SBF Trial Day 3: Roommate Reveals $8 Billion FTX Deficit & Nervous Reactions

The Sam Bankman-Fried (SBF) criminal trial continues to deliver shocking revelations, and day three was no exception. Adam Yedidia, SBF’s former roommate from MIT and an FTX developer, took the stand, painting a concerning picture of the crypto exchange’s inner workings just before its dramatic collapse. Yedidia’s testimony centered around a staggering $8 billion deficit at FTX and the close, often blurred, lines between FTX and Alameda Research. Let’s dive into the key takeaways from his compelling testimony.

The $8 Billion Glitch: A Code Error with Massive Consequences?

Imagine discovering an $8 billion error in your company’s books. That’s precisely what happened at FTX, according to Yedidia’s testimony. He revealed that a bug in FTX’s code had a critical flaw: it failed to properly account for Alameda Research’s liabilities. This oversight meant that Alameda’s debts weren’t being accurately reflected, leading to a ballooning $8 billion discrepancy.

Here’s a breakdown of what Yedidia reportedly shared:

• The Bug Discovery: Yedidia, an FTX developer, identified a critical flaw in the exchange’s code.
• Alameda’s Liabilities: The bug specifically impacted how Alameda Research’s liabilities were recorded within the FTX system.
• $8 Billion Error: This code flaw resulted in an approximate $8 billion miscalculation, making FTX’s financial situation appear significantly healthier than it actually was.
• Informing SBF: Yedidia stated he informed Sam Bankman-Fried directly about this massive error.

This revelation is crucial because it suggests that the financial problems at FTX weren’t just due to market conditions or unforeseen events, but potentially stemmed from fundamental errors in the platform’s infrastructure. Was this a simple mistake, or was it something more deliberate?

“How Long Until We’re Bulletproof Again?” SBF’s Nervous Reaction

Yedidia’s account of SBF’s reaction to the $8 billion deficit is particularly telling. When Yedidia asked, “[H]ow long until we’re bullet proof again?”, SBF’s response was far from reassuring.

Consider these points about SBF’s demeanor and response:

• Nervousness: Yedidia described SBF as looking “nervous” upon hearing about the $8 billion issue. This suggests an awareness of the severity of the situation.
• Vague Timeline: SBF’s estimated timeline to fix the issue was a broad “six months to three years.” This lack of a concrete plan could indicate uncertainty or a deeper problem than initially perceived.
• Bulletproof? The question itself, “bulletproof again,” implies a prior sense of invulnerability, which seems increasingly ironic in hindsight.

SBF’s nervous reaction and the ambiguous timeline raise questions about his knowledge and handling of the situation. Did he downplay the severity, or was he genuinely unsure how to resolve such a massive financial hole?

Resignation and Customer Funds: The Final Straw for Yedidia

Yedidia’s decision to resign from FTX wasn’t solely based on the $8 billion bug. According to reports, the revelation that “Alameda had used customer deposits to pay its loans” was the ultimate catalyst for his departure. This is a critical point, as it touches upon the core allegations of fraud against SBF – the misuse of customer funds.

Let’s break down why this revelation was so significant for Yedidia:

• Breach of Trust: Using customer deposits for loans, especially for a related entity like Alameda Research, violates the fundamental trust users place in a crypto exchange.
• Ethical Concerns: For someone working within FTX, discovering this practice would likely raise serious ethical red flags.
• Resignation as a Statement: Yedidia’s resignation can be interpreted as a moral stance against these practices, signaling his unwillingness to be associated with such actions.

This testimony reinforces the narrative that customer funds were indeed commingled and misused, a central accusation in the case against Sam Bankman-Fried.

Signal and Auto-Delete: A Culture of Concealment?

Perhaps one of the most eyebrow-raising parts of Yedidia’s testimony was his claim about SBF’s communication practices. Yedidia stated that Bankman-Fried instructed employees to use the messaging app Signal, specifically with the auto-delete function enabled.

Why is this significant?

• Auto-Delete Function: Signal’s auto-delete feature automatically removes messages after a set period, hindering record-keeping and potential investigations.
• Company-Wide Instruction: SBF allegedly told the entire company to use Signal with auto-delete, suggesting a systematic approach to ephemeral communication.
• Rationale: “Down-side to keep messages around”: SBF’s stated reason, fearing regulators finding “things they didn’t like,” points towards a potential intent to obscure information and avoid scrutiny.

This instruction to use Signal with auto-delete paints a picture of a company culture that may have prioritized secrecy and avoided transparency. Prosecutors are likely to argue this was a deliberate attempt to obstruct potential investigations.

Bahamas Confrontation and Personal Relationships

The testimony also touched upon a personal confrontation between Yedidia and SBF in the Bahamas, near a “paddle tennis court,” regarding the $8 billion hole. While the details of this confrontation remain somewhat vague, it further emphasizes the gravity of the situation and Yedidia’s concern.

Interestingly, Assistant U.S. Attorney Danielle Sassoon also delved into SBF’s personal relationship with Caroline Ellison, the former CEO of Alameda Research. Yedidia recounted a conversation where SBF asked his opinion on dating Ellison, revealing, “He [SBF] said they had had sex and asked me if I thought they should date. […] I said no.”

While seemingly a personal anecdote, this detail is relevant because:

• Ellison’s Testimony: Caroline Ellison is expected to be a key witness against Bankman-Fried, having pleaded guilty and agreed to cooperate with prosecutors.
• Potential Conflict of Interest: The personal relationship between SBF and Ellison, who held leadership positions in FTX and Alameda, respectively, could be relevant to understanding the dynamics and potential conflicts of interest within the two entities.
• Bail Revocation Context: The mention of Ellison also ties into the context of SBF’s bail revocation, which was partly based on allegations of witness intimidation against Ellison through the sharing of her personal journals.

What’s Next? Gary Wang and More Key Witnesses

The SBF trial is expected to continue through November, with more key witnesses set to testify. Following Yedidia, Gary Wang, another co-founder of FTX, is expected to take the stand. Prosecutors have also indicated they may call Nishad Singh, former FTX engineering director, and Constance Wang, former FTX COO.

These upcoming testimonies are crucial as prosecutors build their case against Sam Bankman-Fried, aiming to prove he orchestrated a massive fraud. Yedidia’s testimony has set the stage, providing a first-hand account of the internal alarms raised within FTX and SBF’s alleged responses.

In Conclusion: A Glimpse Inside the FTX Collapse

Adam Yedidia’s testimony offers a compelling insider’s perspective on the events leading up to FTX’s downfall. From the shocking $8 billion deficit to SBF’s nervous reaction and the alleged push for secretive communications, Yedidia’s account paints a picture of a company teetering on the brink. As the trial progresses, and with more testimonies to come, the full story of FTX’s collapse and Sam Bankman-Fried’s role in it will continue to unfold, captivating the crypto world and beyond.