Crypto Tycoon Sam Bankman-Fried Faces Trial for Alleged Financial Crimes
A federal court located in Manhattan is set to commence the trial against former crypto luminary Sam Bankman-Fried, with jury selection scheduled to commence on Tuesday.
Bankman-Fried, the creator of the cryptocurrency exchange FTX and the affiliated hedge fund Alameda Research, is now facing charges related to financial crimes arising from the abrupt downfall of FTX. Bankman-Fried is confronted with seven counts of conspiracy and fraud, alleging that he diverted investors' funds into high-risk trades and other illicit activities.
The Manhattan US attorney's office, responsible for prosecuting the case, has also accused Bankman-Fried of utilizing FTX customer funds to cover escalating loan expenses at Alameda. Additionally, authorities contend that he used these funds to acquire extravagant real estate and make substantial political donations. Bankman-Fried's once-soaring empire began to crumble in November 2022 after a report from CoinDesk revealed that Alameda held billions in FTX's native cryptocurrency, FTT. Alameda purportedly used FTT as collateral for substantial loans, and any decline in FTT's value could imperil both FTX and Alameda. Compounding concerns, FTT had no intrinsic value beyond FTX's commitment to buy tokens at $22.
Amid these revelations, the CEO of the leading FTX competitor, Binance, Changpeng Zhao, announced on Twitter that his company would liquidate its $50 million worth of FTT. The value of FTT subsequently plummeted, prompting FTX clients to withdraw their funds en masse, akin to a high-tech bank run.
As FTX grappled with this "massive withdrawal surge," wherein users rushed to withdraw approximately $6 billion in cryptocurrency assets over just three days, observers feared that this debacle might trigger an industry-wide collapse reminiscent of the 2008 real estate crisis. FTX eventually filed for bankruptcy protection, and Bankman-Fried resigned.
The collapse of FTX resulted in "billions of dollars in losses to its customers, lenders, and investors," stated Damian Williams, the Manhattan US attorney, in December. Williams characterized this as a case of deliberate fraud, rather than mismanagement or oversight.
Federal prosecutors allege that Bankman-Fried, alongside several co-conspirators, including his occasional girlfriend and Alameda CEO, Caroline Ellison, diverted billions of dollars for personal use.
Ellison, who pleaded guilty to her role in the alleged conspiracy in December, is expected to be the prosecution's key witness in Bankman-Fried's highly publicized trial. These proceedings are anticipated to unveil not only the details behind FTX's collapse but also the intricate inner workings of the cryptocurrency trading world.
If Ellison's previous statements are any indication, her testimony could prove highly incriminating for Bankman-Fried.
Prosecutors have indicated their intention to introduce recordings from a November 9th Alameda staff meeting, during which Ellison attempted to address staff concerns. She reportedly stated, "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." She continued, "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."
When asked who else was aware of the exchange's customer fund shortfall, Ellison named Bankman-Fried. Another employee pressed, "Who made the decision to use user deposits?"
"Um... Sam, I guess," replied Ellison.
Bankman-Fried, who remains in custody pending trial, has consistently maintained his innocence, and his representative declined to comment on the case ahead of the proceedings.