Trial of Ex-FTX CEO Sam Bankman-Fried Underway Amid Fraud Accusations
Summary:
The former CEO of FTX, Sam "SBF" Bankman-Fried, is currently on trial in New York for accusations by the Department of Justice (DOJ) that he deceived investors and misused client funds. Bankman-Fried's defense argues that he was a young entrepreneur who made unfruitful business decisions, denying any secret transactions or fund misappropriation. The trial follows several significant events including FTX's collapse in November 2022, Bankman-Fried's subsequent arrest, and his decision to fight extradition from the Bahamas. Details of the case are being updated as they unfold.
Our correspondents are actively covering the unfolding trial of Sam "SBF" Bankman-Fried, formerly the CEO of FTX, live in New York. You can find the latest developments as they happen below.
Oct. 4: Both sides present their case
The trial of Sam Bankman-Fried kicked off unveiling the legal tactics his defense and the Department of Justice (DOJ) will be deploying throughout the case. The day started with jury selection, after which the DOJ and the defense began their opening arguments to the selected 12-person jury.
The DOJ's initial assertion painted the former FTX founder as a figure who intentionally deceived investors to finance his cryptocurrency enterprise. They claim that Bankman-Fried misrepresented the truth to FTX clients and investors, using Alameda as a primary collaborator to misappropriate customer funds, an idea repeatedly highlighted during the opening statements.
Based on the trial preview, the DOJ is expected to focus on claims that Bankman-Fried provided misleading information to clients, investors, and lenders about the secure handling of their funds, while covertly employing Alameda to pilfer their money and obtain political favors in Washington.
In contrast, the defense laid out its counter-arguments based on Bankman-Fried being a young businessperson who made business decisions that "failed." They denied any covert transactions between Alameda and FTX or any secret route used to expropriate customer funds. Cited from prior arguments, every transaction was either valid or made in good faith by Bankman-Fried during the cryptocurrency market slump and subsequent downfall of FTX in November 2022.
The defense thrown light on the role Binance played in the run on the bank that resulted in FTX collapsing. The defense will continue their testimonies throughout the day.
They argued that Bankman-Fried had assumed FTX was permitted to lend funds to Alameda as part of a business partnership with the market maker, and no clandestine channel existed for transactions between the companies.
The prosecution has revealed that Caroline Ellison, Gary Wang, and Nishad Singh would share insider information with the jury about Bankman-Fried's part in FTX's activities and alleged criminality. Despite this, the defense raised questions about their reliability, as they were required to testify against Bankman-Fried as part of the government's cooperation agreement.
The defense also minimized the allegations against the relationship between FTX and Alameda, stating that FTX margin traders knew the risks involved with transactions.
Rejecting the idea of theft, the defense maintained that "It's not a crime to be the CEO of a company that goes bankrupt."
Oct. 3: SBF's trial commences
The trial of Sam Bankman-Fried started on Oct. 3, commencing with the selection of jury members. He is facing seven counts of conspiracy and fraud charges in relation to FTX's downfall, the cryptocurrency exchange he co-founded. He consistently maintained his innocence over all the charges. Presiding over the case is Judge Lewis Kaplan, who has had a history of handling several high-profile cases, which includes detainees at Guantanamo Bay, the Gambino crime family, Prince Andrew and Donald Trump.
Bankman-Fried was held in custody on Aug. 11 following Kaplan's declaration that he had intimidated a witness, specifically former Alameda Research CEO Caroline Ellison, by releasing her confidential documents. Alameda Research is another trading firm that Bankman-Fried established. He had been previously put under house arrest in his parents' Stanford, California home with a bond of $250-million.
December: SBF's arrest
Bankman-Fried got arrested soon after landing in the United States from the Bahamas on Dec. 21, 2022. However, the actual arrest in the Bahamas took place on Dec. 12 after the United States government formally informed the Bahamas about the charges against him. Although he initially decided to fight the extradition from the Bahamas, he altered his decision after a week-long stay in Bahaman jail and accepted the extradition.
In a simultaneous development, Gary Wang, FTX's co-founder, and Alameda Research CEO Caroline Ellison agreed to plead guilty in the emerging case.
November: FTX's downfall
The first indication of problems for Bankman-Fried came when, on Nov. 2, it was announced that Alameda Research possessed a considerable stake of FTX Token (FTT), FTX's utility token. This raised questions about the relationship between the two organizations. On Nov. 6, Changpeng Zhao, CEO of competing exchange Binance, unveiled that his exchange would divest its holdings of FTT, estimated to be worth about $2.1 billion, a development that was marked as the beginning of a run on FTX. Even after Bankman-Fried assured on Twitter that the exchange's "assets are fine", and put the blame on “a competitor” for spreading rumors, the price of FTT plummeted from $22 to $15.40 by Nov. 8.
Eventually, Bankman-Fried announced an agreement with Zhao "on a strategic transaction" on Nov. 8, and noted that, "Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1." However, Binance reneged on acquiring FTX after due diligence and additional reports of mismanaged funds surfaced on Nov. 9. This drove the price of Bitcoin (BTC) down to $15,600.
FTX and Alameda Research websites were down for several hours. Once the FTX site was back up, it displayed a warning against making deposits and was not processing withdrawals.
On Nov. 10, Bankman-Fried issued a 22-part Twitter apology, which was the first in a series of public statements he made following the collapse of the exchange. The following day, the entire staff of Alameda Research quit, and FTX, FTX US, and Alameda Research filed for bankruptcy in the United States. Bankman-Fried stepped down as FTX CEO and was succeeded by John J. Ray III, who is primarily known for his contribution to the Enron bankruptcy.
Bankman-Fried and FTX prior to the collapse
At the start of 2022, FTX was valued at $32 billion and was deemed financially robust. Bankman-Fried was perceived as a distinguished business leader by a significant portion of the crypto community and the public at large. He was photographed with political leaders and participated in congressional hearings.
Bankman-Fried was also known for his philanthropic efforts, pursuing a philosophy called "effective altruism" that's popular among scholars. His political activism in the form of financial support for select candidates was a part of his execution of this philosophy.
As the crypto industry faced harsh times, Bankman-Fried communicated about FTX and Alameda Research's "responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion." Although an offer to acquire Voyager Digital was declined, FTX managed to secure a deal with Visa to launch its own debit card in 40 countries.
Alameda Research was founded in 2017 by Bankman-Fried, Ellison, and other Jane Street Capital alumni. Later in 2019, Bankman-Fried and Wang co-founded FTX, with Zhao being one of the early investors in the exchange.
This story is developing, and further updates will be provided as they emerge.
Published At
10/4/2023 7:25:13 PM
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