MANHATTAN (CN) — A federal jury heard opening arguments on Wednesday in the criminal trial of the 31-year-old former billionaire who prosecutors claim looted $10 billion of dollars from customer funds for his personal spending and triggered the swift collapse of the global cryptocurrency company he founded.
Eleven months after the FTX cryptocurrency exchange filed for bankruptcy protection, amid industry rumors that billions of dollars of customer funds had been stolen, federal prosecutors commenced the criminal trial against Sam Bankman-Fried, the company’s founder and former CEO.
He faces the possibility of decades in prison if convicted on counts of wire fraud, money laundering and securities fraud conspiracy.
During opening arguments on Wednesday afternoon, Assistant U.S. Attorney Thane Rehn told jurors Bankman-Fried had committed fraud “on a massive scale” by deliberately funneling billions of dollars of customers’ deposits on the FTX digital cryptocurrency marketplace platform straight to the Alameda Research hedge fund he founded in 2017.
"This man stole billions of dollars from thousands of people," Rehn repeated several times during the government’s opening argument, once while pointing at Bankman-Fried, who was seated in a tan suit at the defense table with a laptop open in front of him.
“One year ago, it looked like Sam Bankman-Fried was on top of the world, he ran a huge company called FTX, he lived in a $30 million apartment in the Bahamas,” Rehn said on Wednesday afternoon. “He had wealth, he had power, he had influence, but all of that — all of that — was built on lies.”
Prosecutors accused Bankman-Fried of setting up the FTX cryptocurrency marketplace in a manner that gave his private hedge fund secret access to steal customers’ deposits.
According the Department of Justice’s criminal indictment unsealed in December 2022, Bankman-Fried made false statements to cover up the misappropriation of FTX customers’ funds.
“He spent other people’s money for himself and then he lied to avoid being caught,” Rehn told jurors, calling FTX a "house of cards.”
“FTX has enough to cover all client holdings. We don't invest client assets, even in treasuries,” Rehn quoted Bankman-Fried posting on Twitter in November 2022, falsely assuring in a since-deleted post that FTX customer funds were safe when the company was on the brink of collapse.
Rehn told jurors that Caroline Ellison, Bankman-Fried’s erstwhile girlfriend and former CEO of Alameda Research, will testify that “she and defendant took customer money again and again to spend it through Alameda.”
Prosecutors say the fraud was not only on FTX customers, but also on the company's investors and Alameda's lenders.
In response to prosecutors’ accusations, Bankman-Fried’s defense lawyer Mark Cohen repeatedly told jurors in a gentle, soft voice that Sam had never stolen or intended to steal from anyone, and instead had acted in good faith and took “reasonable business measures” in his dealings with both companies.
“Sam didn’t defraud anyone, Sam didn’t intend to defraud anyone,” he said, strictly referring to his client on a first-name basis. “Sam acted in good faith in trying to build and run FTX and Alameda.”
“There was no theft, rather, you’ll learn that Sam reasonably believed that loans FTX made to Alameda were permitted and backed by reasonable security and collateral,” Cohen said during the defense’s 33-minute opening argument. “Far from being secret, they were open and known within both companies. As well, Sam believed that loaned funds were not spirited away, but paid to investors.”
Cohen, a partner at Cohen & Gresser, insisted that Bankman-Fried was taking appropriate steps in response to rapidly changing demands of FTX’s success, where “things were happening quickly, very quickly.”
"Working at a startup is like building a plane as you’re flying it," Cohen told jurors. "Sam and colleagues were building the plane as they were flying it."
Cohen urged jurors to be skeptical of the testimony of cooperating witnesses at trial, including Ellison, FTX co-founder Gary Wang and former head of engineering Nishad Singh.
“As you hear their testimony, ask yourselves, are they saying Sam was part of conversations when they don’t really remember,” Cohen said. “Saying Sam did things he didn’t really do, when they’re guessing he did? Are they pointing to out-of-context or ambiguous statements and now saying they led to black-and-white conclusions?”
“And perhaps most of all, are they spinning things that Sam said and did at the time, were good faith business decisions that they themselves were fine with, and now claiming they were sinister and deceitful and they knew it all along?” Bankman-Fried’s defense lawyer concluded.
Cohen blamed Ellison in particular for FTX's implosion, telling jurors she ignored Bankman-Fried's pleas to strategically limit Alameda's risky cryptocurrency positions.
The process to pick the twelve jurors and six alternates who will hear the case commenced Tuesday morning and concluded around noon on Wednesday.
Trial is expected to last up to six weeks and Bankman-Fried’s defense has not yet indicated whether or not he will take to the stand to testify in his own defense.
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