A year ago, 30-year-old billionaire Sam Bankman-Fried posted a 14-tweet thread on the balance of “safety vs freedom” in cryptocurrency regulation. Now, a different kind of freedom is on the line when he walks into a Manhattan courtroom to face criminal charges that carry a combined maximum sentence of more than a century in prison.
Bankman-Fried’s trial, which is set to begin with jury selection on Tuesday and last for six weeks, marks the ultimate reckoning for the disgraced tycoon who was once welcomed by lawmakers in Washington and Silicon Valley investors as the responsible face of cryptocurrencies, and a respected voice on the future of disruptive digital assets.
He is accused of having defrauded dozens of the world’s top investors as well as millions of customers at his FTX cryptocurrency exchange, and stealing billions of dollars entrusted to his custody.
The shambles left behind by FTX’s $40bn bankruptcy in November 2022 has been described as worse than Enron, and Bankman-Fried’s alleged crimes have been likened to those carried out by legendary Ponzi scheme architect Bernard Madoff. US prosecutors called his alleged scheme “one of the biggest financial frauds in American history”.
The trial will feature millions of pages of evidence and will probably include testimony by Bankman-Fried’s closest friends and romantic partners. It represents the first big test for US authorities in their efforts to bring to heel the lawless world of offshore crypto trading.
“This is a hugely important case. This is the biggest trial we have seen in the crypto world,” said Sarah Paul, a former federal prosecutor and partner at law firm Evershed Sutherland. “If there is not justice here for the victims, I think it will be a real blow. And I think it’s dangerous. You have to get bad actors like this out of the industry.”
The case against ‘SBF’
Bankman-Fried’s defence team, led by Mark Cohen, faces a daunting battle. Conviction on one of the seven charges against him — including conspiracy to commit money laundering and fraud against lenders, investors and customers of his crypto empire — could be enough to expose Bankman-Fried to a lengthy prison term.
The prosecution will try to prove that Bankman-Fried conspired with his inner circle of college and childhood friends to funnel billions of dollars of customers’ money from FTX in secret loans to his crypto trading firm Alameda Research, which spent the money lavishly on venture investments, luxury real estate, political donations and marketing — including a Super Bowl TV commercial and glossy Vogue magazine ads featuring FTX promoter Gisele Bündchen.
Critical to the prosecution’s case will be testimony from Bankman-Fried’s closest confidantes and former romantic partners, many of whom lived together in a $30mn luxury penthouse in the Bahamas, where FTX was based until a run on the exchange in late 2022 drove it into bankruptcy, exposing up to $9bn in missing customer funds.
Bankman-Fried achieved global fame after he amassed more than $20bn in just three years as FTX chief, and pledged to donate the bulk of that personal fortune. He was known for outlandish behaviour, including sleeping on a beanbag in his office and greeting luminaries like former president Bill Clinton wearing shorts and a T-shirt.
His inner circle indulged in late-night board game sessions and was entangled in a web of romantic liaisons. Prior to FTX’s failure, Bankman-Fried’s known vices were a weakness for vegan burgers and oversalting his meals.
Four of Bankman-Fried’s former lieutenants have already pleaded guilty. Caroline Ellison, the former chief executive of Alameda and his one-time love interest, is expected to be a star witness.
“I think the government’s case looks extremely strong. They have multiple co-operating witnesses who worked very closely with him and are going to say that they committed a crime with him,” said Paul. “It’s hard to imagine that doesn’t carry the day here.”
Bankman-Fried’s lawyers will probably try to undermine the credibility of the witnesses, pointing to their past relationships and the leniency they hope to receive in exchange for co-operating.
The evidence includes millions of pages of private notes, Slack messages and emails culled from FTX’s internal records. The prosecution also plans to introduce a recording of an Alameda all-staff meeting held in the days before FTX’s bankruptcy, where they say Ellison told her staff that Bankman-Fried had raided customer funds.
The issue of whether Bankman-Fried defrauded his investors may shed light on how he induced venture capitalists, including prominent firms such as Sequoia Capital, BlackRock and Temasek, to pump nearly $2bn into FTX. Investors have been sharply criticised for failing to spot problems at FTX through their due diligence.
The defence
There is always a chance that Bankman-Fried will change his plea and admit guilt before or during the trial, although the incentives for doing so will have diminished as the government would be unlikely to offer a particularly attractive deal at such a late stage.
In the likely event that the trial will proceed as planned, Bankman-Fried’s spree of interviews and filings by his legal team suggest his defence strategy will involve casting blame on others, including Ellison and FTX’s lawyers. He has said he was unaware of crucial details of the financial engineering behind the scenes of his empire, and that he never intended to defraud anyone.
A crucial decision for Bankman-Fried will be whether to take the stand to try to rebut the government’s witnesses, and run the risk of a damaging cross-examination. Theranos founder Elizabeth Holmes testified at her trial in 2021, and was later found guilty on some charges.
“It would be foolhardy for Bankman-Fried to testify. He’s shown himself to be very erratic,” said Bradley Simon, a criminal defence partner at Schlam Stone & Dolan. “Presumably his counsel are telling him that’s out of the question. But sometimes clients don’t listen.”
While the prosecutors will tell a straightforward story of deception and greed, the defence team may lean into the legal and tech complexity of the events surrounding FTX’s collapse.
“This is a young man who I don’t think is going to generate a lot of sympathy. He was a high roller. There are going to be jurors from every walk of life. I don’t think they are going to relate to him very well,” said Simon. “But you never know. All it takes is one juror to hold out and then everything for the government goes down in flames.”
The rocky road to trial
Bankman-Fried’s path to the courtroom has been turbulent. After being freed on a $250mn bond — one of the largest ever — and confined to his parents’ home in Palo Alto, California, the FTX founder soon began violating various bail conditions, much to the court’s irritation.
In February, Judge Lewis Kaplan said Bankman-Fried’s contact with FTX US general counsel Ryne Miller via email and an encrypted messaging app seemed to be an attempt to get a potential witness to “sing out of the same hymn book”. He also lambasted the defendant for using a VPN, ostensibly to watch an American football game via a Bahamas-based subscription.
Cohen assured the court his client subsequently understood “that there is no margin for error.” But in August Kaplan finally revoked Bankman-Fried’s bail over accusations he leaked Ellison’s private writings to The New York Times, allegedly to intimidate witnesses.
Bankman-Fried has since been confined to Brooklyn’s notorious Metropolitan Detention Center, where he claims he is deprived of vegan food and medication. His lawyers have also argued that he has had inadequate access to laptops and the internet to prepare for trial while behind bars.
Beyond the ignominy of a formerly feted billionaire being led into a court in handcuffs, the trial will cast a harsh light on reckless borrowing, risk-taking and handling of customer money within the crypto industry at the height of the 2022 bubble, as creditors now seek to recoup billions of dollars in several high-profile bankruptcies and US regulators battle with other big crypto companies, including the largest exchange, Binance.
Hilary Allen, professor of law at the American University, said: “The crypto industry now wants to paint SBF as a lone rotten apple, but FTX’s implosion highlighted lots of problems that are endemic to the entire crypto industry.”