Sam Bankman-Fried, Once the Paragon of Responsibility in the Crypto Sector, Faces seven counts of fraud and conspiracy and is accused of embezzlement and contributing to the fall of the prominent cryptocurrency exchange FTX.
Sam Bankman-Fried, known in the crypto community as "SBF", founded the collapsed cryptocurrency exchange FTX in 2019, after launching the crypto hedge fund Alameda Research in 2017. Before getting involved in the cryptocurrency sector, he worked as trader in Financial World. At his peak, Bankman-Fried had a fortune of $26 billion (€24 billion).
Bitcoin and digital assets experienced a meteoric rise in 2020 and 2021. During that time, Bankman-Fried, known for his curly hair and disheveled appearance, became a symbol of responsibility in the cryptocurrency sector. This reputation played a key role in FTX's success and survival when market conditions eventually took a turn for the worse.
Under Bankman-Fried, notable branding efforts, celebrity endorsements, and generous acts of philanthropy helped FTX, and cryptocurrencies in general, gain a reputable image with much of the public before its exchange's collapse in 2022.
What charges is Sam Bankman-Fried facing?
The 31-year-old American faces seven counts of fraud and conspiracy, including accusations of embezzling money from FTX depositors. the trial in NY The jury selection process began on October 3 and is expected to last six weeks.
Prosecutors It claims that the actions taken by Bankman-Fried and her close colleagues jeopardized the availability of funds to its users, leading to the collapse of FTX as cryptocurrency prices fell.
When a year-long rally in the cryptocurrency market came to an end in 2022, Bankman-Fried claimed his business was still healthy. In reality, his company was also greatly affected by the drop in the value of cryptocurrencies. In an effort to support the struggling industry, Alameda borrowed money to invest in bankrupt digital asset companies before reportedly withdrawing funds from FTX client deposits to meet its own immediate financial obligations.
Bankman-Fried is said to have ordered former FTX chief technology officer Gary Wang to make changes to the exchange's computer code to allow Alameda to borrow unlimited sums of money, a privilege not granted to other users of the exchange. This allowed Alameda to borrow significant funds from FTX. Prosecutors argue that Bankman-Fried used FTX deposits to cover losses at Alameda, engage in personal real estate transactions and contribute to political campaigns.
What caused FTX to collapse?
Starting in 2021, increasing regulatory scrutiny and rising interest rates turned many traders away from riskier assets like cryptocurrencies and toward more traditional investments.
In November 2022, cryptocurrency news website CoinDesk published an expose claiming that Alameda had substantial exposure to FTT, a crypto token issued by FTX itself. This revelation led to a further loss of customer trust, causing a significant outflow of funds from the exchange from which FTX was unable to recover.
That vast majority of Bankman-Fried's wealth evaporated virtually overnight. Today, the defunct stock market is bankrupt.
Bankman-Fried was arrested in the Bahamas in December 2022 and was extradited to the United States.
What can we expect from the trial?
Bankman-Fried has pleaded not guilty. He acknowledged inadequate risk management but denied stealing funds. His defense has argued that Bankman-Fried believed his treatment of client funds was in line with FTX's terms of service and the law, emphasizing a "good faith" belief.
Prosecutors plan to call former members of Bankman-Fried's inner circle who have pleaded guilty and agreed to cooperate. Bankman-Fried's defense aims to prove that FTX's collapse was the result of trading errors and not a deliberate fraud scheme. The key to the trial will be determining when exactly Bankman-Fried knew of the financial difficulties his companies were facing and whether he intended to commit a crime.
U.S. District Judge Lewis A. Kaplan is overseeing the case. He previously handled defamation claims against former US President Donald Trump and a sexual abuse claim against the British government. Prince Andrew.
Kaplan has said Bankman-Fried could face a "very long sentence" if convicted. He faces a maximum statutory penalty of 110 years in prison, although Kaplan would ultimately determine a final sentence based on a number of factors. He is likely to get much less.
What does all this mean for the cryptocurrency market?
The legal issues surrounding Bankman-Fried and the collapse of FTX, once a major crypto exchange, have contributed to existing uncertainties in the industry.
"FTX's crash could be the moment that really starts the broader decline, perhaps even demise, of cryptocurrencies," James Royal, Bankrate's senior reporter, told CNBC at the time of the crash.
Peaking near $70,000 in November 2021, early 2023 the value of a major cryptocurrency bitcoin fell below $17,000. In recent months, Bitcoin has hovered around $30,000.
Cryptocurrency investments, which are generally considered a highly speculative asset, continue to be affected by high interest rates around the world.
Editor's note: The article was updated on October 4 to reflect the start of the trial in New York.
Edited by: Uwe Hessler
