- The trial of Sam Bankman-Fried is underway in New York as prosecutors try to prove that the crypto entrepreneur misused billions of dollars in customer funds.
- The first witness was a cocoa bean trader who said he lost $100,000 on FTX.
- A conviction could send Bankman-Fried to prison for the rest of his life.
Sam Bankman-Fried’s trial will take place on October 4, 2023 in federal court in New York.
Artist: Claudia Johnson
Marc-Antoine Julliard typically trades in cocoa beans. But in the spring of 2021, the London-based commodities broker decided to diversify into cryptocurrency trading. His preferred platform was FTX.
Two years later, Julliard appeared as the prosecution’s first witness in the fraud trial of FTX founder Sam Bankman-Fried, who is accused of misusing billions of dollars in customer funds.
In a deposition that lasted about 50 minutes on Wednesday, Julliard recounted his experience with FTX, including the “extremely anxious” feeling he had the day he unsuccessfully tried to withdraw some of the cryptocurrency and cash Withdraw $100,000 he had saved to the site. He and thousands of other FTX customers were virtually wiped out when the exchange went bust late last year.
Like many others, Julliard said he felt there were “strong financials behind the company.”
Julliard is the poster child for the case that prosecutors laid out in their opening arguments, as it seeks to prove to a jury that customers were misled into believing that the money they had stored on FTX was safe. Potential customers, Julliard said, were attracted by clever marketing without there being any reason to believe FTX would repurpose their crypto funds.
In a six-week trial, Bankman-Fried, a man once revered as the “white knight” of cryptocurrencies, faces seven federal charges, including wire fraud, securities fraud and money laundering, that could send him to prison for the rest of his life.
A jury convened shortly after 11:30 a.m. (although four of the twelve jurors were already hoping to be dismissed). The opening statement began about an hour later. Julliard took the stand in front of a packed Manhattan courthouse shortly before 2 p.m.
As a key witness, Julliard helped present the government’s narrative. Much of his decision to buy into FTX had to do with the celebrities and venture capital funds associated with the brand. He pointed to an ad featuring supermodel Gisele Bündchen and Formula 1 marketing. He also pointed to the extensive media coverage that increased his confidence in the company.
Julliard was not an aggressive crypto trader. He said he never participated in margin trading or borrowed money to make purchases, nor did he participate in a lending program offered by the company that allowed users to earn interest on unused cryptocurrencies.
Sam Bankman-Fried sits with his defense team in this court sketch during his fraud trial over the collapse of FTX, the bankrupt cryptocurrency exchange, in federal court in New York City, U.S., on October 4, 2023.
Jane Rosenberg | Portal
The defense is trying to hold customers accountable for their alleged decisions to buy and trade cryptocurrencies.
“Sam didn’t defraud anyone,” Mark Cohen, Bankman-Fried’s attorney, said in his opening statement. Cohen called it a case filed “after the fact” by the government and said just because people lost money doesn’t mean Bankman-Fried, 31, committed fraud.
Bankman-Fried wore a crisp suit with a purple tie and a clean haircut – a very different look from the beach shorts, sandals and wild curls that defined his image in the heyday of cryptocurrency. The entrepreneur, whom Cohen described as a “math nerd who didn’t drink or party,” diligently took notes on his air-gapped laptop while chatting with his two lawyers, sometimes standing during breaks he waved his hands emphatically as he spoke to his lawyer.
During opening statements from both sides, Bankman-Fried kept his eyes on the jury box. His head was turned 90 degrees to the right, watching those who will ultimately decide his fate. Bankman-Fried was accompanied in court by his parents, both of whom are being sued by FTX’s new management for allegedly “exploiting their access and influence within the FTX company to enrich themselves… by millions of dollars.”
Cohen portrays Bankman-Fried as a startup founder and compared running FTX and Alameda Research, its sister hedge fund, to “building a plane and flying on it at the same time.” He told the jury that risk management was not in place. Specifically, he said the company does not have a chief risk officer.
Far from the “caricature of a villain” presented by the government, Cohen offered varying explanations for his client’s allegedly illegal actions. One example involved the secret backdoor built into FTX’s code, which prosecutors say gave Alameda the ability to borrow much-needed capital.
Cohen said there was nothing secretive about this back channel in the codebase and said the special access to FTX was there because Alameda was originally founded as a market maker for the crypto exchange, which needed liquidity, especially in its early days.
Cohen reminded the jury that the three insiders who will speak out against Bankman-Fried have all signed cooperation agreements with the government.
The prosecution’s opening statement was delivered by Assistant U.S. Attorney Thane Rehn. Over the course of about half an hour, Rehn made it clear that ordinary investors were the ones who fell victim to the FTX scheme. As of summer 2022, more than $10 billion had been stolen from thousands of FTX customers who had entrusted the platform with the custody of their cryptocurrencies and cash, he said.
Rehn said the evidence will show jurors how Bankman-Fried lied to FTX users, investors and lenders and how he spent much of the stolen money for his own good. Rehn, for example, pointed to campaign donations as one way Bankman-Fried tried to ingratiate himself on Capitol Hill.
Rehn called Alameda a “second, smaller and more secret company” founded and controlled by Bankman-Fried and an integral part of the defendant’s alleged scheme.
The government also called out its key witness, ex-girlfriend and ex-CEO of Alameda, Caroline Ellison. She pleaded guilty to multiple charges in December and has been cooperating with the U.S. Attorney’s Office in Manhattan for months.
Rehn wants to show that Bankman-Fried put his girlfriend at the head of his hedge fund, even though he continues to call the shots behind the scenes.
Allan Joseph Bankman, father of FTX co-founder Sam Bankman-Fried, and Barbara Fried, mother of FTX co-founder Sam Bankman-Fried, arrive in court in New York, USA, on Wednesday, October 4, 2023.
Stephanie Keith | Bloomberg | Getty Images
Conspicuously absent was any mention of Ellison’s co-CEO Sam Trabucco, a classmate of Bankman-Fried’s at MIT. Trabucco left FTX in August 2022 and remained relatively under the radar.
Also central to the government’s case is the alleged cover-up to conceal Bankman-Fried’s crimes. These tactics include backdating contracts and using encrypted messaging apps set to auto-delete to avoid a paper trail.
“This man stole billions of dollars from thousands of people,” Rein said as he concluded his statement.
The prosecution’s second witness was Adam Yedidia, who met Bankman-Fried in college at the Massachusetts Institute of Technology. The couple remained good friends.
Yedida described his experiences, initially as a trader at Alameda for two months in 2017 and as a software developer for FTX from January 2021. He said he resigned from FTX the day before the exchange went bankrupt after a fellow developer told him that Alameda had used FTX customer deposits to repay creditors.
Yedida quickly and deliberately testified with practiced nonchalance that he had not spoken to Bankman-Fried or seen him in person since November 2022.
When asked why an immunity order was placed against him, Yedida said he was concerned that as an FTX developer, he “may have inadvertently written code that contributed to a crime.”
Prosecutors had half an hour to testify before heading out for the day. The government will continue its questioning of Yedida at 9:30 a.m. Thursday.
FTX co-founder Gary Wang will also comment on behalf of the government this week.
REGARD: The criminal trial against Sam Bankman-Fried begins in New York