- An FTX customer took the witness stand at the beginning of the third week of Sam Bankman-Fried’s trial.
- The customer detailed how he lost $300k on the exchange by trusting the disgraced FTX founder.
- The defense seems set on blaming customers for allegedly not reading the fine print in FTX’s terms of service.
On Monday, October 16, the trial of disgraced FTX founder Sam Bankman-Fried (SBF) entered its third week. While the headlines from the case so far have been mainly dominated by jarring revelations from insiders, recent testimony from a one-time FTX user has highlighted that behind the ongoing drama in court are millions of customers the exchange ripped off of about $8 billion.
A Brutal $300k Wipe Out
On Monday, the prosecution placed Tareq Morad on the stand. Morad was an FTX customer who lost nearly $300k in the exchange’s collapse.
Morad disclosed that he had first heard about FTX and Sam Bankman-Fried through the media coverage of the latter’s Congress lobbying efforts and decided to open an account on the exchange in April 2021 after being convinced by the FTX founder’s online following.
Morad was among customers who funded their accounts through wire transfers that ended up at North Dimension, a bank account that former insiders have now confirmed to have been controlled by FTX’s sister trading firm, Alameda Research. He testified that he had funded his FTX account with around $500,000 to trade Bitcoin and Ethereum and had about $280,000 on the exchange around the time of its collapse.
When asked why he did not take his funds off FTX when the rumors of its insolvency started swirling, the witness pointed to Bankman-Fried’s tweets assuring customers that everything was fine.
"I was very relieved, happy to hear from the leader of the company, that it was rumors," Morad reportedly testified.
Bankman-Fried’s assurance would prove false, as Morad would later learn. However, by then, it was too late.
Testimony in the trial so far suggests that executives led by Bankman-Fried redirected billions in customer funds to Alameda to fund personal investments and loan repayments. However, the defense may be trying to blame customers for not doing due diligence.
FTX Terms of Service
In Monday’s proceedings, Morad revealed that he had never looked at FTX’s terms of service in response to questioning from Judge Lewis A. Kaplan. The question came as Bankman-Fried’s lawyers have suggested that FTX’s terms of service were vague enough to allow the exchange to use customer deposits for other purposes.
The defense team highlighted this line of reasoning again, as they also questioned Morad during the cross-examination on whether FTX had disclosed that they would never use his deposits for other purposes.
FTX’s terms of service have served as fodder for debate following the exchange’s collapse as a paragraph within it asserts the exchange could use customer balances as “collateral for margin trading, or to fund trades, in relation to any Services or part thereof offered through the Platform by FTX or its Affiliates.”
On the Flipside
- Aside from blaming customers for allegedly misinterpreting or not reading FTX’s terms of service, Bankman-Fried’s lawyers also intend to blame former Alameda CEO Caroline Ellison for allegedly mismanaging the company.
- There is still no clear path for FTX customers to be made whole.
Why This Matters
Morad’s testimony highlights the plight of several FTX customers who placed their trust in Bankman-Fried only to be ripped off of their hard-earned money.
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