SBF Trial: A Witness Contrasts Sam Bankman-Fried’s House Testimony With FTX’s Dangerous Secrets

Former FTX lobbyist Eliora Katz testified Wednesday in Sam Bankman-Fried’s criminal trial, illuminating a contrast between the crypto mogul’s public comments about the exchange’s safeguards and the secret reality that led to its demise a year ago.

Bankman-Fried’s testimony before the House Financial Services Committee came up early in the Department of Justice questioning of the witness, alongside the FTX founder’s tweets about investor protection.

“We have a transparent system,” Bankman-Fried said in a clip played for the jury of his comments before Congress. Bankman-Fried, in the video, also discussed the company’s risk-monitoring system, contrasting it with the opaque Wall Street mess that fueled the 2008 financial crisis.

The truth, according to prosecutors and FTX insiders who have testified after pleading guilty, was very different: poor financial recordkeeping and improper siphoning of customer money to Bankman-Fried’s nominally separate trading firm, Alameda Research. And once that started coming to light, the company fell apart in a rapid, 2008-style collapse.

Katz actually said relatively little on the stand. The prosecutor just kept showing her tweets and transcripts and asked her read them out loud, and she often kept her answers short: “yes” or the like. She seemed to be mainly on the stand to contrast FTX’s public statements on crypto investor protection and how it actually handled customer funds, and to introduce statements about cryptocurrencies being commodities instead of securities – an important regulatory distinction in the U.S.

Some of the Department of Justice’s exhibits focused on statements by Bankman-Fried that much of the crypto market is commodities. The former CEO of FTX is charged with conspiracy to commit commodities fraud.

Katz also emphasized repeatedly that Bankman-Fried’s testimony both before the House committees occurred prior to her joining FTX. She appeared visibly uncomfortable on the stand. The witness denied putting together various materials published by FTX and said she believed that everything Bankman-Fried told the public about investor protection was true.

Judge Lewis Kaplan, who is overseeing the case, also seemed to be losing patience with the assistant U.S. attorney questioning Katz, asking how many documents he planned to show the jury near the end of the half-hour direct examination.