The first days of the former cryptocurrency billionaire Sam Bankman-Fried’s criminal trial, in lower Manhattan, unfolded during an unseasonably warm spell in early October. On Wednesday, Bankman-Fried, who is well known for his propensity for casual clothes and for wearing a mop of shaggy hair, arrived in court from a federal prison in Brooklyn in a new crewcut and a suit. During the prosecution’s opening argument, the math wunderkind, who journalists (including me) have often observed jiggling his knees, sat still as the U.S. Attorney Thane Rehn proposed the government’s answer to the question that will dominate the next few weeks of courtroom proceedings: Is Sam Bankman-Fried the crypto world’s equivalent of Bernie Madoff, or is he an idiosyncratic genius whose company simply became so successful so fast that he lost control of it?
A little less than a year ago, Bankman-Fried had been ascendant. Thanks to the successful cryptocurrency businesses he founded, he was estimated to be worth billions of dollars; he mused about one day buying Goldman Sachs. At the same time, as a vocal adherent of effective altruism, the quasi-utilitarian philanthropic movement, he pledged to give most of that money away. Speaking from a lectern before the packed courtroom, Rehn, a decorated debater, evoked Bankman-Fried’s grandiosity and tried to portray him as a duplicitous figure. Before his arrest, Rehn said, Bankman-Fried was living in a thirty-million-dollar penthouse in the Bahamas, fraternizing with celebrities. “He had wealth, he had power, he had influence,” Rehn said. “But all of that, all of it, was built on lies.”
FTX, the cryptocurrency exchange that Bankman-Fried co-founded in 2019, had as swift a rise as any company in recent memory—and an even quicker fall. Created as an exchange where users could buy and sell cryptocurrencies, including bitcoin and Ethereum, at its peak, FTX had a valuation of thirty-two billion dollars. That figure plummeted when, in late 2022, leaked screenshots of its financial information raised concerns about its solvency, and customers rushed to withdraw their money, only to find that they could not. When “the truth started to come out,” Rehn said, “that money, the customers’ money, was gone. The defendant had taken it.”
According to the government, Bankman-Fried and his associates illegally funnelled billions of dollars to another of Bankman-Fried’s enterprises, the hedge fund Alameda Research, which engaged in speculative crypto trading, from as early as FTX’s founding. This money, the prosecution says, amounted to more than ten billion dollars, and was used for investments, real-estate purchases, political donations, and corporate expenses. A Wall Street Journal investigation based on financial filings and court documents published Saturday found that Bankman-Fried and fellow-executives had spent about eight billion dollars of FTX customer deposits. Hundreds of millions were used to purchase real estate in the Bahamas and for political and charitable donations, more than a billion dollars was invested in a Kazakhstan-based cryptocurrency-mining company, and more than two billion dollars was transmitted to FTX executives in the form of personal loans that were never repaid.
Last December‚ about a month after FTX filed for bankruptcy, Bankman-Fried was arrested in the Bahamas. He was indicted in the U.S. on charges including fraud and money laundering. He has maintained his innocence and refused to plead guilty. But succeeding at trial will be a daunting task. Since his arrest, three of his close associates at FTX, including a former romantic partner, have pleaded guilty and agreed to testify against him. In his opening statement, Rehn told the jury that the evidence it could expect to review included this “inner circle” testimony, along with internal company files, financial statements that FTX shared with its lenders, and, perhaps most damning, “the defendant’s own words,” including tweets that he had attempted to delete. If Bankman-Fried is convicted on all counts, the maximum term of his sentence could exceed a hundred years.
The defense’s opening statement, delivered directly after Rehn’s, tried to paint Bankman-Fried as a well-meaning business leader who got in over his head. “Sam believed, reasonably believed, that loans that FTX made to Alameda were permitted and backed by reasonable security and collateral,” Mark Cohen, his lead lawyer, said. He sketched a portrait of Bankman-Fried as a serious young person—“someone who worked very hard to try and build things, not harm them. He was a math nerd who didn’t drink or party.” FTX’s downfall had resulted from the fact that he and his colleagues had to respond to constantly changing circumstances, often making hundreds of decisions a day. “As a result, some things got overlooked.”
Cohen tried, in a plainspoken way, to explain how Alameda’s and FTX’s finances became entangled. For a time, he said, FTX didn’t have its own bank account—presumably because crypto companies had trouble finding banks willing to work with them—and therefore had no way to accept customers’ cash deposits. So it used Alameda accounts. According to Cohen, Bankman-Fried believed that he was permitted to lend from those deposits, to Alameda or to other customers. “Due to the lack of a fully built-out risk-management function,” Cohen went on, the account containing these deposits “was not tracked and not reconciled as it should have been.” In other words, the money was misplaced rather than misspent. Every step of the way, Cohen said, Bankman-Fried made the decisions he thought best and was transparent about them. That those decisions led to a disaster didn’t necessarily imply criminal intent. (It’s unclear how FTX’s failure to build a robust risk-management arm fit into this narrative.)
Later that day, the government presented its first witness, Marc-Antoine Julliard. In his opening statement, Rehn had said that Bankman-Fried’s fraud had ensnared both “sophisticated” and “ordinary” victims; Julliard, who works as a commodities trader in London, would seem to belong to the former category. Julliard testified that he had decided to invest in cryptocurrency through FTX after learning online that venture-capital companies had invested hundreds of millions in the company, which he saw as a “vote of confidence.” At the time of the run on FTX, in November, 2022, Julliard’s account held about eighty thousand dollars’ worth of bitcoin and about twenty thousand U.S. dollars—none of which he has been able to access since.
The most devastating testimony so far began on Thursday, when Bankman-Fried’s co-founder, Gary Wang, took the stand. (Between Julliard and Wang, the government presented another witness, Adam Yedidia, a former college friend of Bankman-Fried’s who went on to become a software engineer at FTX.) Wang and Bankman-Fried became friends when they met in high school, at a summer math camp; the two went on to be roommates at M.I.T. They founded FTX together five years after Bankman-Fried graduated. When Wang walked past Bankman-Fried at the defense table on the first afternoon of his testimony, he looked straight ahead. Soon after that, he told the courtroom that Bankman-Fried had directed him to alter computer code; this allowed Alameda to borrow from FTX on a nearly unlimited basis. By the fall of 2022, he said, Alameda owed about fourteen billion dollars—all derived from customer funds—to the other company, with no way of paying it back.
Wang’s testimony paused on Friday afternoon; when it resumes on Tuesday, it will likely deliver more lurid details to the large contingent of media outlets closely following the drama. Complex white-collar criminal cases often exert enormous pressure on defendants to plead guilty, and as a result, trials are rare. Along with the extent to which the public has seized on the FTX story as a symbol of the excesses of our time, this fact has contributed to the case becoming one of the most media-saturated white-collar legal proceedings of the digital age. (Outside the courthouse, the street was lined with the usual television cameras and typical news-organization reporters; podcasters and Substack journalists are also covering the case. According to the crypto news site Decrypt, some half a dozen TV series and films about FTX’s fall are also under way.) But, more important, Bankman-Fried’s trial will also hold valuable lessons for consumers, financial regulators, and the crypto industry.
Andrew Entwistle, one of the attorneys representing FTX investors in a class-action lawsuit who also worked on litigation related to the Bernie Madoff case, thinks that the suit could be a turning point. “Everyone I dealt with and spoke to in Madoff understood that they had their own specific accounts, and those accounts held securities and other assets. Of course that wasn’t true,” Entwistle told me. “You’re getting account statements and looking at your dashboard, but none of that was real. All of that money was off somewhere else.” Entwistle knew regular people, including “policemen, firemen, and local sheriffs,” who’d bought cryptocurrencies. “We’re in a new world where everybody’s an investor. There are very few brokerages that you can’t put on your phone,” he said. “It’s important when cases like this come up that it be a wake-up call—that, as a small investor, you’re always at a dramatic information deficit. And hopefully to regulators, to say, Hey, we should be making sure that there’s integrity in our financial institutions and in the markets.”
There are also lessons for the industry that made Bankman-Fried famous. Crypto has long struggled with its reputation, many seeing it mainly as a haven for money launderers and organized criminals. While Bankman-Fried was running FTX, it often seemed that one of his central goals was to legitimize it. In the wake of his prosecution, whatever credibility that he managed to build has been destroyed. “I think there’s a silver lining for the industry. This is a moment to really distance the industry from this reputation of shadiness that has clouded this industry from its inception,” Yesha Yadav, a law professor at Vanderbilt University, told me. “This is an opportunity to exorcise the ghost of FTX, and move forward in a very pro-customer, pro-regulation, highly transparent way. This is a moment when that can happen.” ♦
