New York CNN –
Eleven months ago, Sam Bankman-Fried was a crypto superstar living in the Bahamas, running a celebrity-backed startup, surrounded by fans and friends who believed he was the one: an MIT math whiz. A visionary who left Wall Street behind to chart his own course. A philanthropist who amassed a fortune that, as he repeatedly said, he intended to give away entirely.
This week he goes on trial for what federal prosecutors are calling one of the largest fraud schemes in U.S. history.
Bankman-Fried, 31, known as SBF, has pleaded not guilty to seven counts of fraud and conspiracy in connection with the collapse of FTX, his crypto trading platform. If convicted and given the maximum sentence, he could spend the rest of his life in prison.
Here are the key things you should know about the case and what we could see at trial in the next few weeks.
SBF faces seven counts, including wire fraud and securities fraud.
Prosecutors alleged that SBF stole billions of dollars from FTX client funds for his personal use and to cover huge losses from Alameda Research, a crypto hedge fund he also controlled.
They also say that SBF defrauded FTX investors by covering up the scheme.
Prosecutors in June decided to withdraw five additional charges that had been filed after Bankman-Fried was extradited from the Bahamas, where FTX was based. A separate trial on these allegations is scheduled to begin in March.
FTX markets itself as a simple and secure portal for trading cryptocurrencies. It made money by collecting fees on customers’ trades, similar to a typical brokerage firm.
As digital asset valuations skyrocketed in 2021, so did FTX’s profile. At its peak, the company reached a private valuation of more than $30 billion. It spread its name around a basketball arena in Miami and gained celebrity endorsements from Tom Brady and Larry David, both of whom appeared in Super Bowl commercials for FTX.
But in the spring of 2022, there was turmoil in the crypto market, causing the value of the entire industry to shrink from $3 trillion to $1 trillion.
Amr Alfiky/Portal
FTX founder Sam Bankman-Fried was a crypto star until November last year when his business empire collapsed.
In November, cracks began to appear in FTX’s foundation, and it took just over a week for everything to collapse.
Investors and customers panicked in response to a report from crypto news site Coindesk that raised serious questions about the financial ties between FTX and Alameda, two supposedly separate companies founded by Bankman-Fried. Based on a document obtained by Coindesk, it appeared that a majority of Alameda’s assets consisted of FTT, a digital token created by FTX, which was rapidly losing value, leaving Alameda on shaky financial ground.
Customers rushed to withdraw their funds from FTX, exposing an $8 billion deficit.
FTX filed for bankruptcy on November 11 and Bankman-Fried resigned as CEO.
He was arrested in the Bahamas in December on charges including fraud and conspiracy and extradited to the United States in January.
Since his arrest, SBF has repeatedly spoken about his view of the case, writing that he was an inexperienced businessman who went overboard and that he never knowingly committed fraud.
His lawyers have indicated in court documents that they will rely on “attorney advice.” In other words, SBF did not know that its actions were illegal and was following the instructions of FTX’s lawyers.
In Bankman-Fried’s personal writings, published by The New York Times, he blamed Alameda’s losses on Alameda CEO Caroline Ellison, who is also his ex-girlfriend.
Ellison, along with three other former high-ranking employees, pleaded guilty in cooperation with prosecutors.
“SBF’s biggest challenge will be having his former colleagues testify against him,” said Howard Fischer, a partner at Moses Singer and a former senior litigator at the Securities and Exchange Commission. Additionally, FTX’s new management, led by a restructuring expert who oversaw the liquidation of Enron, expressed open hostility toward Bankman-Fried.
“Such cooperation is a stroke of luck for the prosecution,” said Fischer.
Another problem, according to Fischer, is that SBF has “consistently shown no awareness of how serious its situation is” in its lengthy blog posts, tweet threads, TV media appearances and alleged document leaks.
“Juries tend to dislike know-it-alls who lack respect for the process…While a defendant in a case like this may be well advised not to take the stand, it is possible that SBF’s seemingly unwavering confidence will tempt him to take the stand “to relate to this risk.”
Jury selection begins Tuesday, October 3, in federal court in Manhattan. The process is expected to take up to six weeks.
During that time, SBF will remain at the Metropolitan Detention Center in Brooklyn, where he has been held since Judge Lewis Kaplan revoked his bail on August 11 because of SBF’s efforts to intimidate witnesses.
If he is found guilty of all seven crimes and receives the maximum sentence, SBF could face 110 years in prison.