Crypto goes on trial, as Sam Bankman-Fried faces his reckoning
By David Yaffe-Bellany and Matthew Goldstein
A year ago, Sam Bankman-Fried was a fixture on magazine covers and in the halls of Congress, a tousle-haired crypto billionaire who hobnobbed with movie stars and bankrolled political campaigns.
Today, the founder of the failed FTX digital currency exchange is set to leave the jail where he has been confined for more than seven weeks and stand trial in a Manhattan courtroom on federal charges of fraud and money laundering, capping one of the largest and swiftest corporate collapses in decades.
The charges against Bankman-Fried, 31, have put the rest of the crypto industry on trial with him. He has emerged as a symbol of the unrestrained hubris and shady deal-making that turned cryptocurrencies into a multitrillion-dollar industry during the pandemic. The demise of FTX in November helped burst that bubble, sending other high-profile companies into bankruptcy and provoking a government crackdown.
The trial will offer a window into the Wild West-style financial engineering that fueled crypto’s growth and lured millions of inexperienced investors, many of whom lost their savings when the market crashed. Lawyers on both sides of the case are expected to lay bare the culture 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 unique aspects,” said Lee Reiners, a crypto expert who teaches at Duke Law School. “It wouldn’t have been possible in any other context.”
Jury selection begins Tuesday in U.S. District Court, with the trial expected to last six weeks. Camera crews and reporters are expected to swarm the courthouse, and author Michael Lewis has a widely anticipated book about the case coming out that day, featuring behind-the-scenes details of Bankman-Fried’s rise and fall.
Bankman-Fried, who faces seven criminal counts, is accused of orchestrating a yearslong fraud that siphoned billions of dollars from customers to finance political contributions, venture capital investments and luxury real estate purchases. He has pleaded not guilty. If convicted, he could receive what would amount to a life sentence.
He faces an uphill battle. Three of his closest advisers have pleaded guilty and agreed to testify against him. Prosecutors have accumulated millions of pages of digital evidence, including text transcripts, financial records and emails, and they plan to introduce about 1,300 exhibits at the trial. The judge, Lewis Kaplan, has repeatedly sided with the prosecution in procedural disputes, rejecting expert witnesses the defense had hoped to call and allowing the government to use evidence that Bankman-Fried had contested.
For the past month and a half, Bankman-Fried has also had to prepare his case from a jail cell in Brooklyn, after Kaplan revoked his bail, ruling that he had tried to interfere with witnesses.
“It doesn’t appear that there’s any sort of path to victory” for Bankman-Fried, said Renato Mariotti, a former federal prosecutor.
Also looming over the trial is the question of whether Bankman-Fried, who is unusually garrulous for a criminal defendant, will testify — a high-risk move that defense lawyers tend to discourage.
“It will surely be painful for him to remain quiet if he believes or convinces himself that the government is mischaracterizing his transactions and his closest associates are making up stories about him,” said Daniel Richman, a law professor at Columbia University and a former federal prosecutor. The downside is “he might not respond well to forceful cross-examination.”
A representative for Bankman-Fried declined to comment. A spokesperson for the U.S. attorney’s office for the Southern District of New York, the division that is prosecuting Bankman-Fried, also declined.
Known for his signature outfit of T-shirts and shorts, Bankman-Fried rose to prominence as a rare good guy in the loosely regulated world of crypto. He founded FTX in 2019 and raised $2 billion in venture funding, promising to work with regulators to write new rules for the industry. He was also a prolific political donor, contributing more than $5 million to support Joe Biden’s 2020 presidential run.
Then, over four frantic days in November, FTX and its sister hedge fund, Alameda Research, imploded, with customers unable to withdraw more than $8 billion in deposits. The companies filed for bankruptcy, and Bankman-Fried was charged with counts including securities fraud, wire fraud and money laundering. A count accusing him of violating campaign finance law was eventually dropped, along with a handful of other charges, though all could be revived at a second trial next year.
Many of his closest allies have turned on him. Caroline Ellison, Alameda’s CEO and Bankman-Fried’s on-and-off girlfriend, pleaded guilty 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 Bankman-Fried to defraud customers. A fourth high-level executive, Ryan Salame, also pleaded guilty, without agreeing to cooperate.
After his arrest, Bankman-Fried was confined to his parents’ house in Palo Alto, California, where he entertained guests and had a pickleball court installed in the yard. In August, Kaplan revoked those privileges and sent him to the Metropolitan Detention Center after he shared some of Ellison’s private writings with The New York Times.
As the trial approaches, the defense has faced setbacks. Bankman-Fried has had trouble getting access to documents from jail, his lawyers say, because of a spotty internet connection and battery problems with a laptop he was given.
Kaplan has mostly dismissed those complaints. Last month, he rejected the defense’s attempt to stop prosecutors from citing evidence related to FTX’s bankruptcy filing and Bankman-Fried’s resignation from the company. The judge said those events were “intertwined inextricably” with the charges. And in a ruling Sunday, he said he might limit the defense’s ability to argue that some of the decisions made at FTX involved lawyers.
“The issues in this case are pretty straightforward,” Kaplan said at a court hearing last week.