lacava confirmed restrictions on cryptocurrency mining farms due to their significant electricity consumption. He urged residents to report illegal cryptocurrency mining operations to prevent power shortages.
“If you, neighbor, see a house that you know, tell that person to turn off the farm, or else report it, because when they turn off the light, because you have to give light to a man so that he can earn some reales (money), you are left without electrical service.”
– Rafael Lacava
As reported by AlbertoNews, experts attribute the crisis to poor maintenance and inadequate investment in the power grid. Meanwhile, the government blames sabotage and has promised to modernize the state-controlled power network.
Overall, Bitcoin (BTC) and cryptocurrency mining are known worldwide for their high energy consumption. Countries like China and Cazaquistan have banned the activity to preserve their power grids, centralizing mining in fewer locations.
Therefore, the fewer countries allowing this activity, the higher the security concerns will be, as a few miners dominate block discovery.
Crypto
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