The prison trial of the previous cryptocurrency mogul Sam Bankman-Fried started on Tuesday, with jury choice getting beneath manner in a Manhattan federal court docket.
Bankman-Fried, who based the cryptocurrency alternate FTX and related hedge fund Alameda Analysis, is dealing with trial on finance crimes stemming from the stunning collapse of FTX. Earlier than its sudden downfall final 12 months, FTX was valued at round $32bn.
Bankman-Fried entered the courtroom simply earlier than 10am. His signature look of saggy shorts and ill-fitting T-shirts had been changed with a grey go well with, and his normally unkempt hair was trimmed down. He nodded to his legal professionals and took his seat.
The trial caps off almost a 12 months of free fall for 31-year-old Bankman-Fried, who had grow to be the face of the crypto {industry} and a burgeoning political energy dealer. Bankman-Fried and FTX doled out tens of millions in marketing campaign donations, purchased A-list movie star endorsements and marketed the cryptocurrency brokerage as the way forward for finance.
After studies final November questioned the monetary stability of FTX and Alameda, a run on deposits within the alternate uncovered that FTX couldn’t ship prospects their funds and compelled the corporate to declare chapter. Bankman-Fried was arrested within the Bahamas the next month, because the saga decimated public belief within the cryptocurrency {industry}.
Bankman-Fried faces seven conspiracy and fraud counts for allegedly siphoning billions of {dollars} in traders’ cash into dangerous trades and different illegal functions. The Manhattan US lawyer’s workplace has additionally accused Bankman-Fried of utilizing buyer funds to foot the invoice for swelling mortgage bills at Alameda, in addition to shopping for up high-priced actual property, funding his pet philanthropy tasks and making in depth political donations. If convicted, he may face life in jail.
The trial is anticipated to final about six weeks, and federal decide Lewis Kaplan will oversee the proceedings. Prosecutors said through the opening hours of the trial that they’d made no provides of a plea deal. A number of of Bankman-Fried’s deputies and executives on the alternate, together with the previous head of Alameda and his on-again, off-again girlfriend, Caroline Ellison, are anticipated to testify within the trial.
Bankman-Fried appeared alert because the jury choice started, powering up his laptop computer in entrance of him and at one level smiling at his lawyer. Regardless of doubtlessly dealing with many years of imprisonment, he projected an upbeat demeanor.
On the morning of the trial, about 20 photographers and some reporters lingered outdoors the courthouse – a small quantity for what has been a a lot anticipated case. Bankman-Fried’s trial started the identical day as Donald Trump’s look at his civil fraud trial, which drew a a lot bigger media circus close by.
Trump’s trial prompted the proceedings to begin late after Bankman-Fried had issues getting from the jail the place he’s being held to the courtroom on schedule.
“We will thank the delay to what’s happening within the different courtroom close by,” Kaplan instructed legal professionals on the case as they waited for the defendant.
Potential jurors had been directed into the courtroom at about 10.37am. Bankman-Fried stored his palms in entrance of him as the primary batch filed towards the jury field. After round 50 potential jurors had been sworn in, Kaplan went over the character of the trial and commenced questioning these summoned on potential conflicts.
A number of potential jurors stated that they’d prior information of the case, with one man telling the decide he had discovered about it from Joe Rogan’s podcast. A girl who said that she may very well be an neutral juror disclosed that her firm had beforehand invested in Alameda and FTX, prompting Kaplan to ask in the event that they made or misplaced cash.
“Lose cash,” she stated.
Kaplan additionally addressed potential jurors who confronted scheduling conflicts. A girl who labored as an operations supervisor stated that an occasion would forestall her from performing as juror within the trial, leading to Kaplan asking the place she labored.
“Ms Universe,” she stated.
Kaplan pressed her on the problem. “Um, it’s the pageant,” she replied, including that the job would require journey to El Salvador.
One man claimed that he couldn’t attend resulting from monetary hardship. Particularly, the person stated he “simply purchased a cello, I’m paying off $600 a month”.
As extra potential jurors entered the courtroom within the afternoon, Bankman-Fried repeatedly turned to observe them every file in. Opening arguments are set to begin later within the week after the jury choice course of finishes.
The unraveling of a crypto empire
Bankman-Fried’s high-flying world began to unravel in November 2022 following a report in CoinDesk that Alameda held billions in FTX’s personal cryptocurrency, FTT. Alameda allegedly used FTT as backing for big loans. A downward dip in FTT may undermine FTX and Alameda. Including to the unease: FTT didn’t have worth outdoors of FTX’s vow to purchase tokens at $22.
Amid the revelations, the chief government of high FTX competitor Binance, Changpeng Zhao, tweeted that his agency would promote its $50m in FTT. FTT spiraled and FTX purchasers pulled their cash within the equal of a high-tech financial institution run.
As FTX reeled from a “big withdrawal surge”, with customers scrambling to take away some $6bn in crypto tokens over a mere three days, observers feared the fiasco may immediate an industry-wide collapse paying homage to the 2008 actual property disaster. FTX filed for chapter safety and Bankman-Fried resigned.
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The collapse of FTX caused “billions of dollars in losses to its customers, lenders and investors”, Damian Williams, the Manhattan US attorney, said in December. “This was not a case of mismanagement or poor oversight, but of intentional fraud, plain and simple.”
Federal prosecutors allege Bankman-Fried and several co-conspirators diverted billions for his personal use. While head of FTX, Bankman-Fried had positioned himself as a political megadonor and philanthropist who vowed to save the world from disaster. He appeared on stage with the likes of former leaders Tony Blair and Bill Clinton, while courting lawmakers in Washington.
Federal prosecutors allege that Bankman-Fried and several co-conspirators – among them his sometimes girlfriend, Alameda CEO Caroline Ellison – diverted billions for his personal use.
Ellison, who in December pleaded guilty to her role in the alleged conspiracy, is expected to be the prosecution’s star witness at Bankman-Fried’s made-for-tabloid trial. The proceedings are also poised to provide bombshell details not only on FTX’s crash but also the murky inner workings of crypto trading.
If Ellison’s past statements are any indication, her testimony could well be damning for Bankman-Fried.
Prosecutors have indicated they will bring forward recordings of a 9 November Alameda staff meeting, in which Ellison tried to allay staff concerns.
“Starting last year, Alameda was kind of borrowing a bunch of money via open-term loans and used that to make various illiquid investments … Then with crypto being down, the crash, the – like, credit crunch this year, most of Alameda’s loans got called,” Ellison allegedly said during the meeting. “And in order to, like, meet those loan recalls, we ended up borrowing a bunch of funds on FTX which led to FTX having a shortfall in user funds.”
One employee asked: Who else knew about the exchange’s shortfall in customer money? She named Bankman-Fried. A worker pressed: “Who made the decision on using user deposits?”
“Um … Sam, I guess,” Ellison said.
Bankman-Fried, who remains jailed pending trial, has maintained his innocence. His representative did not comment on the case in advance of the proceedings.
One of the biggest questions hovering over the trial is whether Bankman-Fried will himself testify. It’s rare that defendants take the stand during their trials, as doing so carries the risk that they could incriminate themselves or leave jurors with a bad impression. But Bankman-Fried has been an unusual defendant, appearing to find it hard to stay silent and giving frequent statements to the media following his arrest.
Judge Kaplan ultimately revoked Bankman-Fried’s bail in August, on the grounds that his interactions with the media were an attempt to intimidate witnesses such as Ellison.
Before jury selection started, Kaplan advised Bankman-Fried of his right to take the stand in his own defense.
“You have the right to testify in your own defense in this case and decide whether or not to testify – it’s solely a decision for you,” Kaplan said. “Do you understand this?”
Bankman-Fried leaned forward in his chair, and said “Yes.”