Sam Bankman-Fried was a big player in the cryptocurrency business. But in his fraud trial, New York jurors made a quick verdict against the 31-year-old. He faces decades behind bars.
Once hailed as a cryptocurrency visionary, Sam Bankman-Fried is now a convicted fraudster. Jurors in New York took less than five hours on Thursday to find the 31-year-old founder of cryptocurrency exchange FTX guilty. The seven charges ranged from fraud to conspiracy to launder money. The sentence is not due to be announced until March. Bankman-Fried faces decades in prison – if the judge exhausts the proposed penalties on all charges, it could be 110 years in prison.
Bankman-Fried’s crypto exchange FTX collapsed spectacularly
The case had all the makings of a cinematic courtroom drama. A fallen crypto king. Former friends and companions who testify against him. And the attempt to turn things around with one’s own testimony in the trial – but in vain. Bankman-Fried’s lawyer said they would consider an appeal. He reiterated that the entrepreneur protested his innocence and wanted to continue to defend himself against the allegations.
The defense’s line at trial was to portray Bankman-Fried as a hard-working, well-intentioned entrepreneur who made mistakes. In addition to devastating statements from his former associates, the prosecution presented sober evidence such as timestamps from Google files that convinced jurors that Bankman-Fried – contrary to his claims – must have known about the fraud.
Bankman-Fried became known as the founder of the cryptocurrency exchange FTX, which collapsed spectacularly a year ago. In the meantime, FTX was valued at $32 billion. Before the collapse, the platform was one of the largest trading venues for cryptocurrencies such as Bitcoin. Celebrities like football star Tom Brady promoted FTX, Bankman-Fried spoke at conferences about the future of the financial system, donated a lot of money to the Democratic Party and was photographed at the prestigious Super Bowl event with singer Katy Perry and actor Orlando Bloom.
While cryptocurrencies seem highly complex to laypeople, the fraud case seemed simple in the end: misappropriation of customer assets. Bankman-Fried also had a hedge fund called Alameda Research. He made risky trades and borrowed funds from FTX. Actually, collateral should have been deposited for such transactions. There were also computer systems that were supposed to take care of this. However, the software contained a secret exception for Alameda. This allowed the hedge fund to go as deep as it wanted on FTX.
Eight billion dollars were missing
The Alameda deals went wrong and FTX ended up with an $8 billion hole. Bankman-Fried said in court that he had only a partial understanding of his companies’ financial situation. He was “very surprised” by the extent of the problems. However, Alameda boss Caroline Ellison had previously testified that Bankman-Fried had at one point instructed her to prepare a false balance sheet for investors without the debt to FTX. She offered him seven versions of the balance sheet to choose from.
What made Ellison’s statements even more explosive was that she and Bankman-Fried were a couple for a while. There was an icy atmosphere between them in the courtroom, as US media reported. But two other former close friends also testified against Bankman-Fried: FTX co-founder Gary Wang and software boss Nishad Singh. The jury also heard from them that they had committed fraud at the direction of Bankman-Fried. All three had previously admitted their guilt – and can now hope for a lighter sentence.
It was the end of an unusual type of corporate management: The friends and top managers lived together in a kind of rich man’s shared apartment in a penthouse in the Bahamas that cost more than 30 million dollars. Bankman-Fried was arrested there last December and then extradited to the US justice system. The original twelve charges became seven because the rest were not mentioned in the extradition agreement.
Bankman-Fried initially waited for the trial under house arrest with his parents in Palo Alto, California; they are professors at the elite Stanford University. But in August, Judge Lewis Kaplan sent him to prison after Bankman-Fried leaked Ellison’s private records to a journalist. Kaplan saw this as an attempt to intimidate a witness.
New York prosecutor Damian Williams said after the verdict that Bankman-Fried committed one of the largest financial frauds in American history in order to become the “crypto king.” At its core, however, it’s an old story: “This case was all about lies, fraud and theft all along.”