Sam Bankman-Fried takes the stand

0:00Hey, Unhedged listeners, it's 8.30 p.m. New York time. Sam Bankman-fried has just been convicted on all counts. We recorded the following episode of Unhedged before the verdict was in, but I think you'll hear in our discussion a couple of the reasons why the jury opted to convict. You can even hear toward the end of the episode us speculate wrongly about how long it would take the jury to make a decision. I hope you enjoy this episode.

0:32Pushkin. Listeners will recall we discussed the trial of Sam Bankman-Fried and the case against him last week on the show. This week, Sam takes the stand. This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I'm reporter Ethan Wu here in the New York studio, joined today by US financial commentator Robert Armstrong. Actually, my role is people too old to understand crypto correspondent at the FT. Elder advocate Robert Armstrong. And once again, fresh from the New York courtroom steps, Joshua Oliver. Yes, again, fresh from sweating my way uptown. Josh, we've seen now the case Sam Bakeman-Fried made for himself.

1:19And I mean, it must have been like a high tension moment when Sam takes the stand. You correctly predicted last time that he would. Yeah, me and in fairness, many other people. But there was some interesting, I mean, a little bit of courtroom mechanics. But it was interesting that the prosecutors clearly thought he was going to take the stand because they had evidence that they held back for his cross-examination and didn't kind of tip their hand before, which they would then not have been able to use if he hadn't taken the stand because he kind of goes last. So the fact that they were kind of keeping some material specifically for the cross, it was pretty good, juicy stuff, kind of shows that they were banking on that as well.

1:54But he, you know, yeah, he had the opportunity to get up there and say what he wanted to say. He, I think, was very keen, you know, to tell his side of the story. From the point of view of his lawyers, why put him up there? All else being equal, I don't know if his lawyers would have put him up there. I mean, the white collar defense lawyer playbook is don't let your client testify because it's dangerous. A couple of factors. I mean, he's a particular client. And at the end of the day, he can decide. It's better for the lawyer to act like it's all their idea and it's a plan rather than have Sam freelancing.

2:28and you know i think sam was determined to testify all the way through you know he's just he's always wanted to say what he has to say and you know god knows he spoke to enough journalists before um but then i think you know also he's the only person i mean i think we talked about this last week you know he's the only person who really can tell his side of the story i mean one way of looking at this case in a super simplified, boiled down way is there's four people in a room. They walk out of that room and then they repay a bunch of lenders, you know, billions of dollars that ultimately, if you look at the mechanics, it's borrowed from the customer.

3:04And then three of those people are the cooperating witnesses, three, you know, Sam's three deputies who say, yeah, Sam ordered us in this meeting to take the money and he knew it was going to come from the customers. So how do you rebut that testimony? He's the only person who can do it because, There were four people in the room where it happened. We'll get into that in a second. But why don't we just start by recapping what happened last time, on last episode of the show, with the prosecution against Sam. I mean, if I had to sum it up just very quickly, it seemed like the case was basically there was money that the customers put in.

3:36And when they came back, it was not there. Where was the money? It was in venture capital investments and celebrity endorsement deals and sports stadiums naming rights and expensive penthouses in the Bahamas. And then you have, like you mentioned, Josh, these three collaborators, Sam Bankman-Fried, including his ex-girlfriend and his college roommate and brother's close friend. Yeah. All testifying. Yes, no, Sam did this. Sam directed this. And that, if I'm summarizing this fairly, is kind of the essence of the prosecution's case. Yeah, exactly. Obviously, you know, it's four weeks of sometimes exhausting evidence.

4:08So, you know, there's a lot of complexity, but I think you boiled it down very well. Well, Sam's defense is basically partly I didn't know and partly to the extent that I knew I thought it was all fine. And, you know, the phrase that his lawyer keeps using is, you know, reasonable business decisions in good faith, had no reason to think that any of this is wrong. You know, bracket whether you think any of this is reasonable. But, you know, if you want to know what he was saying, you know, he's telling the story about he's a busy guy. On his direct examination, his lawyer got Sam to walk through, like, what was your day like when you were the CEO?

4:44And he's talking about, if I had 60 ,000 emails unread in my inbox, that was a good day. And they made a little joke about it. Or he's got hundreds of meetings. They're trying to show that he was so busy with so many millions of decisions. He just didn't happen to pay attention to this part. And he testified that it was not until October that he really grogged. He kept on saying, I knew different pieces at different times. Right. which is, I guess, slightly to give himself some wiggle room with some of the inconsistencies. But basically, his testimony is, October, I put it all together in my mind, oh, my God, you know, actually, the$8 billion that customers deposited to Alameda Bank Accounts, his private trading firm, that was supposed to be there, we actually spent it, oops.

5:29And now, suddenly, you know, Alameda owes FTX$8 billion more than I thought, and it's a really big problem. And that didn't kind of coalesce in his mind until October, which is only a month before the whole thing goes under. Josh, I just want you to try to characterize how much ignorance would be necessary on the part of Bankman Freed for his defense of, I don't really remember, this wasn't happening, I was confused, I was disoriented, to actually hold true. And to just read a little chunk from your piece that kind of gets at this. The prosecutor said, while the defendant was fluent when questioned by his own lawyer, he was a different person on cross-examination and couldn't remember a single detail about the alleged scheme, claiming some 140 times that he could not recall specifics.

6:07He approached every question like up was down and down was up, the prosecutor added. What you're quoting comes from the closing statements, which is what happened today in court. And the prosecutors are kind of, you know, calling back to their cross of Sam Beckman Freed earlier in the week and trying to kind of remind the jury of the greatest hits of the cross-examination and, you know, the things that they should be remembering, though they want them to remember when they go into the jury room. Indeed, Sam said, I don't recall a lot. And they're trying to make the point, obviously, that he's using I don't recall to get out of questions that he doesn't want to answer.

6:37But the main point of the cross is guys do not do financial crimes in the Southern District. They seriously know what they're doing. And all the lawyers are good. But the cult figure who has come out of this trial is Danielle Sassoon, this prosecutor who's done the did the cross of Sam Bankman Freed. She was incredibly organized, relentless, you know, and a good combination of like forensic having the having the details. And then also asking kind of the obvious question that you know, you're asking, which is like she did this a couple of times. She's like, so, you know, did you ever tell your employees not to spend the customer's money?

7:09Who are you saying did spend the customer's money if it wasn't you? And just doing these kind of common sense questions that make the jury maybe kind of go, oh, yeah, that does make sense. But, you know, you can imagine her with her notes in front of her. There's this like question and then another column, all the receipts of like, you know, here are all the numbers of all the evidence that I'm going to call up. If he says, I don't remember, if he makes this claim, if he makes that claim, so prepared. You know, right at the very beginning, you know, they always tend to try and do something eye-catching at the beginning of a witness because the jury's still paying attention.

7:37They haven't dropped off to sleep yet. And she asks him, were you involved at all in Alameda trading decisions? Which is this key question about conflict of interest because Alameda's a trader on the exchange and he runs the exchange. And he gives a sort of answer like, I wouldn't say I wasn't involved at all. I would say I was mostly not involved. I wasn't involved day to day. And so he kind of, you know, and she asked it twice. Did you say you were not involved at all in Alameda trading decisions? And then she's got the recording of Sam on a podcast using the exact phrase, I'm not involved at all in Alameda trading decisions.

8:09And she's got the signal screenshots of him directing trades and telling his employees, buy this, buy that. She's trying to demonstrate all sorts of different things, but she's trying to say his story is shifting. If he tells you he doesn't remember or he caveats something, it's deceptive. And drive that point home over and over again. I have to ask here something that is subjective. was sam bankman freed a sympathetic witness or not putting yourself in the jury seats what was the vibe you got from him while he was under all this pressure it's an interesting question and when he's answering questions from his own lawyer he came across quite well you know that's the easy part it's easy it's easy part but you know he managed to obviously if that doesn't go well you're in real trouble but um because you know the questions are but he's you know So he was making jokes to the jury.

9:00He was charming. And Sam is a very captivating person. And he seemed interesting. So that all went fine. On the cross, it's really interesting because there was this weird dynamic in the court where in effect, they had a dress rehearsal for the cross. There was this sort of hearing they had where the jury wasn't there. And they did some of the cross because the judge had to decide whether it was admissible. and this is tactically turned out to be just so important because Sam basically got to try out what Cross was going to be like with no stakes because the jury's not there and his behavior changed totally from that dress rehearsal to the actual thing when the jury was back.

9:38It almost seemed as though he hadn't believed his lawyers when they told him how bad it was going to be because what he did the first time, jury not present, he tried to sort of wheedle on every question. It would be like they would ask him something. He'd be like, well, you know, I wouldn't necessarily phrased it that way and give an answer with a bunch of caveats and explanations and long answers. And the judge was getting annoyed with him. The lawyer was asking questions over and over again. The judge kind of reprimanded him, right? Yeah. The judge said, how about this? Try answering the question directly.

10:08And so obviously - So it sounds like that dress rehearsal might've been very important for his chances. Yeah. Yeah. And he, so then when the jury's there, Sam Bagman-Fried has finally learned to give a one-word answer. It was something he was completely incapable of. I have spoken to him for more hours than I care to admit. And I wish I'd had a judge there to say you didn't answer the question, but he would say, yes, no, I don't recall. The other thing that he, the little tick that he had was, I wouldn't put it that way. I can explain if you want. And then he would just stop and the prosecutor would move on.

10:46But it kind of made it seem as though like he's got an answer, but they're not giving him a fair shake. And then on the redirect, his lawyer comes back. They said, you said you could explain. The prosecutor didn't want to hear it. Can you explain? And then they get him to do the thing. So they'd worked it out. In terms of whether he's sympathetic, the problem was his sort of, as you say, vibe, dare I say, attitude. It really reminded me overwhelmingly of like what there's like a substitute teacher. And there's a kid in the class who knows they're smarter than the substitute teacher, but knows that they're going to get sent to the principal's office if they start being too much of a smart ass.

11:20And so he's kind of like knuckling under and just saying, yes, ma 'am, no, ma 'am, answer the question that he's asked. And he knows he's smarter and he knows he could destroy her with his thoughts if he was allowed to speak, but he's just going to behave. I'm not sure that comes across sympathetically because he looked as if he thought he was above it. He's really kind of sullen, sulky, negative. And the other thing is like all of the don't recall stacked on top of each other start to look shifty. Yeah, yeah. It is an ancient principle of our legal system that nobody likes a smarty pants. But I do want to I think I don't want to leave listeners necessarily with the impression this is an open and shut case.

12:01Because I think in one of your recent pieces, Josh, you identify one potential weakness in the government's case. And I hope you can speak about this now that you've seen the way that the trial is wrapping up. You write, what the government lacks is a smoking gun. There is no standout piece of evidence that unequivocally shows Bankman-free conspiring in black and white. Prosecutors have made much of the fact that he set his encrypted chats to auto-delete to imply that he deliberately destroyed the most incriminating information. Yes, I was talking about this smoking gun question with a more veteran white-collar reporter around the office.

12:31And they were like, no, there's never a smoking gun. Usually they only have one witness, and these guys have got three, so he's definitely screwed. This is my first federal trial. I'm not an expert on the prosecution side. Do I think that there's no chance there could be one juror who's just like, oh, no, I don't think so. You know, I don't think it's totally open and shut. All the legal experts are saying the preponderance of evidence is on one side. The government's got a super strong case. But you never know what's going to happen in the jury room. And let me ask you this, Josh. Why isn't this a smoking gun?

12:56There were customers of the exchange that sent money from their bank accounts with the expectation that they were going to be placed in a bank account belonging to the exchange. and that didn't happen. The money went somewhere else. That looks on its face like a crime to me. That looks like an act of gross deception to me. So the customers were told sort of technically where the money was going because they got to get wire instructions. So they sort of like, they kind of, in a sense, it wasn't necessarily secret. It wasn't necessarily public. This is the most obvious thing in the world to say, but it's all about intent and what did Sam think?

13:34So, you know, you can always try and find a way and they're they're they're trying their darndest down the courthouse, right? Always try and find a way where he wasn't aware of this part. He didn't know about that. He thought it was OK. And so obviously, you know, any any prosecutor would love to have is messages where they're kind of explicitly talking about the crime. But as I'm informed by my white collar colleagues, you know, this is an incredibly rare thing to have. There is one that comes close, which was brought up today in court, which is a chat where right at the very end where Nishad Singh, who's one of the cooperating witnesses, one of Sam's closest allies, is basically about to leave.

14:10He's about to get on a plane and go back to America, go live with his parents and hire a lot of lawyers. And he says, I think you need to tell our staff that it was not a lot of people orchestrating it. because I think that will mean that more people will stay and keep working at the company. And Sam sort of goes, yeah, I think that makes sense. In court, the prosecutor wants to say - The referent of it is the question. And the prosecutor very clearly says in court, right, it is the fraud. But obviously, we don't know, right? It's just two messages. So, it's taken out of context. I mean, it looks like - It depends on the meaning of what it is.

14:48You know, it's a gun with smoke near it. I don't know. Yeah. At this point in our discussion, I would like to introduce into evidence a t-shirt. Yes. Mr. Wu, would you read the t-shirt for the jury? Very happily. This is a black t-shirt, men's media made with U.S. cotton. The t-shirt reads, is it your testimony that Josh Oliver wrote something you didn't say? USA versus Samuel Bankman-Fried, October 30th, 2023. Mr. Oliver, account for this. Yes. It's my testimony that this is not my idea. This is a kind and very embarrassing gift for my colleague, Joe Miller, who has been on the show, who has been with me in court, my ally for these 3 ,000 weeks of judicial proceeding.

15:32And this is, yes, it's a quote from the transcript of the trial where the prosecutors were using basically media interviews and their cross-examination of Sam, including our interview with him in last December, where we talked about a bunch of stuff, but crucially, he kind of gave some of the hints, earliest hints towards this June, the key June conversation where they're talking about repaying lenders. And this is not a question that any journalist wants to hear their sources asked under oath. Did they make up the story? For the record, I did not. And Sam's testimony is he doesn't remember. Honestly, probably fair enough.

16:03He did a lot of interviews. He should have put that on a t-shirt. I do not recall. I do not recall. Yeah, that would be his quote. So Josh, do you think you can wear this anywhere? Absolutely not. No, there is a little self-aggrandizing. I was told this was a Halloween costume. Halloween is over and the best I could do is frame it. Alright Josh, we'll be back in a moment with Long Short. Welcome back. This is Long Short, that part of the show where we go long things that we love, short things that we hate. As usual, two guests on the show so I will step out. Rob, do you have a long or a short?

16:35I actually have a long and a short on the same thing. Oh. Hunterbrook. Hunterbrook. Which was the subject of a great name, a pretentious name, which was the subject of a great story in the FT today is a startup. And the idea of the startup is that it is a news organization, but the news organization before it publishes its stories will trade on them. So they'll, you know, they'll have journalists gathering up information, potentially market moving information. They will put their trades in, then they will publish the story. I am short this idea if it is a hedge fund supported by a news organization, because all hedge funds basically have news organizations.

17:24They call these people analysts. If on the other hand, this is a news organization supported by a hedge fund, then I'm long it. Give it a chance. I mean, maybe you'll get sued by the SEC, but maybe you'll come up with a new way to support journalism, which God knows needs new forms of support. A new pioneering business model over here at Hunterbrook. Josh, are you long or short something? I have not read any news not containing the acronym SBF in the last five weeks. so I will go short the chances of a verdict before the weekend. The judge seems to be in a hurry, but I don't think it can be rushed.

18:05And I hate to put a real prediction on the record, but I will go long conviction. You are not good at this game, Josh. The way you play this game is you make a prediction that will not be immediately proven right or wrong so that listeners have a chance to forget the stupid thing you said. Speaking of ancient traditions of journalism, of never being held to your predictions and never making predictions that can be falsified. You are now a hostage to fortune. Yes, I'm a hostage to fortune. But look, you know, sometimes we got to do these things. All right, Josh, thanks for being here fresh from the New York court steps.

18:37We'll have you back soon, maybe when this case is decided to talk about what we learned. And listeners, we'll be back in your feed on Tuesday with another episode of Unhedged. Catch you then.

18:50Unhedged is produced by Jake Harper and edited by Bryant Erstad. Our executive producer is Jacob Goldstein. We had additional help from Topher Forges. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, Jacob Weisberg, and Jess Trulia. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Ethan Wu. Thanks for listening.

19:25We'll be right back.