The Judge Is So Fed Up With Sam Bankman-Fried’s Lawyers
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If one thing was clear during Day 3 of United States v. Samuel Bankman-Fried, it’s that Judge Lewis B. Kaplan is very fed up with SBF’s legal team.
How fed up? So fed up I could barely count the number of overruled objections I’d recorded in my notebook, marking hiccup after hiccup for the defense. Kaplan’s sheer exhaustion with SBF’s lawyers was manifest—through skeptical facial expressions, muted gesticulations, multiple sidebars, and on-the-record comments (alternating between snarky and serious) that were aimed at unmistakable targets. Sitting near the back of the courtroom, I felt as if I’d gained a firsthand understanding of what the former federal prosecutor Robert Katzberg meant when he wrote in Slate that Kaplan “has a remarkable record of keeping a tight rein on lawyers appearing before him.” What had SBF’s legal defense, consisting of attorneys from Cohen & Gresser, done to warrant this? Mostly repeating themselves. A lot.
The questioning of the trial’s second witness, former FTX coder and longtime SBF pal Adam Yedidia, continued from Wednesday. Rocking a baggy suit and unbuttoned shirt collar, Yedidia described his role at FTX (focusing on code) as well as how money was transferred through FTX to SBF’s crypto hedge fund, Alameda Research. Yedidia had been aware that customer deposits in FTX were routed to a “North Dimension” bank account controlled by Alameda—but because he trusted his college friend SBF, he likewise trusted that Alameda was simply there to hold the deposits, not so that others could withdraw them to use. Did FTX disclose the North Dimension ownership by Alameda? “OBJECTION,” the defense butted in, though it was overruled. (The ownership, Yedidia confirmed, was not disclosed.)
Anyway, around the time Yedidia and nine other FTX-Alameda friends of SBF moved into that fancy Bahamas apartment in October 2021, the coder discovered an FTX bug related to a project he’d worked on, at SBF’s request, to automate the formerly manual process for recording users’ deposits. Originally, Yedidia meant for the money to move automatically into North Dimension. Did FTX customers deposit money with the expectation that it would end up in North Dimension? “OBJECTION,” the defense came in. Overruled.
To understand the bug, you have to understand the one key way the relationship between FTX and Alameda expressed itself: in Alameda’s cash balance and FTX’s fiat record. Regarding the latter, FTX had an internal-database info tracker, fiat@ftx.com, that monitored the cash deposits sent to FTX, whether by credit/debit card or wire transfer. When FTX got that cash, it sent it right to Alameda, and Alameda recorded those transfers as liabilities to FTX—meaning that the cash dumps showed up as negative balances on Alameda’s balance sheet, while FTX continued to tell customers that their money was safe and secure in FTX itself, at that dollar amount. What Yedidia discovered in late 2021 was that Alameda’s liabilities to FTX were inflated in comparison to the record kept by the fiat@ address, to the tune of $500 million, because the bug had been lingering there since summer 2021 (i.e., for about six months). Yedidia told his superiors about this, but the bug stayed in the system until June 2022. That month, after SBF held a meeting with top executives Caroline Ellison, Nishad Singh, and Gary Wang, he instructed Yedidia to fix it—which the coder did, promptly. But by the time he achieved this, the deficit had ballooned to $8 billion. Was that owed to FTX customers? “OBJECTION,” the defense once again barreled in. Again, Kaplan smacked it down.
The $8 billion number deeply concerned Yedidia, so one day in June 2022, while playing paddle tennis with SBF in the Bahamian luxury complex in which they resided, he asked Bankman-Fried if the businesses were doing OK. SBF told him that although the firms had been “bulletproof” in 2021, “we” weren’t so bulletproof this year. Who was we? (“OBJECTION!” “Overuled.”) Yedidia clarified that we meant FTX and Alameda. Also, the government asked, did you ask more about what bulletproof meant, exactly? (“OBJECTION!” “Overruled.”) SBF told his friend that it could take “six months to three years” to make up the multibillion-dollar deficit. What did he look like when he said that? (“OBJECTION!” “Overruled.”) SBF looked nervous, which was atypical for him, Yedidia said. And if anyone knew what was actually typical of SBF, it was Adam Yedidia: Photos shown as exhibits displayed Yedidia sitting with SBF and Caroline Ellison in the dining room of the Bahamas penthouse. (For all you sick freaks hungry for the Ellison of it all: Yedidia also testified that in early 2019, SBF told him that “he and Caroline had had sex and asked if it was a good idea for them to date. … I said no.”)
When the defense came up for cross-examination, it hit more roadblocks with Kaplan, who sustained the prosecution’s objections on questions related to the differing business models between FTX.US and FTX International, whether SBF “cared” about that bugging problem, SBF’s motives in engaging with outside actors like lawmakers, the “high” level of transactions FTX handled, whether certain people at the exchange were working “hard” for the business, and whether FTX was a billion-dollar business. In fairness to Kaplan, the questions asked by SBF lawyer Mark Cohen & Co. were … plodding and repetitive? For long stretches at a time, the defense would press Yedidia on basic questions like his job duties, the kinds of employees who worked with him, FTX’s nature as a fast-growing startup, and whether SBF could have taken more of that lavish money pile for himself (for, say, “fancy watches” and clothes)—and Kaplan’s face became visibly tired as it all went on, his head often in his hand. The breaking point arrived when Yedidia, eyebrows scrunched, responded to the defense that he didn’t remember what car SBF drove, and the defense asked if he had “seen a Toyota Corolla.” Kaplan retorted, “I think there isn’t anybody in the room who’s never seen one, so let’s get on with it.”
At one point, the lawyers requested to pull back up a photo of SBF, Ellison, and Yedidia and ask if the witness recognized the people in the picture. “Look, I have given you a lot of latitude,” Kaplan said. “The purpose of cross-examination is not to repeat. Let’s get on with it.” Later, the defense asked Yedidia about the aforementioned fiat-to-Alameda arrangement: “You were aware of this, right?” “That’s what he just said,” grumbled Kaplan. Before we took a lunch break, the judge dismissed the jury so he could directly address Cohen and the rest of SBF’s legal counsel. “I want to express my growing concern about the extent of the entirely unnecessary repetition,” he scolded them. “I understand there are things that need to be repeated in this case because this is unfamiliar ground in some respects, and I’m making an allowance for it, but it needs to be curbed.”
Let’s also get on with it, to the next witness: Matt Huang, a tall, deep-voiced fellow who’d co-founded Paradigm, the crypto-focused venture capital firm that had previously raised about $278 million for FTX in two separate fundraising rounds. (The return on those investments, Huang sadly noted, now amounts to a single zero.) The prosecution exhibited emails from 2021 between Paradigm team members and SBF regarding the former’s initial concerns around FTX—namely, that it didn’t have a board of directors and that it seemed a liiiiittle too closely tied to Alameda Research, presenting a “leakage” risk. (Remember, 2021 was when FTX had supposedly grown less dependent on Alameda as a market maker.) Further, had Paradigm known that FTX was throwing around customer deposits—which are “sort of sacred,” the witness said—for executives’ own purposes, that would have dented Huang’s enthusiasm to invest. After that, SBF’s team approached the stand, where it didn’t take long to tick off Kaplan again. The judge was so primed for both the defense’s strange questions and the prosecution’s willingness to push back that at one point he yelled “sustained” before government attorneys stood up to register their objection.
The conflict escalated as SBF lawyer David Lisner pressed Huang repeatedly about how FTX lacked a board of directors, a pre-investment point of worry for Paradigm. “But that didn’t cause Paradigm to walk away from the deal?” asked Lisner. “Obviously!” Kaplan butted in. “Fair to say that the lack of a board of directors was not a factor to your investment decision?” Well, that was when Kaplan invited Lisner and friends to sidebar, seemingly to reprimand them for their line of questioning.
Then came the most anticipated witness of the trial so far: Gary Wang, the (erstwhile) SBF bestie, FTX co-founder, and FTX chief technology officer, who wasted no time in admitting to the prosecution that he “did financial crimes.” With his messy hair, buttoned-up suit, and quick-talking manner, Wang cut right to the heart of things: Yes, FTX did grant unique access to Alameda Research; yes, those advantages were not disclosed to the public; yes, Wang himself implemented some of those features at Bankman-Fried’s behest. Oh yeah—Alameda was 10 percent owned by Wang and 90 percent owned by SBF, and those ownership numbers never changed from the firm’s beginnings up through its bankruptcy. And yes, Wang signed off on multimillion-dollar loans from Alameda (using FTX customer deposits) to businesses SBF wished to invest in.
It was, as some might call it, “the good stuff,” though it lasted less than an hour. Although Wang will be back on the stand on Friday, I think everyone in the room wished we’d seen more of him than we did on Thursday due to all the procedural squabbles. After Kaplan finalized the next day’s schedule and dismissed the jury, he reiterated to the defense that “cutting out repetition” would be something “the jury would appreciate.” Left unsaid was the obvious fact that Kaplan would clearly appreciate it too.
