Trial of Crypto Tycoon Sam Bankman-Fried Kicks Off

Former FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt FTX cryptocurrency exchange, departs from a federal court hearing in New York on Jan. 3, 2023. (David Dee Delgado/Reuters)

Jury selection began on Oct. 3 in lower Manhattan in the trial of currency tycoon Sam Bankman-Fried, who was extradited nearly a year ago from his lavish seaside condo in the Bahamas to the United States to stand trial for financial fraud.

Mr. Bankman-Fried, 31, faces seven counts, including money laundering, wire fraud, and securities fraud.

Prosecutors say it’s among the biggest cases of securities fraud in U.S. history.

Cryptocurrency exchange FTX collapsed from a valuation of $30 billion at its peak to bankruptcy virtually overnight.

He’s expected to defend himself by arguing that the collapse of his companies and the loss of $8.9 billion in customer funds were due to mismanagement rather than fraud.

U.S. District Judge Lewis Kaplan started the process on Oct. 3 of questioning 50 prospective jurors to seat a 12-member panel that would be acceptable to the prosecution and the defense. The trial is expected to take up to six weeks.

Related Stories

Lessons of FTX and the SBF Trial

10/2/2023

FTX’s Bankman-Fried Appeals Jailing as Trial Nears

8/29/2023

“The object is to select a jury of individuals who no matter what they may know or not know about these parties or about this case are willing and able to decide this case in a manner that’s fair and impartial to both sides based solely on the evidence,” Judge Kaplan said.

The Fall of FTX

The FTX cryptocurrency exchange was established as a reliable portal to allow retail and wholesale trading in various cryptocurrencies, earning profits from trading fees.

At a time of zero interest rates, many investors sought a haven and higher returns in cryptocurrencies, versus fiat currencies such as the U.S. dollar that were losing their value to inflation.

Cryptocurrencies, including, most prominently, bitcoin, saw a sharp rise in their value leading up to FTX’s collapse. The market capitalization of bitcoin alone is currently more than $500 billion.

FTX created its own cryptocurrency, FTT, in 2019 and expanded rapidly through internal growth and the acquisition of smaller competitors.

Mr. Bankman-Fried also established a sister company, a hedge fund called Alameda Research, which invested in cryptocurrencies on behalf of clients and for its own account.

The collapse of FTX occurred when it was discovered in November 2022 that Alameda Research was allegedly using investors’ money from FTX accounts to speculate on various investments.

This alleged commingling of funds is illegal and the basis of much of the prosecution’s case.

It was also discovered that the bulk of the assets held by Mr. Bankman-Fried’s firms were in the form of his own FTT digital currency, which he was able to create, or “mine,” at will but which ultimately proved to be worthless.

In addition to retail investors, more sophisticated venture capital groups and hedge funds, including NEA, IVP, Third Point Ventures, Tiger Global, Insight Partners, Sequoia Capital, SoftBank, Lightspeed Venture Partners, Temasek Holdings, and BlackRock, invested more than $2 billion in FTX.

Before his crypto empire collapsed, Mr. Bankman-Fried was a celebrity, hailed in the financial press as the “Michael Jordan of crypto” and the “next Warren Buffet.”

His net worth was estimated at more than $16 billion, although some estimates put it as high as $26 billion.

He was once hailed as a selfless philanthropist whose life’s mission was to generate as much wealth as possible so he could give it away to causes ranging from global warming to fighting pandemics.

FTX received high-profile endorsements from celebrities including quarterback Tom Brady and “Seinfeld” show co-creator Larry David.

Donated Heavily to Democrats

Mr. Bankman-Fried also reportedly donated $5.2 million to President Joe Biden’s election campaign in 2020, making him one of Mr. Biden’s largest donors.

He reportedly also gave more than $70 million to election campaigns and another $40 million to politicians and political action committees during the 2022 midterm elections, mostly to Democrats and liberal-leaning groups.

This made him the second-largest donor to the Democrat Party and left-leaning causes after George Soros.

Mr. Bankman-Fried’s parents were said to be well-connected within the Democratic Party.

His mother, Barbara Fried, reportedly ran a Democratic Super PAC called Mind the Gap.

The parents are being sued by FTX investors, who claim that they also profited from the company illicitly.

Mr. Bankman-Fried claimed that he also gave to Republican politicians but avoided reporting much of those donations “because reporters freak the [expletive] out if you donate to Republicans.”

He was also frequently asked to testify before Congress and consult with government officials regarding how to regulate the cryptocurrency market. He reportedly had a private meeting with SEC Chairman Gary Gensler in March 2022, before FTX’s collapse.

If convicted on all counts, he could be imprisoned for up to 115 years, but legal experts believe that he would likely receive less than the maximum penalties if found guilty.

Several of Mr. Bankman-Fried’s former colleagues have pleaded guilty to charges of securities fraud, and three of them are expected to testify against Mr. Bankman-Fried in exchange for lighter sentences or possibly avoiding jail time altogether.

They include Caroline Ellison, former CEO of Alameda Research and a reported paramour of Mr. Bankman-Fried. Ms. Ellison is expected to be a key witness for the prosecution.

FTX’s former chief technology officer, Gary Wang, has also pleaded guilty to four counts, including wire fraud, and is expected to testify for the prosecution. FTX’s former director of engineering, Nishad Singh, pleaded guilty to six counts and is expected to testify for the prosecution.

FTX executives lived a luxurious lifestyle in the Bahamas.

Mr. Bankman-Fried resided in a $40 million penthouse in a gated seaside condominium complex and marina outside of Nassau called Albany. His neighbors included celebrities such as Tiger Woods and Justin Timberlake.

In December 2022, Mr. Bankman-Fried was taken from his residence by Bahamian authorities and shortly thereafter extradited to the United States to face charges.

The Bahamas is contesting some additional charges against him that were added by U.S. authorities after the extradition agreement.

These additional charges are expected to be addressed in a separate criminal trial in March 2024.

In addition to criminal charges, Mr. Bankman-Fried also faces civil suits from investors who lost money with FTX.