Trial of former cryptocurrency star Sam Bankman-Fried begins in Manhattan | Sam Bankman-Fried
The criminal trial of the former cryptocurrency mogul Sam Bankman-Fried began on Tuesday, with jury selection getting under way in a Manhattan federal court.
Bankman-Fried, who founded the cryptocurrency exchange FTX and associated hedge fund Alameda Research, is facing trial on finance crimes stemming from the shocking collapse of FTX. Before its sudden downfall last year, FTX was valued at around $32bn.
The trial caps off nearly a year of free fall for 31-year-old Bankman-Fried, who had become the face of the crypto industry and a burgeoning political power broker. Bankman-Fried and FTX doled out millions in campaign donations, bought A-list celebrity endorsements and marketed the cryptocurrency brokerage as the future of finance.
After reports last November questioned the financial stability of FTX and Alameda, a run on deposits in the exchange exposed that FTX could not deliver customers their funds and forced the company to declare bankruptcy. Bankman-Fried was arrested in the Bahamas the following month, as the saga decimated public trust in the cryptocurrency industry.
Bankman-Fried faces seven conspiracy and fraud counts for allegedly siphoning billions of dollars in investors’ money into risky trades and other unlawful purposes. The Manhattan US attorney’s office has also accused Bankman-Fried of using customer funds to foot the bill for swelling loan expenses at Alameda, as well as buying up high-priced real estate, funding his pet philanthropy projects and making extensive political donations. If convicted, he could face life in prison.
Approximately 200 potential jurors were summoned for jury selection, and the trial is expected to last around six weeks. Judge Lewis Kaplan, a longtime federal judge, will oversee the proceedings. Several of Bankman-Fried’s deputies and executives at the exchange, including the former head of Alameda and his on-again, off-again girlfriend Caroline Ellison are expected to testify in the trial.
On the morning of the trial, about 20 photographers and a few reporters lingered outside the courthouse – a small number for what has been a much anticipated trial. Bankman-Fried’s trial began the same day as Donald Trump’s appearance at his civil fraud trial, which drew a much larger media circus nearby.
The unraveling of a crypto empire
Bankman-Fried’s high-flying world started to unravel in November 2022 following a report in CoinDesk that Alameda held billions in FTX’s own cryptocurrency, FTT. Alameda allegedly used FTT as backing for large loans. A downward dip in FTT could undermine FTX and Alameda. Adding to the unease: FTT didn’t have value outside of FTX’s vow to buy tokens at $22.
Amid the revelations, the chief executive of top FTX competitor Binance, Changpeng Zhao, tweeted that his firm would sell its $50m in FTT. FTT spiraled and FTX clients pulled their money in the equivalent of a high-tech bank run.
As FTX reeled from a “giant withdrawal surge”, with users scrambling to remove some $6bn in crypto tokens over a mere three days, observers feared the fiasco could prompt an industry-wide collapse reminiscent of the 2008 real estate crisis. FTX filed for bankruptcy protection and Bankman-Fried resigned.
The collapse of FTX caused “billions of dollars in losses to its customers, lenders and investors”, Damian Williams, the Manhattan US attorney, said in December. “This was not a case of mismanagement or poor oversight, but of intentional fraud, plain and simple.”
Federal prosecutors allege Bankman-Fried and several co-conspirators diverted billions for his personal use. While head of FTX, Bankman-Fried had positioned himself as a political megadonor and philanthropist who vowed to save the world from disaster. He appeared on stage with the likes of former leaders Tony Blair and Bill Clinton, while courting lawmakers in Washington.
Federal prosecutors allege that Bankman-Fried and several co-conspirators – among them his sometimes girlfriend, Alameda CEO Caroline Ellison – diverted billions for his personal use.
Ellison, who in December pleaded guilty to her role in the alleged conspiracy, is expected to be the prosecution’s star witness at Bankman-Fried’s made-for-tabloid trial. The proceedings are also poised to provide bombshell details not only on FTX’s crash but also the murky inner workings of crypto trading.
If Ellison’s past statements are any indication, her testimony could well be damning for Bankman-Fried.
Prosecutors have indicated they will bring forward recordings of a 9 November Alameda staff meeting, in which Ellison tried to allay staff concerns.
“Starting last year, Alameda was kind of borrowing a bunch of money via open-term loans and used that to make various illiquid investments … Then with crypto being down, the crash, the – like, credit crunch this year, most of Alameda’s loans got called,” Ellison allegedly said during the meeting. “And in order to, like, meet those loan recalls, we ended up borrowing a bunch of funds on FTX which led to FTX having a shortfall in user funds.”
One employee asked: Who else knew about the exchange’s shortfall in customer money? She named Bankman-Fried. A worker pressed: “Who made the decision on using user deposits?”
“Um … Sam, I guess,” Ellison said.
Bankman-Fried, who remains jailed pending trial, has maintained his innocence. His representative did not comment on the case in advance of the proceedings.