Oct 10, 2023 - Economy

FTX co-founder says crypto firm's numbers were worse than they seemed

FTX and Alameda Research co-founder Gary Wang testifies in court on October 10, 2022.

FTX and Alameda Research co-founder Gary Wang testifies in court on October 10, 2022. Drawing: Brady Dale/Axios

FTX and Alameda Research co-founder Gary Wang testified Tuesday that the financial balances for the ill-fated exchange were even worse than they seemed.

Why it matters: Whether or not Sam Bankman-Fried knew he was misleading customers and investors about the safety of his exchange and its associated hedge fund is crucial to the government's fraud and conspiracy case.

Details: Throughout Tuesday morning's proceedings, the government and defense made frequent reference to a spreadsheet of assets that the FTX and Alameda teams had prepared in June 2022.

However, there's some additional detail. On redirect, the government asked Wang if any of the balances shown in dollars actually represented holdings of FTX's FTT token.

  • Wang identified a line marked as "Cotton Grove Trading," noting that approximately $4 billion of assets shown there was entirely FTT.
  • At the time, removing the FTT would have increased FTX's deficit to $16 billion.

Zoom out: Much of Tuesday morning in the trial against Sam Bankman-Fried was devoted to the defense's cross-examination of Wang. In particular, the defense questioned Wang on how bad the situation for FTX was in June 2022.

  • The downturn in the crypto market had begun the prior November, but it had taken two severe blows in May and June of last year: the terra stablecoin collapsed followed by the crisis brought on by the collapse of another large hedge fund, Three Arrows Capital.
  • The government asked Wang to confirm that he'd helped in an analysis that ultimately showed the net asset value (NAV) of FTX and Alameda as positive.
  • Wang confirmed, but with caveats.

What they're saying: The positive value was only attained by looking at the totality of Alameda's assets, including things like investments and real estate.

  • "Not necessarily liquid assets or assets that could be deposited on FTX," Wang explained.
  • The determination of a positive NAV was "According to some calculation that Sam made," Wang said.
  • "I'm not sure how accurate it was."

The scene: Wang appeared in what looks to have been the same dark grey suit he seems to have worn last week, with a slightly red tie.

  • He's exhibiting the same extremely succinct, taciturn manner that he's known for, seldom venturing beyond "yes" or "no" answers unless it's truly necessary.
  • The judge Tuesday seems to be slightly less impatient with the defense, though he has shown some frustration with the degree to which it has belabored some points (such as the number of times Wang has met with the prosecution).

The latest: Caroline Ellison has now taken the witness stand, wearing an autumnal dress and a charcoal blazer.

  • So far, Ellison has simply confirmed that she has pled guilty to various crimes, and that she committed the crimes in conspiracy with SBF and others.
  • When the prosecution asked if she could identify the defendant, she stood, looked around and took considerably longer than one might have suspected would have been necessary to find him. But she ultimately did.

When the government asked her about how much had been taken from customers of FTX, she said it was finally around $10 billion dollars.

  • "We ultimately took around $14 billion, some of which we were able to pay back," she said shortly before the lunch recess.

Go deeper: SBF knew of FTX/Alameda liability months before collapse, witness says

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