Jury selection has commenced in the highly anticipated trial of Sam Bankman-Fried, the founder of the now-bankrupt cryptocurrency exchange FTX, who is facing charges of fraud and conspiracy. The trial comes nearly a year after FTX's collapse, which sent shockwaves throughout the digital asset industry. Bankman-Fried, who has been in detention since August, is accused of embezzling funds from FTX for the benefit of his hedge fund, Alameda Research, as well as for personal use, such as purchasing luxury properties and making significant political donations totaling over $100 million.
The prosecution alleges that Bankman-Fried carried out this embezzlement scheme from the inception of FTX in 2019 until its bankruptcy in 2022. The trial, expected to last up to six weeks, will see Bankman-Fried facing seven counts of fraud and conspiracy. Both prosecutors and defense lawyers have confirmed that there were no discussions of a plea deal.
Three individuals who were part of Bankman-Fried's inner circle are cooperating with the Manhattan U.S. Attorney's Office and are set to testify against him. They have already pleaded guilty to fraud charges themselves. The defense plans to challenge the credibility of these witnesses, asserting that they are cooperating solely to secure lesser sentences.
The defense's arguments will largely focus on the notion that FTX's failure to meet customer withdrawal requests was a result of poor business decisions rather than intentional fraud. Bankman-Fried's legal team aims to discredit the witnesses and assert that their testimony lacks credibility.
Bankman-Fried, 31, was indicted in December of last year, and his trial represents the highest-profile case brought by U.S. prosecutors against a former cryptocurrency manager.
The case against Bankman-Fried revolves around allegations of orchestrating a vast scheme to divert billions of dollars of FTX customer funds for political contributions, real estate purchases, charitable donations, and venture investments. The scheme was exposed in November when FTX faced a run on deposits, leading to the suspension of withdrawals and the discovery of over $8 billion in missing customer funds. Bankman-Fried was subsequently charged with eight counts, including wire fraud, securities fraud, commodities fraud, money laundering, and campaign finance violations. The campaign finance charge has since been dropped, leaving him facing seven counts. Additional charges, such as bank fraud and bribery of a foreign government, have been deferred to a potential second trial scheduled for March.
Bankman-Fried's alleged scheme involved leveraging two core businesses, FTX and Alameda Research. FTX operated as a digital currency marketplace, where customers could deposit dollars and use them to purchase various cryptocurrencies, effectively storing their savings on the platform. In some jurisdictions, customers could also borrow funds from FTX to engage in speculative trading, a practice banned in the United States. Alameda Research, ostensibly an FTX customer, borrowed substantial amounts from FTX and redirected those funds into other projects. Prosecutors claim that Alameda used customer funds to provide loans to FTX executives, who then utilized the money for political donations.
Bankman-Fried's defense strategy remains somewhat unclear. However, following FTX's bankruptcy, he attributed the disappearance of user funds to an accounting error of which he claimed to have been unaware. He also placed blame on his Alameda colleagues for inadequate risk management protocols. Legal filings indicate that Bankman-Fried's lawyers intend to argue that his actions were authorized by two prominent law firms closely associated with FTX.
Legal experts anticipate an arduous battle for Bankman-Fried in court. His three closest colleagues, including Alameda's CEO and two FTX co-founders, have all pleaded guilty to fraud charges and will testify against him. Judge Lewis A. Kaplan, overseeing the case, has consistently ruled in favor of the prosecution during pre-trial procedural disputes, rejecting the defense's proposed expert witnesses. Additionally, Bankman-Fried has had to prepare his defense from a jail cell after Judge Kaplan revoked his bail due to alleged witness tampering.
The trial is expected to last six weeks, as indicated by court filings. It will undoubtedly shed light on one of the most high-profile cases involving a former cryptocurrency manager and has captured global attention due to its implications for the digital asset industry.
