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How Sam Bankman-Fried’s 2023 collapse tested the crypto world
Exactly one year ago today, authorities arrested FTX founder Sam Bankman-Fried, alleging the billionaire defrauded customers, investors and lenders. His criminal trial became one of Yahoo Finance’s biggest stories of 2023.
The faceoff was important because of what Bankman-Fried represented. The 31-year-old entrepreneur has been a major beneficiary of the crypto world’s meteoric rise in 2021 and fall in 2022, as digital assets collapsed and the $32 billion empire FTX dollars imploded.
It then became the most prominent target of a widespread government crackdown on crypto’s biggest players that will likely remake the industry in the years to come. Several of his rivals, including Changpeng Zhao, CEO of Binancewere also obstructed by law enforcement this year.
Former FTX chief Sam Bankman-Fried pictured last July before his trial began. (ANGELA WEISS/AFP via Getty Images) (ANGELA WEISS via Getty Images)
What created so many legal problems for Bankman-Fried was a $9 billion deficit that his crypto trading platform FTX couldn’t repay as it collapsed and filed for bankruptcy in November 2022.
What the Justice Department ultimately alleged — and attempted to prove at trial — was that the deficit existed because Bankman-Fried deliberately stole up to $14 billion in FTX customer deposits.
Bankman-Fried redirected that money, prosecutors said, to a cryptocurrency trading company he founded before starting FTX, called Alameda Research. The funds, they claim, were spent on risky Alameda investments, multimillion-dollar real estate holdings and political donations.
“He spent his clients’ money and he lied to them about it,” prosecutor Nicolas Roos said during the trial.
Sam Bankman-Fried sits during his fraud trial in this courtroom sketch. (Jane Rosenberg/REUTERS) (JANE ROSENBERG/Reuters)
Bankman-Fried carried out the scheme, prosecutors said, with three of its top executives: Caroline Ellison, CEO of Alameda, Gary Wang, co-founder of FTX, and Nishad Singh, director of engineering of FTX . The group allowed Alameda to access FTX client deposits through a “secret” backdoor.
The most damning evidence came from those former executives who had also been friends of Bankman-Fried, all of whom accepted plea deals with the government and agreed to testify against him.
Their days on the stand were among the most emotional moments of the trial.
Ellison, one of Bankman-Fried’s top deputies and her former romantic partner, said that Bankman-Fried “directed“she stole billions from her cryptocurrency exchange’s customers and lied over and over again at her request.
At one point, she broke down in tears, calling FTX’s final week “the worst week of my life.”
But the most dramatic part of the trial came at the end, when Bankman-Fried took the risky gamble of taking the stand in his own defense.
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He testified that poor business decisions and management errors – not fraud – were to blame for the loss of his cryptocurrency exchange.
“Have you defrauded anyone?” Bankman-Fried’s attorney, Mark Cohen, asked her.
“No, I didn’t,” Bankman-Fried replied.
This did not convince the jury, which found him guilty of all seven criminal charges after just four hours of deliberation.
FTX founder Sam Bankman-Fried appears as the jury foreman reads the verdict in his fraud trial, in this courtroom sketch. (Jane Rosenberg/REUTERS) (JANE ROSENBERG/Reuters)
David Mills, a prominent criminal lawyer who volunteered to oversee the defense case, said in an interview with Bloomberg that Bankman-Fried failed to follow his advice on the witness stand.
“He might be right at the top of the list as the worst person I’ve ever seen cross-examine,” Mills reportedly told Bloomberg.
After the jury’s verdict was read in court, Bankman-Fried returned to a Brooklyn detention center where he awaits sentencing set for March 28.
He faces up to 110 years in prison, plus fines and restitution.
Although Bankman-Fried is expected to appeal his case, he faces even more potential legal risks in the coming year.
He is expected to face a series of separate criminal charges from the Justice Department, alleging he committed bank fraud and bribed Chinese officials. These charges are expected to go to trial in March.
The Alameda and FTX executives who testified against Bankman-Fried in exchange for plea deals are expected to be sentenced in 2024.
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