Cryptocurrency Fraud Trial: Sam Bankman-Fried’s Crypto Empire Was ‘Built on Lies’, Prosecutor Says

Dueling arguments are at the heart of Mr. Bankman-Fried’s trial, which has become the highest-profile prosecution of a business executive since Theranos founder Elizabeth Holmes was convicted of fraud early last year.

Mr Bankman-Fried, 31, a crypto genius, became a disheveled billionaire almost overnight, only to see his company collapse last year and his fortune evaporate. He was accused of orchestrating a conspiracy to use $10 billion entrusted to him by FTX clients for all kinds of personal projects, including venture capital investments, political donations, and luxury real estate purchases.

“It seemed like Sam Bankman Fred was on top of the world,” Thein Rin, the lead prosecutor, told a packed courtroom at the federal courthouse in Manhattan on Wednesday. “It’s all based on lies.”

Mr. Bankman-Fried’s lawyer, Mark Cohen, quickly responded. “It is not a crime to run a company in good faith, which ultimately leads to going through a storm,” he said. He described the prosecution’s portrayal of his client as a “caricature of a villain” that distorts the facts.

Mr Bankman-Fried, who has spent the last seven weeks in prison, appeared in court with short hair that had recently been cut by one of his fellow detainees. Dressed in a suit and tie, he watched the proceedings surrounded by his other lawyers, while his parents, Stanford law professors Joseph Bankman and Barbara Freed, sat a few rows behind him.

His trial has become a closely watched referendum not only on the downfall of FTX but also on reckless behavior in the cryptocurrency industry. A frenzy of cryptocurrencies like Bitcoin and Ether swept over millions of ordinary investors before the market crashed last year, wiping out people’s savings and sending a parade of startups into bankruptcy.

When FTX collapsed in November, Mr. Bankman-Fried became a symbol of the industry’s excesses. At the height of its power and influence, his company was valued at $32 billion, and Mr. Bankman-Fried was widely hailed as a leader capable of bringing obscure cryptocurrency technology into the mainstream of global finance. He shuttled back and forth from FTX’s base in the Bahamas to meetings in Los Angeles and Washington, where he met celebrities and politicians, and his image was plastered on billboards and magazine covers.

Now FTX has gone bankrupt and the cryptocurrency markets have collapsed, leading to dozens of lawsuits and tens of billions of dollars in losses that have devastated the finances of individual investors around the world.

Mr Bankman-Fried, who described himself in his private writings as “one of the most hated people in the world”, has pleaded not guilty to seven counts of fraud and money laundering. If convicted, he could face up to life in prison.

The FTX founder faces an uphill battle in court. Three of his top executives pleaded guilty to fraud and agreed to cooperate against him, including his on-off girlfriend, Carolyn Ellison, who ran Alameda Research, a hedge fund set up by Bankman-Fried.

Prosecutors and defense lawyers said in court that they had conducted no plea agreement negotiations, and no deal had ever been offered to Mr. Bankman-Fried.

On Wednesday, Mr. Rehn accused Mr. Bankman-Fried of “fraud on a massive scale,” and described him as a conspirator who is “not who he seems.” He said Mr. Bankman-Fried transferred money customers had deposited with FTX to Alameda, which then converted the money into investments and donations.

Mr. Ren repeatedly called cooperating witnesses, stressing that people who say they participated with Mr. Bankman-Fried in the scheme would testify against him. He also pointed to Mr. Bankman-Fried’s posts on X, the social media service formerly known as Twitter, and commercials used to promote FTX, calling them lies intended to deceive customers.

“He would take customers’ deposits and spend them for himself,” Mr. Ren said. “The defendant was keeping his clients in the dark.”

Prosecutors collected millions of pages of digital evidence, including text and email records, as well as snippets of computer code that showed how FTX moved customer funds to Alameda. They have an audio recording from the week of the FTX collapse in which Ms. Ellison appears to admit that she and Mr. Bankman-Fried worked together to steal customer deposits. They won a series of pre-trial disputes, allowing them to present evidence that Mr. Bankman-Fried objected to and preventing his legal team from presenting certain defences.

Mr. Cohen, the defense attorney, disputed the general narrative that Mr. Bankman-Fried was a con artist bent on stealing clients’ money.

“Sam didn’t defraud anyone,” he said. “Sam acted in good faith.”

Describing his client as a “math nerd who doesn’t drink or party,” Mr. Cohen walked jurors through the history of FTX, arguing that Mr. Bankman-Fried acted in the best interests of his clients, even if he did not always do so. The right decisions.

“No one person, not a CEO, and certainly not Sam, can be everywhere and do everything,” he said.

Mr. Cohen also attacked the credibility of Ms. Ellison and other cooperating witnesses, suggesting they were trying to avoid long prison sentences. He said Mr. Bankman-Fried urged Ms. Ellison to place hedges on the Alameda business, but she ignored him, leading to some problems that caused the collapse of the business empire.

“You have to think about what Sam did and what he said in real time,” he said. “He made business decisions that he believed were right when he made them.”

After opening statements, prosecutors called their first witness, Marc-Antoine Julliard, a London investor who lost more than $100,000 in cash and bitcoin in the FTX crash. Mr. Julliard said he thought FTX would keep his money safe.

Another witness, Adam Yedediah, a college friend of Mr. Bankman-Fried who worked at Alameda and FTX, said he resigned before FTX filed for bankruptcy when he learned that its clients’ money had been transferred to Alameda. In his testimony under immunity, Mr. Yedidia also discussed luxury apartments in the Bahamas that prosecutors said were purchased with FTX clients’ money.

Opening statements and witness testimony began shortly after the judge overseeing the case, Louis A. Kaplan, sworn in before a jury of nine women and three men. During the selection process, one potential juror said he and his twin brother had lost money in the cryptocurrency market, while another said she worked at a financial company that lost money with FTX and Alameda. Both were excused.

A third candidate repeatedly said that he does not know if he can be neutral because he does not understand how cryptocurrencies work.

“You probably have a lot of people in this courtroom,” Judge Kaplan replied.

The potential juror, who was excused, said the whole concept of cryptocurrencies rubbed him the wrong way, reminding him of a Ponzi scheme carried out by disgraced financier Bernard Madoff.