Sam Bankman-Fried attempted to persuade the public and lawmakers for a period that he was the next J.P. Morgan. He must now persuade the jurors that he wasn’t actually the next Bernie Madoff.
The jury selection phase of Bankman-Fried’s trial will start on Tuesday. He founded the failing cryptocurrency brokerage FTX. It is anticipated that prosecutors from the Southern District of New York will present evidence against Bankman-Fried demonstrating how he stole billions of dollars in FTX customer deposits and used the funds to finance his hedge fund, purchase real estate, and make millions of dollars in unauthorized campaign contributions to Democrats and Republicans in an effort to influence Washington’s cryptocurrency regulation.
Although the case will include the complex world of cryptocurrency, prosecutors are anticipated to attempt to simplify it for jurors by saying: That bankman-Fried used consumer funds in ways that were against the law.
Former federal prosecutor and co-founder of the legal firm Zweiback, Fiset & Zalduendo LLP Michael Zweiback predicted that prosecutors would instruct their clients to “look at where the money went and how it was spent.” This case is primarily about commonplace fraud and less so about intricate investments.
Bankman-Fried was one of the most influential figures in the cryptocurrency business prior to FTX collapsing and declaring bankruptcy in November of last year. At least on paper, “SBF” had a net worth of $32 billion in the previous year. He interacted with CEOs, legislators from both parties, former presidents, and celebrities. Early in 2022, as smaller crypto companies began to collapse, Bankman-Fried promised the public that he would support the market, drawing similarities to J.P. Morgan.
In 2019, the 31-year-old Bankman-Fried created FTX, which flourished quickly. Known for playing the video game “League of Legends” during meetings, Bankman-Fried, the son of Stanford University academics, garnered funding from the top echelons of Silicon Valley. FTX soon overtook Binance as the second-largest cryptocurrency brokerage.
Bankman-Fried & his inner circle of executives controlled their then-expanding crypto company from the opulent Albany apartment building in The Bahamas, where famous people like Justin Timberlake and Tiger Woods have vacation homes.
Customers could deposit, purchase, and sell bitcoin assets on the FTX platform through FTX’s brokerage, and Alameda Research, an allied hedge fund, took extremely speculative positions in a variety of cryptocurrency investments. Prosecutors contend that Bankman-Fried ordered money to be transferred from FTX’s client accounts to Alameda in order to fill gaps in the hedge fund’s balance sheet when Alameda began to accrue losses during last year’s falls in the cryptocurrency market.
When news broke about the state of Alameda’s balance sheet in early November, the house of cards that Bankman and his lieutenants had constructed came tumbling down. Investors swiftly withdrew their money from FTX out of fear after witnessing the collapse of numerous other cryptocurrency companies earlier in the year. Within days, the company filed for bankruptcy.
FTX’s internal conditions, according to restructuring specialist John Ray III, were worse than those at Enron, which has long been regarded as the standard for corporate misbehavior in popular culture.
For the first time since FTX’s demise, Bankman-Fried is anticipated to meet up with his former aides there. Several of them have consented to testify against him in exchange for admitting to less serious offenses. This includes Gary Wang, the co-founder of FTX, and Caroline Ellison, the CEO of Alameda and Bankman-Fried’s intermittent girlfriend.
On September 7, Ryan Salame, another senior executive of FTX, entered a guilty plea to making unlawful payments to Republicans’ campaigns on behalf of Bankman-Fried, who was openly contributing to Democrats’ campaigns. It is unknown if Salame will provide evidence against Bankman-Fried.
Ellison is anticipated to be the key witness for the prosecution. She will likely be used by the prosecution to show that fraud, rather than a few inadvertent errors as Bankman-Fried claims, was to blame for FTX’s demise. She earlier admitted in a statement provided by her attorneys that she was aware that sending money from FTX customers to Alameda was improper.
“Here are the people in the venue who can corroborate that story,” said Christine Adams, an earlier federal prosecutor and partner at Adams, Duerk & Kamenstein. “I expect the government is going to be able to demonstrate that Bankman-Fried understood what he was doing was wrong.”
The defense is anticipated to contend that even though Bankman-Fried made certain errors, those errors do not constitute fraud and that FTX was merely the most recent victim of the cryptocurrency market’s general collapse last year. Bankman-Fried himself spent months contacting reporters and posting on social media to defend his activities until the case’s presiding judge took away his online rights.
He admitted his error in a late-year remote interview with Andrew Ross Sorkin of The New York Times. “Look, I screwed up,” he said.
In December, Bankman-Fried was deported from The Bahamas to New York. Bankman-Fried had been given permission to reside with his parents in their Palo Alto, California, home with severe guidelines limiting his access to electronics before his bond was revoked. Judge Lewis A. Kaplan ruled that there was reason to think that Bankman-Fried was attempting to tamper with possible witnesses, including Ellison, in the case, and he issued a jail sentence.
In general, the crypto sector has not yet fully recovered from FTX’s demise. The two most popular cryptocurrencies, Ethereum and Bitcoin, are still worth less than they were a year ago, and there are half as many people trading cryptocurrencies now. The market for NFTs, artificially rare digital objects intended to produce one-of-a-kind digital replicas of artifacts or photos, has all but vanished. According to NonFungible.com, the number of NFTs traded daily has decreased from more than 40,000 a day a year ago to about 3,000 now.
Even Bankman-Fried’s former rivals are currently under legal investigation. Similar to the accusations made against FTX, the Securities and Exchange Commission this summer brought charges against Binance & its founder Changpeng Zhao, including the mixing of user funds with the company’s investments. The SEC has also accused Coinbase, the publicly traded cryptocurrency exchange, of violating securities laws.