One of the most anticipated fraud trials in recent years began in New York this Wednesday.
In the dock is Sam Bankman-Fried, who once owned a $32 billion business and seemed to have the world at his feet.
The 31-year-old was a scruffy-looking genius who had the support of big sports and entertainment stars who were willing to back and invest in his FTX cryptocurrency exchange platform.
He donated millions of dollars to good causes and said in some interviews that he wanted to give away most of his fortune.
But his empire collapsed and investors lost billions.
Bankman-Fried’s arrival in federal court Wednesday kicked off what is expected to be a roughly six-week court battle.
He is accused of having built his fortune with lies, something he denies, and faces a sentence of 115 years in prison.
In his opening statements, prosecutor Thane Rehn said Bankman-Fried “used his company, FTX, to commit large-scale fraud, and the money he spent building his empire was money he stole from FTX customers.”
“He injected money – other people’s money – into his own investments to try to get even richer,” he added.
Bankman-Fried’s defense attorney, for his part, argued that his client followed “reasonable” business practices.
“It’s not a crime to be the CEO of a company that later went bankrupt,” Mark Cohen said.
1. Who is Sam Bankman-Fried?
Born into a family of prominent liberal academics and raised in the shadow of Silicon Valley, Bankman-Fried demonstrated from a young age an astonishing aptitude for mathematical puzzles.
After earning a bachelor’s degree in Physics from the Massachusetts Institute of Technology (MIT), he joined the stock company Jane Street.
It was there that he began donating half his salary to charity and embracing effective altruism, a movement whose advocates claim to take an evidence-based approach to charitable giving.
His parents were great influences: both are law professors at Stanford and well-known advocates of social equity.
Michael Lewis, author of a new book about Bankman-Fried, told the BBC that he believes the businessman simply saw cryptocurrencies as a means of making money to change the world.
In 2017, Bankman-Fried co-founded Alameda Research, a cryptocurrency investment fund that he said at one point was making him $1 million a day.
Two years later he created FTX in Hong Kong.
2. What was FTX?
FTX was launched in 2019 by Bankman-Fried and her former MIT classmate Gary Wang.
The platform acted as an unregulated bank, allowing people to exchange money for cryptocurrencies, such as bitcoin, and store their funds for safekeeping.
At its peak, FTX executives said the platform facilitated trades worth between $10 billion and $15 billion a day.
By early 2022, FTX was valued at $32 billion and its fame was on the rise. He had even given his name to the stadium in which the Miami Heat basketball team plays.
The implosion of the Bankman-Fried empire began after an investigation into FTX by the news site Coindeskwhich stated that its companies were in a risky financial situation.
Other reports accused FTX of embezzling its clients’ funds.
Panicked customers rushed to withdraw billions of dollars from the platform, until FTX collapsed and filed for bankruptcy on November 11, 2022.
3. What is Sam Bankman-Fried accused of?
According to New York prosecutor Damian Williams, Bankman-Fried committed one of the largest financial frauds in American history.
The main allegation is that he used client funds to prop up his own venture investments in Alameda Research.
Prosecutors say he also spent millions from deposits on a lavish lifestyle and political donations, some of which are considered illegal.
When FTX went down, more than a million people were left without their money because they couldn’t get it out in time.
Several of Bankman-Fried’s colleagues have already pleaded guilty, including his ex-girlfriend, Caroline Ellison.
4. What was Caroline Ellison accused of?
Ellison is the former CEO of Alameda Research and joined the firm in 2018, reportedly because she wanted a high-paying job so she could give more money to good causes.
She pleaded guilty to fraudulent money transfers and laundering in December last year and is preparing to testify against her ex-boyfriend at trial.
In a recording made in November 2022, when it was clear that Alameda was going to go under, she is heard telling company staff that it was Bankman-Fried’s idea to use FTX customers’ money.
5. What can happen at trial?
Bankman-Fried pleaded not guilty to the seven charges against him in this trial and to other charges that will be brought against him in a second trial in 2024.
In some interviews he acknowledged inadequate risk management but denied having stolen funds.
If the jury finds him guilty, the judge could order that the sentences imposed be served consecutively, so he could spend the rest of his life behind bars.
Bankman-Fried’s bail was revoked after he tried to influence witnesses to testify against him, and he was sent to prison in August.
Inmates are not usually allowed to change clothes for trials, but this month Bankman-Fried earned the right to dress smartly during the proceedings.
Known for dressing casually in shorts and T-shirts, the court agreed to provide him with three jackets, four dress shirts and three pairs of pants.
Additional reporting by Natalie Sherman and Erin Delmore in New York.
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