Jurors hear competing explanations for FTX collapse
During the opening statements on Wednesday, October 4, federal prosecutors and Sam Bankman-Fried’s attorneys sparred over whether the former billionaire’s cryptocurrency exchange, FTX, fell due to “massive” fraud committed by its creator or poor business decisions.
Bankman-Fried, 31, has entered a not-guilty plea to allegations that he supported his hedge fund, Alameda Research, purchased opulent real estate, and contributed to US political parties and candidates using funds from FTX customers from the exchange’s 2019 founding until its bankruptcy in November 2022.
Nearly a year after the collapse of FTX shook financial markets and damaged the aspiring entrepreneur and philanthropist’s reputation as an honest actor in a crypto sector prone to scams and alleged get-rich-quick schemes, the trial began on Tuesday with jury selection.
Defense attorney Mark Cohen painted the Massachusetts Institute of Technology physics graduate as a “math nerd” who disregarded risk management when constructing FTX but did not embezzle client funds during his opening remarks on Wednesday.
Although Cohen admitted that FTX had given Alameda a loan, he stated Bankman-Fried “reasonably believed” that the loans were authorized and supported by collateral. He claimed that while the startup expanded quickly, several important facets of FTX’s operations, such as risk management, were “overlooked.”
Cohen stated, “Sam and his coworkers were building the plane as they were flying it.” “No CEO, and not Sam, could always be everywhere and do everything.”
However, prosecutor Thane Rehn claimed that Bankman-Fried had stolen over $10 billion from unsuspecting FTX clients and that he had “doubled down” after Alameda’s high-risk cryptocurrency holdings started to lose money in May and June of last year.
“It was all based on lies,” Rehn declared. “He was stealing money from FTX customers to fund his extravagant lifestyle, and he was committing massive fraud on behalf of his company, FTX.”
Meanwhile, three former Bankman-Fried’s inner circle members are expected to testify against him: former FTX executives Nishad Singh, Gary Wang, and former Alameda chief executive Caroline Ellison. All three have entered guilty pleas and consented to work with the prosecution.
In his opening remarks, Rehn stated, “They will give you an insider’s view of how the crimes occurred,” but he did not identify the witnesses.
Cohen proposed that they could portray Bankman-Fried’s sincere choices, which they supported then, as dishonest in retrospect. Additionally, he said that Ellison ignored Bankman-Fried’s advice to hedge Alameda’s cryptocurrency bets.
Cohen stated, “In the real world, cooperating means giving testimony against Sam to support the government’s case.”
By the end of the week, Wang is anticipated to testify before the jury, another prosecutor, Danielle Sassoon, stated in court.
Earlier on Wednesday, a group of people who lived in Manhattan, the Bronx, and the northern suburbs of New York City were chosen to serve as a jury consisting of 12 primary members and six alternates. The club members include a railway driver, a school librarian, and a former investment banker.
Professors Joseph Bankman and Barbara Fried of Stanford Law School, who are the parents of Bankman-Fried, were spotted on Wednesday morning travelling to the federal courtroom in Lower Manhattan. They hadn’t shown up for the first day of the trial.
Bankman-Fried, who was before recognized for his carefree appearance and messy hair, had a neat haircut and showed up in court on Tuesday and Wednesday wearing a suit and tie.
Since August 11, when US District Judge Lewis Kaplan arrested him for allegedly interfering with witnesses by disclosing Ellison’s private writings to a reporter, he has been housed at the Metropolitan Detention Center in Brooklyn. Ellison and Bankman-Fried had occasional romantic relationships.