Sam Bankman-Fried's trial will begin on Tuesday, with the founder of failed cryptocurrency exchange FTX facing a possible prison sentence of more than a century if convicted of federal fraud and money laundering charges. The case also puts the spotlight on the emerging cryptocurrency trading industry, marred by a series of high-profile bankruptcies and questions about investor risks.
FTX exploded over a four-day period in November and Bankman-Fried was arrested the following month. The man who once presented himself as a benign presence in an industry that eats dogs is accused of running a scam in which billions were stolen from customers to fund outside ventures, including political contributions and the purchase of luxury real estate.
"House of cards"
Bankman-Fried has pleaded not guilty to charges including securities fraud, wire fraud and money laundering. Jury selection begins in U.S. District Court in Manhattan, and the process is expected to last six weeks. Other charges were dropped but may reappear in another trial in 2024.
โBankman-Fried built a house of cards on a foundation of deception while telling investors it was one of the safest buildings in crypto,โ Securities and Exchange Commission Chairman Gary Gensler said in announcing charges in December against the co-founder and then CEO of FTX. The case "is a wake-up call to crypto platforms to comply with our laws," Gensler added.
Bankman-Fried from the beginning was improperly transferring FTX client deposits to cover trades carried out by a hedge fund, Alameda Research, which he controlled, according to the SEC. That included "lavish real estate purchases and large political donations," regulators alleged.
According to a former federal prosecutor, prosecutors are likely to focus on Bankman-Fried's use of clients' money, rather than delving too deeply into the complex world of cryptocurrencies.
"Prosecutors are going to say, 'Look where the money went and how it was spent,'" said Michael Zweiback, co-founder of the law firm Zweiback, Fiset & Zalduendo. "This case is less about complicated investments and more about common fraud."
Former colleagues expected to testify
Some cards are already stacked against Bankman-Fried, who has attributed FTX's collapse to a series of mistakes. Four of his closest associates have pleaded guilty to fraud and other criminal charges, and three are expected to testify against him in exchange for lighter sentences.
That includes Caroline Ellison, former Alameda CEO and Bankman-Fried's on-again, off-again girlfriend, along with FTX co-founder Gary Wang.
"I hope the government can prove that Bankman-Fried knew what she was doing was wrong, and here are the people in the room who can corroborate that story," said Christine Adams, a former prosecutor and partner at Adams, Duerk and Kamenstein.
The defense is expected to argue that while Bankman-Fried made mistakes, they do not amount to fraud and that FTX was one of many companies that collapsed when the cryptocurrency market crashed last year.
Another FTX executive, Ryan Salame, pleaded guilty on September 7 to making illegal campaign donations to Republicans on behalf of Bankman-Fried, who was publicly donating to Democrats. It is not known if Salame will testify against Bankman-Fried.
Bankman-Fried spent the last month and a half jailed in Brooklyn after his bail was revoked by the judge in his case, who ruled that the cryptocurrency executive had attempted to interfere with witnesses.
Before FTX imploded and filed for bankruptcy in November 2022, Bankman-Fried was a titan in the global cryptocurrency, with a paper net worth of $32 billion. Known for rubbing shoulders with politicians from both sides of the aisle when smaller crypto companies began to explode early last year, Bankman-Friedman said publicly that he would help shore up the market.
The son of Stanford University Law School professors, Bankman-Fried studied physics and mathematics at the Massachusetts Institute of Technology in the 2010s before landing at a Wall Street investment firm in 2014. He resigned in 2017. to move to San Francisco, where he helped start Alameda and then FTX in 2019.
John Ray III, a restructuring expert in charge of cleaning up bankrupt FTX, has described conditions inside FTX as worse than those at Enron, the energy trading company behind one of the largest accounting frauds in US history. .
The crypto industry is still finding its footing following the FTX collapse. Ethereum and bitcoin have lost two-thirds of their value from a year ago, and cryptocurrency trading volume is half of previous levels.
Bankman-Fried's former rivals are also coming under scrutiny. This summer, the SEC filed charges against Binance and its founder that are similar to those against FTX. The agency also accused cryptocurrency exchange Coinbase of securities violations.
โThe Associated Press contributed to this report.
