It took around five days for the cryptocurrency exchange FTX to implode last November.
It will take around five or six weeks for the founder of the failed exchange’s criminal trial to play out, where his guilt in misappropriating the billions of customer funds that led to the company’s collapse will be determined.
In just under a year, Sam Bankman-Fried, the Alameda Research and FTX co-founder, went from gracing business magazine covers to being stuck behind bars at Metropolitan Detention Center in Brooklyn, New York.
The crypto entrepreneur stands criminally accused of masterminding one of the biggest financial frauds in U.S. history. He starts his court battle Tuesday (Oct. 3), and if convicted could face over 100 years in prison – essentially a life sentence.
Observers believe Bankman-Fried faces an uphill battle. Four of his friends and closest colleagues have all pleaded guilty to charges adjacent to his own, and three of them are scheduled to testify against him.
On Monday (Oct. 2) the federal judge overseeing Bankman-Fried’s case, Lewis Kaplan, denied the defense’s request to introduce evidence supporting an “advice of counsel defense” at trial.
Bankman-Fried and his lawyers had been hoping to argue that the involvement of FTX’s own lawyers in many of the matters under scrutiny belies the ability of the FTX CEO to have acted with criminal intent.
Of the fallen crypto founder’s seven criminal accusations being tried this month, five conspiracy charges require prosecutors to convince the jury that Bankman-Fried intended to commit a crime.
The court’s trial calendar shows that Bankman-Fried’s juried reckoning will stretch at least until Nov. 9, nearly a year to-the-date from when (on Nov. 11, 2022) FTX entered into bankruptcy.
On Dec. 12, 2022, Bankman-Fried would be arrested in the Bahamas, and extradited to the U.S. 10 days later.
He faces a second trial in March 2024 on five more charges related to his actions while running FTX that were added after the extradition agreement.
Before Bankman-Fried’s arrest and extradition, he appeared on stage virtually at The New York Times’ DealBook Summit (Nov. 30, 2022) for a one-on-one conversation with DealBook’s founder Andrew Ross Sorkin, where he defended himself.
“I didn’t knowingly comingle funds,” he said at the time, brushing the billions of misappropriated customer funds that his colleagues have since admitted they mingled under the rugs of “lack of oversight,” and “pretty big mistakes I’m embarrassed to have made,” calling the loss of funds an accounting error.
Bankman-Fried repeatedly emphasized to Sorkin that he “wasn’t running Alameda,” and seemingly cast the majority of blame on Caroline Ellison, Alameda’s CEO, for failing to manage risk at the trading shop.
Observers believe that Bankman-Fried’s defense hasn’t changed much, and he maintains his innocence.
The upcoming trial represents a stunning fall from grace for the bushy-haired former crypto tycoon who was once warmly welcomed by D.C. brass and highly lauded by Silicon Valley’s most sophisticated investors.
Bankman-Fried has had an unsteady path to the courtroom, too. Despite being released into his parents’ custody under house arrest on a $250 million bond, the one-time crypto billionaire continued to push the boundaries of his bail conditions.
Eventually, Bankman-Fried pushed too hard.
On Aug. 11 Kaplan revoked the 31-year-old’s bail, expressing irritation with his antics — particularly the release of Ellison’s personal diary to the media, which was characterized as witness tampering — and sending him to jail, where he remains.
For their part, prosecutors have accumulated millions of pages of evidence that includes private notes and emails, Slack messages, and even recordings of staff meetings, that they plan to introduce into the trail. All in all, the prosecution will reference 1,300 exhibits.
Bankman-Fried’s lawyers have been having a tougher go of it. Kaplan precluded testimony from all seven of his legal team’s proposed expert witnesses, allowing only four of them to testify only in rebuttal to expert witnesses the Justice Department plans to bring to trial.
He has had to prepare his case from a Brooklyn lockup with little access to outside information.
“There is still a Sam-Bankman-Fried-shaped hole in the world that now needs filling,” the author Michael Lewis, who interviewed Bankman-Fried more than 100 times over the past two years for a new book on the failed fraudster, said in an interview with CBS’s “60 Minutes” that aired Sunday (Oct. 1).
Of course, there is a multibillion-dollar hole in FTX’s balance sheet that needs filling, too.
“This is one of the biggest financial frauds in American history,” U.S. Attorney Damian Williams said in December 2022 announcing Bankman-Fried’s arrest.
Lawyers for Bankman-Fried did not immediately reply to PYMNTS’ request for comment.