SBF: Any FTX user could have borrowed and used it to "buy muffins," anything else
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Sam Bankman-Fried as seen through the overflow room monitors, testifying on Friday, Oct. 27. Drawing: Brady Dale/Axios
Sam Bankman-Fried suggested any adequately collateralized user of the crypto exchange he founded, FTX, could have borrowed money and used it any way they wanted, including withdrawing it and using it off the exchange.
Driving the news: A key question in the fraud trial of SBF is whether or not the hedge fund he founded had special privileges that other users (and the exchange's investors) didn't know about, putting their funds in danger.
- Bankman-Fried (SBF) is currently on trial in Manhattan for seven criminal counts, including wire fraud.
- Prosecutors have shown that his fund, Alameda Research, had used borrowings from FTX to spend on things like venture investments and political contributions, presented as evidence of fraudulent use.
What they're saying: "In general, FTX didn't have restrictions on what people could do with funds that they borrowed," the fallen founder testified during direct examination from his attorney on Friday.
- "We didn't care if a user withdrew funds and used them to buy muffins, to pay business expenses, to invest, or anything else," he said.
Zoom in: The question came in response to a line of questioning about borrowing on the exchange by Alameda, which SBF founded before launching FTX.
- SBF also suggested that he wasn't aware that the borrowings came from FTX customer funds.
- "The money — my understanding was that it was coming from basically margin traders," he said. "It was coming from collateral or — basically collateral from other margin traders or from assets that were earning interest on the platform."
Context: Generally, up to this point, all borrowing by FTX users has been understood to have been used simply for margin trading.
- In margin trading, users can borrow against assets to amplify their bet, potentially doubling or tripling (or more) their returns when a trade works out their way.
- Conversely, losses can pile up double or triple fast as well (or worse) when they don't.
The intrigue: In prior reporting by Axios, there has never been any indication that users other than Alameda could borrow funds and withdraw them to bank accounts or cryptocurrency wallets, as SBF suggested in his testimony Friday.
The bottom line: The defense presented no additional evidence beyond the former CEO's testimony Friday that showed other users were taking advantage of such a lending program (to pay business expenses, buy muffins or otherwise) at FTX, beyond trading on margin.
Go deeper: Sam Bankman-Fried hammered on conflicting messages on witness stand
