Alameda Research, the trading firm founded by Sam Bankman-Fried, secretly invested FTX customer funds just months after the collapse of the crypto exchange, which had an $8 billion hole in its balance sheet, according to testimony from the company’s co-founder.
Gary Wang, a former college roommate of Bankman-Fried who became one of his closest friends and colleagues, told the jury at the federal court in Manhattan on Friday that he was instructed in 2019 to leave Alameda with a negative balance at FTX, which allowed the trading firm to begin drawing down funds earlier that year. Along with a “large credit facility” from the crypto exchange, this meant that Alameda was actually “taking customers’ money,” said Wang.
“The money belonged to customers, and the customers did not give us permission to use it for other things,” he said about the deposits that were used to finance Alameda’s negative balance, enabling the trading firm to effectively withdraw unlimited amounts from FTX.
Wang also added that a secret and unique credit facility for Alameda was activated on the same day, July 31, 2019, when Bankman-Fried assured FTX users on Twitter that the trading firm’s accounts would be treated “just like everyone else’s” at the crypto exchange.
This facility was available only to Alameda’s accounts from that date until FTX collapsed in 2022, said Wang. During this time, the trading firm’s credit line was increased multiple times, eventually reaching up to $65 billion.
When Wang asked Bankman-Fried about the final borrowing, “he said he agreed with it,” said the co-founder.
Wang’s testimony, who pleaded guilty to fraud shortly after FTX’s collapse and agreed to cooperate with prosecutors, is the most devastating statement against the 31-year-old Bankman-Fried, who is defending himself in court this week against charges including wire fraud and money laundering. If convicted, he could face decades in prison. He has pleaded not guilty, and his lawyers argued that he acted in “good faith” and never intended to defraud anyone.
On Thursday, another former FTX employee, Adam Yedidia, described a conversation with Bankman-Fried at the luxurious Bahamian resort where both lived, saying that the FTX founder admitted that the exchange was no longer “bulletproof.”
The court also heard from an FTX investor who said he was assured that Alameda had not received any special access to the exchange, and an FTX customer who said he only traded on the platform believing his deposits were secure.
Wang was born in China, moved to the United States at the age of seven, and grew up in Minnesota. He left his job at Google to found Alameda with Bankman-Fried in 2017 and worked alongside his friend until their business empire collapsed in 2022.
He described on Thursday how the pair met in high school at a summer math camp and lived together at MIT. He also said that he would turn to Bankman-Fried when they disagreed on business decisions. “In the end, it’s Sam’s decision,” he said.
On Friday, as he began his testimony, Wang stared straight ahead and ignored his former friend, walking quickly past the defense table on his way out of the courtroom. Bankman-Fried remained impassive, not even turning his head to look at Wang. The two barely made eye contact throughout the entire testimony.
He also testified on Friday that Bankman-Fried told him to attribute the losses of a prominent FTX customer, worth “several hundred million dollars,” to Alameda’s account since the trading firm’s finances were less public.
Wang said his co-founder told him that “investors have access to FTX’s balance sheet, but not to Alameda’s balance sheet.” His testimony was expected to continue later on Friday with cross-examination.
