Advertisement

Crypto Goes on Trial, as Sam Bankman-Fried Faces His Reckoning


A yr in the past, Sam Bankman-Fried was a fixture on journal covers and within the halls of Congress, a tousle-haired crypto billionaire who hobnobbed with film stars and bankrolled political campaigns.

On Tuesday, the founding father of the failed FTX digital forex change is ready to depart the jail the place he has been confined for greater than seven weeks and stand trial in a Manhattan courtroom on federal prices of fraud and cash laundering, capping one of many largest and swiftest company collapses in a long time.

The costs towards Mr. Bankman-Fried, 31, have put the remainder of the crypto business on trial with him. He has emerged as a logo of the unrestrained hubris and shady deal-making that turned cryptocurrencies right into a multitrillion-dollar business throughout the pandemic. The demise of FTX in November helped burst that bubble, sending different high-profile corporations out of business and scary a authorities crackdown.

The trial will supply a window into the Wild West-style monetary engineering that fueled crypto’s progress and lured hundreds of thousands of inexperienced traders, lots of whom misplaced their financial savings when the market crashed. Legal professionals on each side of the case are anticipated to put naked the tradition of scams and risk-taking that surrounded FTX and to dissect the often-misleading publicity campaigns that helped drive years of crypto hype.

“It’s a fraud that was enabled and supercharged by crypto, and by crypto’s distinctive elements,” mentioned Lee Reiners, a crypto skilled who teaches at Duke Legislation College. “It wouldn’t have been attainable in every other context.”

Jury choice begins on Tuesday in U.S. District Courtroom, with the trial anticipated to final six weeks. Digicam crews and reporters are anticipated to swarm the courthouse, and the writer Michael Lewis has a extensively anticipated guide in regards to the case popping out that very same day, that includes behind-the-scenes particulars of Mr. Bankman-Fried’s rise and fall.

Mr. Bankman-Fried, who faces seven legal counts, is accused of orchestrating a yearslong fraud that siphoned billions of {dollars} from prospects to finance political contributions, enterprise capital investments and luxurious actual property purchases. He has pleaded not responsible. If convicted, he might obtain what would quantity to a life sentence.

He faces an uphill battle. Three of his closest advisers have pleaded responsible and agreed to testify towards him. Prosecutors have amassed hundreds of thousands of pages of digital proof, together with textual content transcripts, monetary data and emails, and so they plan to introduce about 1,300 reveals on the trial. The decide, Lewis A. Kaplan, has repeatedly sided with the prosecution in procedural disputes, rejecting skilled witnesses the protection had hoped to name and permitting the federal government to make use of proof that Mr. Bankman-Fried had contested.

For the previous month and a half, Mr. Bankman-Fried has additionally needed to put together his case from a jail cell in Brooklyn, after Decide Kaplan revoked his bail, ruling that he had tried to intervene with witnesses.

“It doesn’t seem that there’s any kind of path to victory” for Mr. Bankman-Fried, mentioned Renato Mariotti, a former federal prosecutor.

Additionally looming over the trial is the query of whether or not Mr. Bankman-Fried, who’s unusually garrulous for a legal defendant, will testify — a high-risk transfer that protection attorneys are likely to discourage.

“It can absolutely be painful for him to stay quiet if he believes or convinces himself that the federal government is mischaracterizing his transactions and his closest associates are making up tales about him,” mentioned Daniel Richman, a legislation professor at Columbia College and a former federal prosecutor. The draw back is “he may not reply properly to forceful cross-examination.”

A consultant for Mr. Bankman-Fried declined to remark. A spokesman for the U.S. legal professional’s workplace for the Southern District of New York, the division that’s prosecuting Mr. Bankman-Fried, additionally declined.

Identified for his signature outfit of T-shirts and shorts, Mr. Bankman-Fried rose to prominence as a uncommon good man within the loosely regulated world of crypto. He based FTX in 2019 and raised $2 billion in enterprise funding, promising to work with regulators to write down new guidelines for the business. He was additionally a prolific political donor, contributing greater than $5 million to help Joseph R. Biden’s 2020 presidential run.

Then, over 4 frantic days in November, FTX and its sister hedge fund, Alameda Analysis, imploded, with prospects unable to withdraw greater than $8 billion in deposits. The businesses filed for chapter, and Mr. Bankman-Fried was charged with counts together with securities fraud, wire fraud and cash laundering. A rely accusing him of violating marketing campaign finance legislation was finally dropped, together with a handful of different prices, although all may very well be revived at a second trial subsequent yr.

Lots of his closest allies have turned on him. Caroline Ellison, Alameda’s chief government and Mr. Bankman-Fried’s on-and-off girlfriend, pleaded responsible and agreed to cooperate with the prosecution. She was joined by two co-founders of FTX, Gary Wang and Nishad Singh, who admitted to conspiring with Mr. Bankman-Fried to defraud prospects. A fourth high-level government, Ryan Salame, additionally pleaded responsible, with out agreeing to cooperate.

After his arrest, Mr. Bankman-Fried was confined to his mother and father’ home in Palo Alto, Calif., the place he entertained company and had a pickleball courtroom put in within the yard. In August, Decide Kaplan revoked these privileges and despatched him to the Metropolitan Detention Heart after he shared a few of Ms. Ellison’s non-public writings with The New York Instances.

Ms. Ellison is poised to be an important determine on the trial. She, Mr. Wang and Mr. Singh had been all shut mates with Mr. Bankman-Fried and lived collectively in a five-bedroom penthouse within the Bahamas, the place FTX had its headquarters. However even inside that tight circle, Ms. Ellison had distinctive entry — and a protracted romantic historical past along with her boss that would create probably the most dramatic and private moments of the trial.

In courtroom filings, prosecutors have previewed a number of the proof they plan to current, together with notes that Ms. Ellison took at conferences with Mr. Bankman-Fried, in addition to spreadsheets that “stored observe of illicit cash flows.” Prosecutors have additionally lined up testimony from FTX traders and prospects who misplaced cash within the agency’s collapse.

The contours of Mr. Bankman-Fried’s protection are much less clear. After FTX’s chapter, he blamed an accounting error that he mentioned had induced billions of customers’ {dollars} to fade with out his information. He has additionally criticized his colleagues, particularly Ms. Ellison, saying she didn’t handle danger at Alameda. And in authorized filings, Mr. Bankman-Fried’s attorneys have indicated that they’ll argue that exterior legislation companies approved his actions at FTX.

Extra just lately, the protection has additionally instructed that FTX’s use of buyer deposits to make investments was akin to how a financial institution operates. The issue for Mr. Bankman-Fried is that FTX was an change, a kind of firm that isn’t supposed to place buyer cash in danger.

Because the trial approaches, the protection has confronted setbacks. Mr. Bankman-Fried has had hassle having access to paperwork from jail, his attorneys say, due to a spotty web connection and battery issues with a laptop computer he was given.

Decide Kaplan has largely dismissed these complaints. Final month, he rejected the protection’s try and cease prosecutors from citing proof associated to FTX’s chapter submitting and Mr. Bankman-Fried’s resignation from the corporate. The decide mentioned these occasions had been “intertwined inextricably” with the fees. And in a ruling Sunday, he mentioned he would possibly restrict the protection’s potential to argue that a number of the choices made at FTX concerned attorneys.

“The problems on this case are fairly simple,” Decide Kaplan mentioned at a courtroom listening to final week.

The pretrial disputes have put the protection on the again foot. However in the end the authorized wrangling might assist Mr. Bankman-Fried mount an attraction if he loses at trial.

“The protection right here is doing a very nice job of making a report on that,” mentioned Jordan Estes, a former federal prosecutor in Manhattan. “They’re organising this theme that they’re not getting due course of, they’re not getting a good trial.”

Advertisement

Leave a Comment