‘Lied to the World’ or Acted in ‘Good Religion’: Sam Bankman-Fried’s Trial Opens

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Federal prosecutors on Wednesday opened the felony trial of Sam Bankman-Fried, the founding father of the failed cryptocurrency change FTX, with a easy message: He intentionally “lied to the world,” resulting in one of many largest monetary frauds of a technology.

Mr. Bankman-Fried’s lawyer superior a far completely different narrative. The previous crypto mogul, the lawyer stated, was merely a well-intentioned entrepreneur who acted “in good religion” to make his agency profitable, with no intention to defraud anybody.

The dueling arguments are on the crux of Mr. Bankman-Fried’s trial, which has develop into the highest-profile reckoning for a enterprise government because the Theranos founder Elizabeth Holmes was convicted of fraud early final 12 months.

A onetime crypto wunderkind, Mr. Bankman-Fried, 31, turned a tousle-haired billionaire in a single day, solely to see his firm collapse final 12 months and his fortune evaporate. He has been charged with orchestrating a conspiracy to make use of $10 billion that FTX’s clients had entrusted to him for all method of private initiatives, together with enterprise capital investments, political donations and luxurious actual property purchases.

“It regarded like Sam Bankman-Fried was on prime of the world,” Thane Rehn, a lead prosecutor, instructed a packed courtroom on the federal courthouse in Manhattan on Wednesday. “All of it was constructed on lies.”

Mr. Bankman-Fried’s lawyer, Mark Cohen, quickly hit again. “It’s not against the law to run a enterprise in good religion that finally ends up going by way of a storm,” he stated. He known as the prosecution’s portrayal of his shopper a “cartoon of a villain” that distorted the information.

Mr. Bankman-Fried, who has spent the final seven weeks in jail, appeared in court docket with close-cropped hair that had been reduce by a fellow detainee. He wore a go well with and tie and watched the proceedings flanked by his different attorneys, whereas his dad and mom, the Stanford regulation professors Joseph Bankman and Barbara Fried, sat a couple of rows behind him.

His trial has develop into a carefully watched referendum not solely on the autumn of FTX however on reckless habits throughout the cryptocurrency trade. A frenzy over digital cash like Bitcoin and Ether swept up thousands and thousands of on a regular basis traders earlier than the market imploded final 12 months, wiping away individuals’s financial savings and sending a procession of start-ups out of business.

When FTX collapsed in November, Mr. Bankman-Fried turned an emblem of the trade’s excesses. On the top of its energy and affect, FTX was valued at $32 billion and Mr. Bankman-Fried was extensively hailed as a pacesetter able to bringing obscure crypto expertise into the mainstream of worldwide finance. He jetted forwards and backwards from FTX’s base within the Bahamas to conferences in Los Angeles and Washington, the place he rubbed shoulders with celebrities and politicians, and had his {photograph} plastered on billboards and journal covers.

Now FTX is bankrupt and the crypto markets have cratered, resulting in dozens of lawsuits and tens of billions of {dollars} in losses which have devastated the funds of particular person traders all over the world.

Mr. Bankman-Fried, who in personal writings has known as himself “some of the hated individuals on this planet,” has pleaded not responsible to seven counts of fraud and cash laundering. If convicted, he may face what quantities to a life sentence in jail.

The FTX founder faces an uphill battle within the trial. Three of his closest pals have pleaded responsible to fraud and agreed to cooperate in opposition to him — together with his on-and-off girlfriend, Caroline Ellison, who ran Alameda Analysis, a hedge fund that Mr. Bankman-Fried began.

Prosecutors and protection attorneys stated in court docket that that they had not held any negotiations over a plea settlement, and that no deal had ever been supplied to Mr. Bankman-Fried.

On Wednesday, Mr. Rehn accused Mr. Bankman-Fried of “fraud on a large scale,” casting him as a schemer who was “not what he seemed to be.” He stated Mr. Bankman-Fried had moved funds that clients deposited with FTX to Alameda, which then funneled the cash into investments and donations.

Mr. Rehn repeatedly invoked the cooperating witnesses, stressing that individuals who say they participated with Mr. Bankman-Fried within the scheme would testify in opposition to him. He additionally pointed to Mr. Bankman-Fried’s posts on X, the social media service previously generally known as Twitter, and commercials used to advertise FTX, calling them lies supposed to deceive clients.

“He was taking these buyer deposits, and spending them for himself,” Mr. Rehn stated. “The defendant was preserving his clients at the hours of darkness.”

Prosecutors have marshaled thousands and thousands of pages of digital proof, together with textual content and e-mail logs, in addition to snippets of pc code that confirmed how FTX moved buyer cash to Alameda. They’ve an audio recording from the week of FTX’s collapse during which Ms. Ellison seems to confess that she and Mr. Bankman-Fried labored collectively to steal buyer deposits. And so they have received a sequence of pretrial disputes, permitting them to current proof that Mr. Bankman-Fried has contested and forestall his authorized group from mounting sure defenses.

Mr. Cohen, Mr. Bankman-Fried’s lawyer, pushed again in opposition to the general public narrative that his shopper was a con artist intent on stealing buyer cash.

“Sam didn’t defraud anybody,” he stated. “Sam acted in good religion.”

Casting his shopper as “a math nerd who didn’t drink or celebration,” Mr. Cohen walked the jurors by way of FTX’s historical past, arguing that Mr. Bankman-Fried had acted in his clients’ pursuits, even when he didn’t at all times make the fitting choices.

“Nobody particular person, no C.E.O., definitely not Sam, could possibly be in all places and doing the whole lot,” he stated.

Mr. Cohen additionally attacked the credibility of Ms. Ellison and the opposite cooperating witnesses, stating that they have been making an attempt to keep away from lengthy jail sentences. He stated that Mr. Bankman-Fried had urged Ms. Ellison to place hedges on Alameda’s buying and selling exercise, however that she had ignored him, resulting in among the issues that prompted the enterprise empire to implode.

“It’s essential to think about what Sam did and stated in actual time,” he stated. “He made enterprise choices that he thought have been proper when he made them.”

The opening statements started shortly after the decide overseeing the case, Lewis A. Kaplan, swore in a jury of 9 ladies and three males. Throughout the choice course of, one potential juror stated he and his twin brother had misplaced cash within the crypto market, whereas one other stated she labored for a monetary agency that had misplaced funds with FTX and Alameda. Each have been excused.

A 3rd candidate repeatedly stated he didn’t know if he could possibly be neutral as a result of he didn’t perceive how cryptocurrencies labored.

“You in all probability have a variety of firm on this courtroom,” Decide Kaplan responded.

The potential juror, who was excused, stated the entire idea of crypto rubbed him the flawed manner, reminding him of the Ponzi scheme carried out by the disgraced financier Bernard Madoff.