NEW YORK, Oct 26 (Reuters) - FTX founder Sam Bankman-Fried testified on Thursday at his fraud trial outside the jury's presence that lawyers at his now-bankrupt cryptocurrency exchange were involved in key decisions at the heart of the case, as he sought to distance himself from responsibility for any wrongdoing.

Bankman-Fried, taking the witness stand hours after the prosecution rested its case presented over 12 trial days, gave testimony that fit with the defense argument that he acted in good faith while running FTX, which collapsed in November 2022 following a wave of customer withdrawals.

On cross-examination by prosecutors, Bankman-Fried often struggled to point to specific conversations in which lawyers approved his actions and hedged his responses with phrases such as, "I am not trying to give a definitive legal ruling on what this does or does not say."

Accused of stealing billions of dollars from unwitting customers, Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy. If convicted, he could face decades in prison. Prosecutors have said Bankman-Fried used the misappropriated funds to prop up his crypto-focused hedge fund, Alameda Research, make speculative venture investments and donate more than $100 million to U.S. political campaigns.

The 31-year-old former billionaire, clad in a gray suit, was called to the stand in Manhattan federal court after his lawyers kicked off the defense case with testimony from two other witnesses.

U.S. District Judge Lewis Kaplan decided that Bankman-Fried would initially provide testimony without jurors present so he could determine which portions of it, if any, would be admissible as evidence. Prosecutors have said Bankman-Fried should not be allowed to suggest that the involvement of lawyers in decision-making showed that he lacked criminal intent.

Speaking in a confident tone, Bankman-Fried often gave lengthy responses to questions from defense lawyer Mark Cohen.

Bankman-Fried said FTX's lawyers were involved in crafting its document-retention policies, setting up a system under which FTX customers deposited their funds into an Alameda bank account, and crafting loans that he and other executives took from Alameda.

Prosecutors have said Bankman-Fried encouraged employees to use encrypted messaging platforms such as Slack and Signal and auto-delete their communications to hide their tracks. They also have said he stole funds by having FTX customers deposit money into accounts controlled by Alameda, which then lent money to FTX executives.

SWAYING SIDE TO SIDE

Under cross-examination by prosecutor Danielle Sassoon, Bankman-Fried swayed slightly side to side and motioned with his hands when speaking. He frequently began responses by saying "yep."

Much of Sassoon's questioning focused on what FTX lawyers told Bankman-Fried about the company's practice of having FTX customers deposit funds intended for the exchange into accounts belonging to Alameda, which Bankman-Fried testified happened for a time because FTX did not yet have its own bank account.

When Sassoon asked if he ever spoke with lawyers about the "permissibility" of Alameda spending the deposits, Bankman-Fried paused for several seconds and said, "I don't recall any conversations that were contemporaneous and phrased that way."

The judge sent the jurors home for the day after Bankman-Fried's lawyers said they planned to elicit testimony from the defendant about the involvement of FTX lawyers in key company decisions.

Legal experts have said Bankman-Fried has little to lose by bucking conventional wisdom and testifying to the jury, given weeks of the testimony against him by insiders painting an unflattering portrait of his character. Cohen said Bankman-Fried's direct testimony to the jury could last close to five hours, before prosecutors get a chance to cross-examine him.

Former close FTX colleagues who testified for the prosecution told the jury that Bankman-Fried directed them to commit crimes by diverting customer funds to Alameda and lying to investors and lenders. Bankman-Fried's risky decision to testify gives prosecutors the chance to cross-examine him on those claims.

His lawyers have said three of his former colleagues, who have pleaded guilty and agreed to cooperate with prosecutors, tailored their testimony to implicate Bankman-Fried in the hopes of receiving lenient sentences. Bankman-Fried has maintained that while he made mistakes running FTX, he never intended to steal funds.

The prosecution rested after calling one final witness - FBI agent Marc Troiano, who told jurors about Bankman-Fried's use of Signal. The defense's first two witnesses were: Krystal Rolle, Bankman-Fried's lawyer in the Bahamas; and database expert Joseph Pimbley.

Reporting by Luc Cohen and Jody Godoy in New York; Editing by Will Dunham and Noeleen Walder

Our Standards: The Thomson Reuters Trust Principles.