FTX co-founder Sam Bankman-Fried will take the stand Friday in his own defense, but the world got a preview of his testimony the day before when he was questioned for just a little less than three hours outside the presence of the jury.

Bankman-Fried, 31, testified Thursday in an unusual session before US District Judge Lewis Kaplan, who wanted to listen to certain testimony before deciding whether jurors can hear it. Prosecutors contend that Bankman-Fried shouldn’t be allowed to claim that many of his actions at issue in the case were carried out with the involvement of legal counsel.

The case against Bankman-Fried centers on allegedly fraudulent transfers of FTX customer funds to an affiliated hedge fund, Alameda Research, in which he held a 90% interest. Alameda’s illegal borrowing of as much as $14 billion from FTX ultimately caused both companies’ bankruptcies in November 2022, prosecutors contend.

Bankman-Fried is set to return to the stand, this time before the jury, and Kaplan has said he will rule soon on how far the former crypto mogul can bring up FTX lawyers’ involvement or knowledge of certain matters. On Thursday, Bankman-Fried tried to depict FTX executives’ use of encrypted, disappearing text messages as falling within a policy vetted by lawyers and noted that attorneys were copied on many conversations using apps like Signal.

But he was also subject to a withering cross-examination by prosecutors ready and eager to poke holes in his account. Bankman-Fried often gave evasive answers to their questions and frequently claimed he couldn’t recall events that prosecution witnesses, including three of his closest former associates, highlighted as examples of fraudulent conduct. His answers often drew sharp responses from Kaplan as well.

It was a taste of what he can expect more of on Friday and into next week. Here are the main takeaways from Bankman-Fried’s first foray as a witness in his own defense:

• Defended Deletions: Bankman-Fried was cool and collected under examination by his own lawyers, when he defended his decision to set certain conversations he had with co-workers over the encrypted messaging app Signal to automatically delete. Prosecutors and other witnesses had painted this as an attempt to conceal his actions from scrutiny, but Bankman-Fried said an FTX document retention policy didn’t apply to informal conversations using messaging-app chats and that company lawyers were aware those occurred. He said formal company decisions and documents were preserved.
• Evasiveness: Under cross-examination by prosecutors, however, Bankman-Fried often avoided giving direct answers and frequently asked for further clarifications. He also said he didn’t remember discussions prosecution witnesses had described, including a September 2022 Signal chat where he allegedly proposed shutting down Alameda. He seemed particularly evasive on the issue of whether he knew in May 2022 of features that allowed Alameda to carry a negative account balance — referred to as “allow negative” throughout the trial — and exempted it from automatic liquidation. Bankman-Fried said he was aware of “speed bumps” that had been set up to delay any liquidation of the fund’s account but didn’t know their “exact nature.”
• Aggressive Prosecutor: Assistant US Attorney Danielle Sassoon didn’t let Bankman-Fried off the hook when he tried to avoid answering questions, calmly rephrasing her questions when he requested clarifications but also calling him out directly for being evasive. She pressed him on his claims of legal advice, forcing him a number of times to say he “didn’t recall” conversations with lawyers in which they signed off on his actions. She also hit him hard on claims that the deleted Signal chats were only for informal conversations, noting a discussion about repaying lenders to Alameda. “Would you consider that a formal business decision?” Sassoon asked.
• Annoyed Judge: Bankman-Fried’s evasiveness clearly irked Kaplan, who made a number of pointed remarks during his testimony. Noting Bankman-Fried’s attempts to avoid addressing the “allow negative” issue directly, the judge commented that “the witness has what I’ll simply call an interesting way of responding to questions.”
• High Stakes: Bankman-Fried is taking the stand after three weeks of testimony by prosecution witnesses, including former Alameda Chief Executive Officer Caroline Ellison, who is also his ex-girlfriend, FTX co-founder Gary Wang and FTX engineering chief Nishad Singh. All three have pleaded guilty themselves to fraud and testified that Bankman-Fried directed them to take actions to divert FTX customer money to Alameda. His testimony is his last chance to push back on their accounts.

--With assistance from Yueqi Yang.

Author: Chris Dolmetsch, Allyson Versprille and Olga Kharif