A year ago, Sam Bankman-Fried was still the shooting star of the crypto scene. Now he is on trial. The test highlights the entire cryptocurrency business.
Almost a year after the spectacular collapse of cryptocurrency exchange FTX, the trial against its co-founder Sam Bankman-Fried has begun. US investigators accuse the 31-year-old of, among other things, fraud. According to the indictment, he embezzled client funds without their knowledge and became personally rich. Bankman-Fried denies the allegations.
The New York trial has begun with jury selection, a court spokesperson confirmed. The trial is scheduled to last about six weeks. In an unusual move, Bankman-Fried himself is expected to testify. There are seven charges in total, ranging from fraud to money laundering conspiracy. If he is convicted, Bankman-Fried could face – at least theoretically – more than 100 years in prison.
Secretly diverted funds missing
FTX was one of the largest trading platforms for cryptocurrencies like Bitcoin. At the same time, FTX issued its own cryptocurrency called FTT. After questions arose about the cryptocurrency exchange’s financial situation last fall, customers began withdrawing their balances.
But there wasn’t enough money. A financial hole became apparent at FTX: in the end, it was about $8.7 billion short. The reason, according to prosecutors’ allegations: Clients’ money was secretly diverted to the Alameda Research hedge fund – and also used to finance Bankman-Fried’s expensive lifestyle. The FTX top shared a luxury penthouse in the Bahamas. Advertising campaigns featuring celebrities like football star Tom Brady also cost a lot of money. Bankman-Fried was also a generous donor to President Joe Biden’s U.S. Democrats.
Several former teammates have agreed to cooperate with investigators and are likely to incriminate Bankman-Fried. Following his arrest in the Bahamas and his extradition to the US, he was initially placed under house arrest at his parents’ home at Stanford University in California. But in August the judge sent him to prison.
Steep climb, deep fall
After the arrest, Bankman-Fried initially spoke about an accounting error. According to investigators, software mechanisms that would normally prevent funds from leaving were disabled. Alameda Research was able to obtain any amount of money from FTX without anything in return. An open question is whether prosecutors can directly link the defendant to this.
Bankman-Fried founded Alameda Research before FTX to profit from price differences in crypto trading between Asia and the US. In the end, the deals did not go well and, according to the indictment, the financial holes had to be filled with funds from FTX.
Bankman-Fried had already incorporated the rise of cryptocurrencies into a supposedly serious investment like no other. The young entrepreneur became a crypto star who was able to clearly explain the complicated world of digital currencies to the media, politicians and the public. In less than three years, the company reached a valuation of $32 billion and held billions in assets on behalf of its clients. Bankman-Fried’s fortune was now estimated at $26 billion.