A federal court in Manhattan will start hearing the case against erstwhile crypto star Sam Bankman-Fried, with jury selection beginning on Tuesday. Bankman-Fried, who founded cryptocurrency exchange FTX and associated hedge fund Alameda Research, is facing trial on finance crimes stemming from the shocking collapse of FTX. Bankman-Fried faces seven conspiracy and fraud counts for allegedly siphoning investors’ money into risky trades and other unlawful purposes. The Manhattan US attorney’s office, which is pursuing the case, has also accused Bankman-Fried of using FTX customer funds to foot the bill for swelling loan expenses at Alameda. Authorities have also contended that he snapped up fancy real estate and made extensive political donations with their money. Bankman-Fried’s high-flying world started to unravel in November 2022 following a report in CoinDesk that Alameda held billions in FTX’s own cryptocurrency, FTT. Alameda allegedly used FTT as backing for large loans. A downward dip in FTT could undermine FTX and Alameda. Adding to the unease: FTT didn’t have value outside of FTX’s vow to buy tokens at $22. Amid the revelations, the chief executive of top FTX competitor Binance, Changpeng Zhao, tweetedthat his firm would sell its $50m in FTT. FTT spiraled and FTX clients pulled their money in the equivalent of a high-tech bank run. As FTX reeled from a “giant withdrawal surge”, with users scrambling to remove some $6bn in crypto tokens over a mere three days, observers feared the fiasco could prompt an industry-wide collapse reminiscent of the 2008 real estate crisis. FTX filed for bankruptcy protection and Bankman-Fried resigned. The collapse of FTX caused “billions of dollars in losses to its customers, lenders, and investors”, Damian Williams, the Manhattan US attorney, said in December. “This was not a case of mismanagement or poor oversight, but of intentional fraud, plain and simple.” Federal prosecutors allege that Bankman-Fried and several co-conspirators – among them his sometimes girlfriend, Alameda CEO Caroline Ellison – diverted billions for his personal use. Ellison, who in December pleaded guilty to her role in the alleged conspiracy, is expected to be the prosecution’s star witness at Bankman-Fried’s made-for-tabloid trial. The proceedings are also poised to provide bombshell details not only on FTX’s crash but also the murky inner-workings of crypto trading. If Ellison’s past statements are any indication, her testimony could well be damning for Bankman-Fried. Prosecutors have indicated they will bring forward recordings of a 9 November Alameda staff meeting, in which Ellison tried to allay staff concerns. “Starting last year, Alameda was kind of borrowing a bunch of money via open-term loans and used that to make various illiquid investments … Then with crypto being down, the crash, the – like, credit crunch this year, most of Alameda’s loans got called,” Ellison allegedly said during the meeting. “And in order to, like, meet those loan recalls, we ended up borrowing a bunch of funds on FTX which led to FTX having a shortfall in user funds.” One employee asked: Who else knew about the exchange’s shortfall in customer money? She named Bankman-Fried. A worker pressed: “Who made the decision on using user deposits?” “Um … Sam, I guess,” Ellison said. Bankman-Fried, who remains jailed pending trial, has maintained his innocence. His representative did not comment on the case in advance of proceedings.
Trial of former cryptocurrency star Sam Bankman-Fried to start in Manhattan
