Follow live updates on the Sam Bankman-Fried fraud trial.
A year ago, Sam Bankman-Fried was on the front pages of magazines and in the halls of Congress, a tousled-haired crypto-billionaire who rubbed shoulders with movie stars and financed political campaigns.
On Tuesday, the founder of bankrupt digital currency exchange FTX is expected to leave the prison where he was incarcerated for more than seven weeks and stand trial in a Manhattan courtroom on federal charges of fraud and money laundering, capping one of the biggest and fastest corporate collapses in decades.
The accusations against Mr. Bankman-Fried, 31, have put the rest of the crypto industry on trial with him. He has become a symbol of the unbridled hubris and shady deals that have turned cryptocurrencies into a multibillion-dollar industry during the pandemic. The demise of FTX in November helped burst that bubble, sending other high-profile companies bankrupt and prompting a government crackdown.
The essay will offer a window into the Wild West-style financial engineering that fueled crypto’s growth and attracted millions of inexperienced investors, many of whom lost their savings when the market crashed. Lawyers on both sides of the case are expected to lay bare the culture of scamming and risk-taking that surrounds FTX and dissect the often misleading advertising campaigns that helped generate years of hype around crypto.
“This is a fraud that was enabled and enhanced by cryptography and by the unique aspects of cryptography,” said Lee Reiners, a cryptography expert who teaches at Duke Law School. “This would not have been possible in any other context.”
Jury selection begins Tuesday in U.S. District Court, with the trial expected to last six weeks. Camera crews and reporters are expected to swarm the courthouse, and author Michael Lewis released a highly anticipated book about the case the same day, featuring behind-the-scenes details of Mr. Bankman’s rise and fall -Fried.
Mr. Bankman-Fried, who faces seven counts, is accused of masterminding a years-long fraud that siphoned billions of dollars from clients to fund political contributions, capital investments- risk and luxury real estate purchases. He pleaded not guilty. If convicted, he could face a life sentence.
He faces an uphill battle. Three of his closest advisers pleaded guilty and agreed to testify against him. Prosecutors have accumulated millions of pages of digital evidence, including text transcripts, financial records and emails, and they plan to present about 1,300 exhibits at trial. The judge, Lewis A. Kaplan, repeatedly sided with the prosecution in procedural disputes, rejecting expert witnesses the defense hoped to call and allowing the government to use evidence that Mr. Bankman-Fried had contested.
For the past month and a half, Mr. Bankman-Fried has also had to prepare his case from a Brooklyn jail cell, after Judge Kaplan revoked his bail, ruling that he had tried to obstruct witnesses.
“There doesn’t seem to be any path to victory” for Mr. Bankman-Fried, said Renato Mariotti, a former federal prosecutor.
Also looming during the trial is the question of whether Mr. Bankman-Fried, unusually talkative for a criminal defendant, will testify — a high-risk move that defense lawyers tend to discourage.
“It will surely be painful for him to remain silent if he believes or becomes convinced that the government is misrepresenting his dealings and that his closest associates are making up stories about him,” said Daniel Richman, a law professor at Columbia University. and former federal civil servant. prosecutor. The downside is that “he might not respond well to vigorous cross-examination.”
A representative for Mr. Bankman-Fried declined to comment. A spokesman for the U.S. attorney’s office in the Southern District of New York, the division prosecuting Mr. Bankman-Fried, also declined.
Known for his signature outfit of T-shirts and shorts, Mr. Bankman-Fried has established himself as a rare, nice guy in the loosely regulated world of crypto. He founded FTX in 2019 and raised $2 billion in venture capital, promising to work with regulators to write new rules for the industry. He has also been a prolific political donor, contributing more than $5 million to support Joseph R. Biden’s 2020 presidential campaign.
Then, over four frantic days in November, FTX and its sister hedge fund, Alameda Research, imploded, with customers unable to withdraw more than $8 billion in deposits. The companies filed for bankruptcy and Mr. Bankman-Fried was charged with securities fraud, wire fraud and money laundering. The count accusing him of violating campaign finance law was ultimately dropped, along with a handful of other charges, although all could be revived in a second trial later this year. next.
Many of his closest allies turned against him. Caroline Ellison, Alameda’s general manager and on-off girlfriend of Mr. Bankman-Fried, pleaded guilty and agreed to cooperate with the prosecution. She was joined by two FTX co-founders, Gary Wang and Nishad Singh, who admitted to conspiring with Mr. Bankman-Fried to defraud customers. A fourth high-level executive, Ryan Salame, also pleaded guilty, without agreeing to cooperate.
After his arrest, Mr. Bankman-Fried was confined to his parents’ home in Palo Alto, California, where he entertained guests and had a pickleball court set up in the backyard. In August, Judge Kaplan revoked those privileges and sent him to the Metropolitan Detention Center after sharing some of Ms. Ellison’s private writings with The New York Times.
Ms. Ellison is poised to become a crucial figure in the trial. She, Mr Wang and Mr Singh were all close friends of Mr Bankman-Fried and lived together in a five-bedroom penthouse in the Bahamas, where FTX was headquartered. But even within that inner circle, Ms. Ellison had unique access — and a long romantic history with her boss that could create one of the most dramatic and personal moments of the trial.
In court filings, prosecutors outlined some of the evidence they plan to present, including notes Ms. Ellison took during meetings with Mr. Bankman-Fried, as well as spreadsheets that “kept a trace of illicit money flows.” Prosecutors also gathered testimony from FTX investors and customers who lost money when the company collapsed.
The contours of Mr. Bankman-Fried’s defense are less clear. After FTX’s bankruptcy, he blamed it on an accounting error that he said had caused billions of users’ dollars to disappear without his knowledge. He also criticized his colleagues, particularly Ms. Ellison, saying she had failed to manage risks in Alameda. And in legal filings, Mr. Bankman-Fried’s lawyers indicated they would argue that outside law firms authorized his actions at FTX.
More recently, the defense also suggested that FTX’s use of customer deposits to make investments was akin to the operation of a bank. The problem for Mr. Bankman-Fried is that FTX was an exchange, a type of company that is not supposed to put its customers’ money at risk.
As trial approaches, the defense faces setbacks. Mr. Bankman-Fried had difficulty accessing prison documents, his lawyers say, because of a spotty Internet connection and battery problems with a laptop he was given.
Judge Kaplan essentially dismissed these complaints. Last month, he rejected the defense’s attempt to block prosecutors from citing evidence related to FTX’s bankruptcy filing and Mr. Bankman-Fried’s resignation from the company. The judge said these events were “inextricably linked” to the charges. And in a ruling issued Sunday, he said he could limit the defense’s ability to argue that some of the decisions made at FTX involved lawyers.
“The issues in this case are quite simple,” Judge Kaplan said during a court hearing last week.
Pre-trial disputes put the defense on the back burner. But ultimately, the legal wrangling could help Mr. Bankman-Fried appeal if he loses at trial.
“The defense here is doing a very good job of building a case on this,” said Jordan Estes, a former federal prosecutor in Manhattan. “They’re setting up the theme that they don’t get due process, they don’t get a fair trial.”
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