Sam Bankman-Fried is about to walk into a brutal interrogation

At a glance

• Mark Cohen spent hours last week getting his client’s version of numerous aspects of his alleged crimes. Bankman-Fried testified he was unaware of many elements of the fraud, including Alameda Research’s various special privileges.
• This laundry list of denials leaves government prosecutors spoiled for choice of topics in their cross-examination — and we’ve already seen Bankman-Fried collapse under questioning from assistant US attorney (AUSA) Danielle Sassoon.
• A question hovers over this strategic oddity: Are the high-profile defense lawyers crafting their own strategy? Or are they taking marching orders from the delusional Bankman-Fried and his parents?

Sam Bankman-Fried seemed calm and confident in his first testimony before the jury in his own defense on Friday, October 27. But with prosecutors set to cross-examine the former FTX CEO as early as Monday, that confidence and sense of calm will likely evaporate.

That’s in part because the defense’s direct questioning seems to have left prosecutors spoiled for choice of topics in their cross-examination of the alleged mega-fraudster. Defense lawyer Mark Cohen has taken Bankman-Fried through a laundry list of specific points already laid out by prosecutors, rather than using his client’s testimony to craft a clear alternate explanation of what happened to FTX customers’ money.

Cohen’s approach let Bankman-Fried directly deny the versions of a few events laid out by prosecution witnesses. However, it also handed a gigantic cache of ammunition to prosecutors.

The cross-examination of witnesses in US courts is limited to topics introduced on direct questioning. But government prosecutors will now be free to grill Bankman-Fried on a vast range of inconvenient topics. Unbelievably, the defense even re-introduced what is possibly the single most damning piece of physical evidence seen in court so far: the notorious set of seven alternate balance sheets created by Caroline Ellison in the course of an allegedly fraudulent loan application.

Cohen delivered all of this material in a rote, low-energy, and sometimes confusing manner. But the cross-examination is expected to be taken up by AUSA Danielle Sassoon, who in an evidentiary hearing on Thursday quickly reduced Bankman-Fried to a stammering wreck.

Sassoon’s full cross-examination will be at much greater length and in far greater detail, further testing not just the coherence of Bankman-Fried’s claims, but also his seemingly very limited focus. And thanks to the defense’s shotgun approach, Sassoon will have her pick of topics on which to hang the defendant.

Read more: How Sam Bankman-Fried thought he could win it all back

I didn’t do it

Bankman-Fried could be seen swaying anxiously from side to side when he first took the witness stand last week. His much remarked-on jailhouse haircut has begun to grow out, and he even seemed to have a strange bald spot over his left temple. His baggy suit was accentuated by a sloppily-tied tie, the skinny tail flapping down to his belt.

The most substantive portions of Bankman-Fried’s testimony for the defense amounted to denying that he was directly involved in key decisions that enabled the embezzlement of FTX customer funds. But most of it was devoted to seemingly secondary details, such as how many emails Bankman-Fried received in an average day as CEO of FTX (many thousands, apparently).

Bankman-Fried claimed that he believed Alameda Research’s borrowing from FTX was drawn entirely from the accounts of margin traders who had agreed to that use. He also claimed that “FTX didn’t have restrictions” on how funds withdrawn from the platform by borrowers could be used, meaning Alameda was free to do whatever it wanted with the funds. But as we already heard in Thursday’s evidentiary hearing, Bankman-Fried’s understanding was not firmly grounded either in advice from his lawyers, or the actual agreements signed by customers. That line of questioning will surely return in Sassoon’s cross-examination this week.

Cohen also led Bankman-Fried through an incident when FTX’s vaunted ‘risk engine’ seemed to malfunction, triggering cascading liquidations that could have threatened Alameda, thanks to its role as a buyer of last resort. Bankman-Fried then described meeting with Nishad Singh and Gary Wang and asking them to implement safeguards against an ‘erroneous liquidation’ of Alameda. In Bankman-Fried’s telling, he asked for some sort of “alert [or] delay” in liquidating Alameda.

Bankman-Fried claimed to not know that in response, Wang and Singh implemented the notorious ‘allow negative’ function on Alameda’s FTX accounts — in essence, making it impossible for Alameda to be liquidated at all.

Cohen also asked Bankman-Fried about FTT, the FTX exchange token. Specifically, he asked about the mechanism and price growth of FTT, with the apparent goal of establishing that Alameda’s purchases of FTT were legitimate market decisions, rather than market manipulation. But prosecutors have already introduced the idea that Alameda’s stash of FTT, which it used as collateral to borrow customer funds, was worth far less than it appeared on paper. Sassoon will almost certainly take the invitation to drive that point home one more time, with Bankman-Fried in the hot seat.

Read more: Sam Bankman-Fried lied to FTX lawyers about using customer funds

The defense also invited Bankman-Fried to talk about Caroline Ellison and, specifically, her leadership of Alameda Research. There was extensive discussion of her decision not to follow Bankman-Fried’s advice to hedge at various points. That failure to hedge at a specific moment forms the core of the defense’s version of events, in which the real crime wasn’t misusing customer funds, but failing to make winning trades with them.

But this exchange again opened the door for a vast number of difficult topics on cross-examination. That includes not just Bankman-Fried’s romantic relationship with Ellison, but also his floating of Modulo Capital — headed by another of Bankman-Fried’s romantic partners — as a potential replacement for Alameda’s roles on FTX.

Aside from this handful of meaningful denials, Cohen’s questioning was largely boring and confusing. In one representative early stretch, Cohen asked Bankman-Fried “What is a database?,” whether FTX’s database was “on a computer,” and “how many computers did you have?” More time was devoted to such seemingly irrelevant details than to key questions of criminal responsibility. Cohen also skipped back and forth in time frenetically, repeatedly backtracking to cover questions he “forgot to ask,” or following Bankman-Fried’s digressions through time.

Boring the jury to death might actually be a valid approach when you don’t have much of a case. But even given that, it seems poised to backfire badly because Cohen so vastly broadened the possible scope of the prosecution’s cross-examination.

And not only did the defense introduce a staggering range of topics — Bankman-Fried’s answers often opened up even more. For instance, Cohen asked Bankman-Fried about FTX and Alameda’s 2020 relocation to Hong Kong. Bankman-Fried offered that Hong Kong had a good regulatory environment, suggesting the goal of the question may have been to rebut the idea that FTX was located outside of the US to avoid regulatory oversight.

But Bankman-Fried then went on to mention “problems with exchange accounts that got resolved within days” after he went to Hong Kong. It seems this could provide an opening for prosecutors to grill him on his alleged bribes to Chinese officials, which was how other “problems with exchange accounts” were resolved in a 2021 incident. That alleged bribery is not part of the current case but has been allowed into evidence in connection with other charges.

Read more: Sam Bankman-Fried’s defense team failed to crack Caroline Ellison

Is Bankman-Fried the client from hell?

While Cohen did little to make it coherent for the jury, the defense’s version of events was at least vaguely discernible for those paying close attention.

According to Bankman-Fried’s version of events, Alameda Research had every right to borrow FTX customer funds freely and use them for whatever they wanted. Sam didn’t keep good track of that borrowing, but it’s not his fault, because FTX was growing so fast. He also had no idea that Alameda was using FTX customer dollar deposits (even though he was CEO of Alameda when that use began). Spending FTX deposits on things like the Orchid penthouse, stadium naming rights, and huge services contracts with Tom Brady were all reasonable business decisions. But then the crypto market crashed, and Caroline Ellison hadn’t hedged Alameda’s positions thoroughly enough, so all the money evaporated.

Whoopsie.

Some will note that this is almost unchanged from the narrative laid out in the media tour Bankman-Fried undertook after his exchange’s collapse. This, along with the generally shambolic nature of the defense, has led to speculation:

Are Cohen and Everdell pursuing a strategy of their own choosing?

Or is their seeming ineptitude merely a by-product of having perhaps the worst client of all time?

Bankman-Fried’s contempt for lawyers — and for that matter, for the system of law itself — was further clarified by the recent release of Bloomberg’s excellent documentary “RUIN.” In a recorded interview with citizen journalist Tiffany Fong on November 16, 2022, Bankman-Fried says that his lawyers were at the time urging him to stop making media appearances.

“After that, they said Sam, we only have one thing to tell you. You have to promise that you never, ever say “you fucked up” again. I told them to go fuck themselves … I don’t think they know what they … look, they know what they’re talking about in the extremely narrow domain of litigation. They don’t understand the broader context of the world,” the then-30-year-old Bankman-Fried opined.

Read more: Sam Bankman-Fried’s lawyers can’t stop making mistakes

It seems Bankman-Fried doesn’t have any more respect for legal expertise within the “extremely narrow domain of litigation,” either because according to absolutely every legal authority I’ve spoken to, it’s nearly impossible Cohen and Everdell actually want him to take the stand. As Judge Lewis Kaplan made clear at the beginning of the trial, that decision is ultimately Sam’s alone, and he seems to have chosen to die on the hill of his own innocence.

On top of Sam’s seeming contempt for expert advice, the defense team may be facing interference from Bankman-Fried’s parents, Joseph Bankman and Barbara Fried. They are in court daily, often flanked by fellow Stanford law professor David Mills, who has seemed to act as an intermediary between the parents and the core defense team. Fried in particular has seemed to react badly to the defense’s performance at various points.

Mills was garrulous in court during the first weeks of the trial, but by last Friday, events seemed to have taken their toll. Seen exiting the conference room for family members, Mills seemed not just dejected but defeated, his lanky fringe of grey hair drooping into his fallen face as he shuffled down the halls of the Southern District of New York courthouse.

It seems that neither Sam Bankman-Fried’s own purported brilliance nor his parents’ vast web of powerful friends have managed to save him from the consequences of his mistakes.

Starting on Monday, as impossible as it may seem, things are poised to get even worse.