A 12 months in the past, 30-year-old billionaire Sam Bankman-Fried posted a 14-tweet thread on the stability of “security vs freedom” in cryptocurrency regulation. Now, a unique form of freedom is on the road when he walks right into a Manhattan courtroom to face legal costs that carry a mixed most sentence of greater than a century in jail.
Bankman-Fried’s trial, which is about to start with jury choice on Tuesday and final for six weeks, marks the last word reckoning for the disgraced tycoon who was as soon as welcomed by lawmakers in Washington and Silicon Valley buyers because the accountable face of cryptocurrencies, and a revered voice on the way forward for disruptive digital belongings.
He’s accused of getting defrauded dozens of the world’s high buyers in addition to thousands and thousands of consumers at his FTX cryptocurrency trade, and stealing billions of {dollars} entrusted to his custody.
The shambles left behind by FTX’s $40bn chapter in November 2022 has been described as worse than Enron, and Bankman-Fried’s alleged crimes have been likened to these carried out by legendary Ponzi scheme architect Bernard Madoff. US prosecutors referred to as his alleged scheme “one of many largest monetary frauds in American historical past”.
The trial will characteristic thousands and thousands of pages of proof and can in all probability embody testimony by Bankman-Fried’s closest associates and romantic companions. It represents the primary huge check for US authorities of their efforts to convey to heel the lawless world of offshore crypto buying and selling.
“It is a vastly vital case. That is the largest trial we’ve got seen within the crypto world,” mentioned Sarah Paul, a former federal prosecutor and companion at regulation agency Evershed Sutherland. “If there may be not justice right here for the victims, I believe will probably be an actual blow. And I believe it’s harmful. It’s important to get dangerous actors like this out of the trade.”
The case in opposition to ‘SBF’
Bankman-Fried’s defence group, led by Mark Cohen, faces a frightening battle. Conviction on one of many seven costs in opposition to him — together with conspiracy to commit cash laundering and fraud in opposition to lenders, buyers and prospects of his crypto empire — might be sufficient to reveal Bankman-Fried to a prolonged jail time period.
The prosecution will attempt to show that Bankman-Fried conspired together with his interior circle of school and childhood associates to funnel billions of {dollars} of consumers’ cash from FTX in secret loans to his crypto buying and selling agency Alameda Analysis, which spent the cash lavishly on enterprise investments, luxurious actual property, political donations and advertising and marketing — together with a Tremendous Bowl TV industrial and shiny Vogue journal advertisements that includes FTX promoter Gisele Bündchen.
Essential to the prosecution’s case might be testimony from Bankman-Fried’s closest confidantes and former romantic companions, a lot of whom lived collectively in a $30mn luxurious penthouse within the Bahamas, the place FTX was based mostly till a run on the trade in late 2022 drove it out of business, exposing as much as $9bn in lacking buyer funds.
Bankman-Fried achieved international fame after he amassed greater than $20bn in simply three years as FTX chief, and pledged to donate the majority of that non-public fortune. He was recognized for outlandish behaviour, together with sleeping on a beanbag in his workplace and greeting luminaries like former president Invoice Clinton sporting shorts and a T-shirt.
His interior circle indulged in late-night board recreation periods and was entangled in an internet of romantic liaisons. Previous to FTX’s failure, Bankman-Fried’s recognized vices had been a weak point for vegan burgers and oversalting his meals.
4 of Bankman-Fried’s former lieutenants have already pleaded responsible. Caroline Ellison, the previous chief government of Alameda and his one-time love curiosity, is anticipated to be a star witness.
“I believe the federal government’s case appears extraordinarily robust. They’ve a number of co-operating witnesses who labored very carefully with him and are going to say that they dedicated a criminal offense with him,” mentioned Paul. “It’s onerous to think about that doesn’t carry the day right here.”
Bankman-Fried’s legal professionals will in all probability attempt to undermine the credibility of the witnesses, pointing to their previous relationships and the leniency they hope to obtain in trade for co-operating.
The proof consists of thousands and thousands of pages of personal notes, Slack messages and emails culled from FTX’s inside data. The prosecution additionally plans to introduce a recording of an Alameda all-staff assembly held within the days earlier than FTX’s chapter, the place they are saying Ellison told her staff that Bankman-Fried had raided buyer funds.
The difficulty of whether or not Bankman-Fried defrauded his buyers could make clear how he induced enterprise capitalists, together with outstanding companies corresponding to Sequoia Capital, BlackRock and Temasek, to pump practically $2bn into FTX. Traders have been sharply criticised for failing to identify issues at FTX via their due diligence.
The defence
There may be at all times an opportunity that Bankman-Fried will change his plea and admit guilt earlier than or in the course of the trial, though the incentives for doing so may have diminished as the federal government can be unlikely to supply a very engaging deal at such a late stage.
Within the doubtless occasion that the trial will proceed as deliberate, Bankman-Fried’s spree of interviews and filings by his authorized group recommend his defence technique will contain casting blame on others, together with Ellison and FTX’s lawyers. He has mentioned he was unaware of essential particulars of the monetary engineering behind the scenes of his empire, and that he by no means meant to defraud anybody.
An important choice for Bankman-Fried might be whether or not to take the stand to attempt to rebut the federal government’s witnesses, and run the danger of a harmful cross-examination. Theranos founder Elizabeth Holmes testified at her trial in 2021, and was later discovered responsible on some costs.
“It could be foolhardy for Bankman-Fried to testify. He’s proven himself to be very erratic,” mentioned Bradley Simon, a legal defence companion at Schlam Stone & Dolan. “Presumably his counsel are telling him that’s out of the query. However typically purchasers don’t pay attention.”
Whereas the prosecutors will inform an easy story of deception and greed, the defence group could lean into the authorized and tech complexity of the occasions surrounding FTX’s collapse.
“It is a younger man who I don’t assume goes to generate lots of sympathy. He was a excessive curler. There are going to be jurors from each stroll of life. I don’t assume they will relate to him very effectively,” mentioned Simon. “However you by no means know. All it takes is one juror to carry out after which all the things for the federal government goes down in flames.”
The rocky highway to trial
Bankman-Fried’s path to the courtroom has been turbulent. After being freed on a $250mn bond — one of many largest ever — and confined to his dad and mom’ residence in Palo Alto, California, the FTX founder quickly started violating numerous bail circumstances, a lot to the courtroom’s irritation.
In February, Decide Lewis Kaplan mentioned Bankman-Fried’s contact with FTX US normal counsel Ryne Miller through electronic mail and an encrypted messaging app gave the impression to be an try to get a possible witness to “sing out of the identical hymn e book”. He additionally lambasted the defendant for utilizing a VPN, ostensibly to look at an American soccer recreation through a Bahamas-based subscription.
Cohen assured the courtroom his consumer subsequently understood “that there isn’t a margin for error.” However in August Kaplan lastly revoked Bankman-Fried’s bail over accusations he leaked Ellison’s non-public writings to The New York Instances, allegedly to intimidate witnesses.
Bankman-Fried has since been confined to Brooklyn’s infamous Metropolitan Detention Heart, the place he claims he’s disadvantaged of vegan meals and medicine. His legal professionals have additionally argued that he has had insufficient entry to laptops and the web to arrange for trial whereas behind bars.
Past the ignominy of a previously feted billionaire being led right into a courtroom in handcuffs, the trial will solid a harsh gentle on reckless borrowing, risk-taking and dealing with of buyer cash inside the crypto trade on the peak of the 2022 bubble, as collectors now search to recoup billions of {dollars} in a number of high-profile bankruptcies and US regulators battle with different huge crypto corporations, together with the biggest trade, Binance.
Hilary Allen, professor of regulation on the American College, mentioned: “The crypto trade now needs to color SBF as a lone rotten apple, however FTX’s implosion highlighted plenty of issues which can be endemic to your entire crypto trade.”