Crypto goes on trial as FTX founder Sam Bankman-Fried faces reckoning

NEW YORK – A year ago, Sam Bankman-Fried was a fixture on magazine covers and in the halls of the United States Congress, a tousle-haired crypto billionaire who hobnobbed with movie stars and bankrolled political campaigns.

On Tuesday, the founder of the failed FTX crypto exchange is set to stand trial in a US courtroom on charges of multibillion-dollar fraud and money laundering, capping one of the largest and swiftest corporate collapses in decades.

The charges against Bankman-Fried, 31, have put the rest of the crypto industry on trial with him. He has emerged as a symbol of the unrestrained hubris and shady deal-making that turned cryptocurrencies into a multitrillion-dollar industry during the pandemic. The demise of FTX in November helped burst that bubble, sending other high-profile companies into bankruptcy and provoking a government crackdown.

The trial will offer a window into the Wild West-style financial engineering that fuelled crypto’s growth and lured millions of inexperienced investors, many of whom lost their savings when the market crashed. Lawyers on both sides of the case are expected to lay bare the culture of scams and risk-taking that surrounded FTX and to dissect the often-misleading publicity campaigns that helped drive years of crypto hype.

“It’s a fraud that was enabled and supercharged by crypto, and by crypto’s unique aspects,” said Mr Lee Reiners, a crypto expert who teaches at Duke Law School. “It wouldn’t have been possible in any other context.”

Jury selection begins on Tuesday in US District Court, with the trial expected to last six weeks. Camera crews and reporters are expected to swarm the courthouse, and author Michael Lewis has a widely anticipated book about the case coming out that day, featuring behind-the-scenes details of Bankman-Fried’s rise and fall.

Bankman-Fried, who faces seven criminal counts, is accused of orchestrating a years-long fraud that siphoned billions of dollars from customers to finance political contributions, venture capital investments and luxury real estate purchases. He has pleaded not guilty. If convicted, he could receive what would amount to a life sentence.

He faces an uphill battle. Three of his closest advisers have pleaded guilty and agreed to testify against him. Prosecutors have accumulated millions of pages of digital evidence, including text transcripts, financial records and e-mails, and they plan to introduce about 1,300 exhibits at the trial. Judge Lewis Kaplan, who is presiding over the case, has repeatedly sided with the prosecution in procedural disputes, rejecting expert witnesses the defence had hoped to call and allowing the government to use evidence that Bankman-Fried had contested.

For the past 1½ months, Bankman-Fried has also had to prepare his case from a jail cell in Brooklyn, after Judge Kaplan revoked his bail, ruling that he had tried to interfere with witnesses.

Also looming over the trial is the question of whether Bankman-Fried, who is unusually garrulous for a criminal defendant, will testify – a high-risk move that defence lawyers tend to discourage.

“It will surely be painful for him to remain quiet if he believes or convinces himself that the government is mischaracterising his transactions and his closest associates are making up stories about him,” said Columbia University law professor Daniel Richman, a former federal prosecutor. The downside is that “he might not respond well to forceful cross-examination”.

Known for his signature outfit of T-shirts and shorts, Bankman-Fried rose to prominence as a rare good guy in the loosely regulated world of crypto. He founded FTX in 2019 and raised US$2 billion (S$2.7 billion) in venture funding, promising to work with regulators to write new rules for the industry. He was also a prolific political donor, contributing more than US$5 million to support Mr Joe Biden’s 2020 presidential run.

Then, over four frantic days in November, FTX and its sister hedge fund, Alameda Research, imploded, with customers unable to withdraw more than US$8 billion in deposits. The companies filed for bankruptcy, and Bankman-Fried was charged with counts including securities fraud, wire fraud and money laundering.

Many of his closest allies have turned on him. Caroline Ellison, Alameda’s chief executive and Bankman-Fried’s on-and-off girlfriend, pleaded guilty and agreed to cooperate with the prosecution. She was joined by two co-founders of FTX, Gary Wang and Nishad Singh, who admitted to conspiring with Bankman-Fried to defraud customers. A fourth high-level executive, Ryan Salame, also pleaded guilty, without agreeing to cooperate. NYTIMES