Sam Bankman-Fried blames everyone but himself for FTX’s approach to risk management, including a trillion-dollar trading disaster

After an unusual hearing without jurors present on Thursday, which saw the FTX founder put on a disastrous performance under cross-examination by Department of Justice prosecutors, he got a do-over on Friday.

His decision to testify at all is atypical, with most defendants choosing not to take the stand for fear of self-incrimination. Still, prosecutors’ unrelenting case—including three star witnesses, all members of Bankman-Fried’s inner circle who testified they committed fraud at his direction—forced his team to pull what some are describing as a legal Hail Mary.

Bankman-Fried’s attorneys proposed a number of topics that the judge overseeing the case, Lewis Kaplan, said may not be admissible in front of a jury. Chief among these was Bankman-Fried’s defense that many of the exchange’s missteps had stemmed from the bad advice of previous lawyers.

After a dry run on Thursday that saw the defense and prosecution carry out their questions without a jury present, Kaplan ruled on Friday that much of the testimony should not be heard by jurors, including whether FTX lawyers had signed off on financial promissory notes and terms of service.

Despite the setback, Bankman-Fried retook the stand.

‘Smaller mistakes…larger mistakes’

With Bankman-Fried’s ability to blame earlier lawyers severely restricted, he sought out other targets. His attorneys—and personal writings—indicated that he would shift responsibility to Caroline Ellison, his onetime girlfriend and the former CEO of Alameda Research, FTX’s associated trading firm.

At the onset of his testimony, under defense attorney Mark Cohen, Bankman-Fried offered some contrition.

“I made a number of smaller mistakes and a number of larger mistakes,” he said, wearing a boxy suit that seemed oversize on his slighter frame.

The issues, Bankman-Fried said, stemmed from FTX’s lack of risk management. And even though he admitted to some fault, his answers made clear that others had committed errors, albeit under his loose approach to management.

In one incident from 2020, Bankman-Fried recalled how FTX’s lagging risk engine and Alameda’s role as a backstop liquidity provider—in other words, its responsibility to absorb losses from other users—caused the trading firm to rack up a negative balance in the trillions of dollars, triggering the entire operation to shut down.

Alameda served an important role to FTX as a market maker—facilitating trades between users—and at one point early on was responsible for 50% of all volume on the exchange. To make sure that Alameda could continue to grease the engine and serve as a backstop liquidity, Bankman-Fried said that two of his key deputies—CTO Gary Wang and engineering chief Nishad Singh—instituted several fixes, without his explicit knowledge.

These eventually included two features that would lead to Alameda’s downfall, including one that allowed it to rack up negative balances, and another that put its line of credit on FTX above $60 billion. In his testimony, Bankman-Fried implied that he was vaguely aware of the solutions, but allowed Wang and Singh to operate on their own. Both testified that they had made the changes under Bankman-Fried’s direction.

‘Better understanding’

Bankman-Fried kept repeating the same excuse: While he was nominally in charge of FTX, he was pulled in too many directions to know what was happening.

“I wish I had a better understanding than I had,” he said, responding to Cohen when asked about tracking assets on the exchange.

He said that he worked anywhere from 12 to 22 hours a day. Even though he was the founder, majority owner, and onetime CEO of Alameda, he put Ellison and Sam Trabucco in charge in mid-2021. They had complementing skills, with Trabucco adept at hedging strategies and Ellison better at managing employees. Trabucco soon “drifted” toward early retirement, said Bankman-Fried, laying all responsibility at the feet of Ellison. Bankman-Fried said he was not involved in the “day-to-day.”

His criminal trial revolves around the allegation that Alameda stole billions of dollars of customer assets, which Bankman-Fried denied at the start of his testimony. His direct examination will continue into Monday, his attorney said, at which point prosecutors will have the opportunity to poke holes in his story—this time, in front of a jury.