Sam Bankman-Fried Faces Trial for FTX: Dueling Explanations

Sam Bankman-Fried embezzled money from depositors in his FTX cryptocurrency exchange

According to U.S. prosecutors, Sam Bankman-Fried is accused of embezzling funds from depositors in his cryptocurrency exchange, FTX, since its launch in 2019, which allegedly led to its collapse as cryptocurrency prices declined in the past year. However, Bankman-Fried and his legal team argue that he believed FTX could invest customer funds as long as withdrawals were possible, and he claims to be unaware of actions by his colleagues that put the funds at risk.

Over six weeks, a federal jury in Manhattan will assess these conflicting accounts during Bankman-Fried's trial on seven counts of fraud and conspiracy. The former billionaire, who initially made a name for himself In the cryptocurrency sector during the meteoric rise of digital assets, has pleaded not guilty. A conviction would mark a significant downfall for him, as he was once seen as a responsible figure in the industry.

Bankman-Fried's association with FTX was notable, including branding deals and endorsements by star athletes and actors. Despite surviving a crypto market downturn in 2022, FTX faced a crisis when customer withdrawals surged after a disclosure of its exposure to its own token, FTT.

Prosecutors allege that Bankman-Fried embezzled billions from FTX to cover losses at Alameda, acquire luxury real estate, and support political campaigns advocating crypto-friendly legislation. Bankman-Fried admits to poor risk management but denies theft, stating that he made a mistake in managing funds.

His defense seeks to demonstrate that he acted in "good faith" and believed he was following FTX's terms of service and the law. Prosecutors must prove intent to commit a crime to secure a conviction.

To build their case, prosecutors plan to call three former associates of Bankman-Fried who have pleaded guilty and agreed to cooperate with the government. These individuals claim Bankman-Fried directed code changes at FTX to enable Alameda to borrow substantial sums, and they were aware of large loans from FTX to Alameda without customer consent.

Bankman-Fried has been preparing for his trial from jail since his bail was revoked for allegedly trying to intimidate a former colleague.

Ex-colleagues to testify

To prove their case, prosecutors have said they plan to call three former members of Bankman-Fried's inner circle: former Alameda chief executive Caroline Ellison, former FTX technology chief Gary Wang, and former engineering chief Nishad Singh, who once shared a $30 million Bahamas penthouse with their onetime boss.

All three have pleaded guilty and agreed to cooperate with the government. Prosecutors say Bankman-Fried directed Wang to change FTX's computer code to allow Alameda to borrow unlimited sums of money, a privilege other exchange users lacked. Singh, in pleading guilty, said he was aware by June 2022 that Alameda had borrowed billions from FTX without customers' consent.

Ellison, Bankman-Fried's former romantic partner, said in her plea hearing that she and Bankman-Fried agreed to hide the fact Alameda had lent billions of dollars to FTX executives for their personal use from the fund's own lenders.

Bankman-Fried has been preparing for trial from behind bars since mid-August, when U.S. District Judge Lewis Kaplan revoked his $250 million bail after finding he likely tried to intimidate Ellison by sharing her personal writings, in which she described struggling with her job at Alameda, with a New York Times reporter.