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Crypto prodigy to ‘blame the lawyers’ in the fraud trial of the century
Matthew Field
5 min read
Sam Bankman-Fried had his bail revoked after a US judge found it likely that he attempted to interfere with key witnesses at least twice - Stephanie Keith/Bloomberg
“I would like to start by formally stating, under oath: I f***** up,” wrote Sam Bankman-Fried, days after the implosion of FTX, the $36bn cryptocurrency exchange he founded.
The entrepreneur had hidden away in a $30m penthouse in the Bahamas, preparing a statement to justify his actions to US politicians.
Hours before he was due to give his evidence, Bankman-Fried was arrested by Bahamian police. Since then, he has had time – at home and more recently in a prison cell after his bail was revoked over allegations of witness tampering – to hone his line of defence.
In a courtroom in Manhattan next week, 11 months after the implosion of his digital currency empire, the 31-year-old former billionaire will face the cryptocurrency world’s trial of the century.
Bankman-Fried is charged by the US government with seven counts of conspiracy, fraud and money laundering at FTX – at one point the world’s second biggest digital coin exchange.
Prosecutors allege he misappropriated billions of dollars in FTX customer funds to finance risky bets at a crypto hedge fund – called Alameda – leaving an $8bn black hole and causing the company’s bankruptcy.
The trial is expected to last six weeks and he denies wrongdoing.
Former co-workers, roommates and ex-girlfriend, Caroline Ellison, are all expected to testify or provide evidence. Four former FTX executives, including Ellison, who led Alameda, have already pleaded guilty to separate fraud charges.
Bankman-Fried is charged by the US government with seven counts of conspiracy - REUTERS/Jane Rosenberg
Bankman-Fried has argued he made mistakes, but never intended wrongdoing.
The trial will be closely watched by FTX’s one million creditors. Louise Abbott, a partner at Keystone Law which is representing claimants in separate bankruptcy proceedings, says: “Creditors want to see justice being done.”
Starting on Tuesday, Bankman-Fried’s defence will be weighed against the millions of pages of evidence, private messages and audio recordings that have been gathered by the US government.
According to legal papers submitted before the trial, Bankman-Fried’s lawyers will argue he was just doing what he had been told was legal – a so-called “advice of counsel” defence – or blame the lawyers.
FTX imploded last November in a matter of days after the missing billions in its accounts were revealed. John Ray, the bankruptcy expert who later took control of the business, called its corporate systems a “dumpster fire”.
The US prosecutors allege this was all as a result of Bankman-Fried’s failed money-making scheme. FTX secretly inflated the value of a cryptocurrency token it controlled, called FTT, that made up the majority of its assets, while using customer deposits to help Alameda borrow billions of dollars to fund trades – in violation of its own terms and conditions.
After a mass sell-off of FTT, the scheme unravelled.
Prosecutors argue Bankman-Fried masterminded these plans and used “billions of dollars in stolen funds” to buy up luxury property and donate to political campaigns.
Sam Bankman-Fried is accused of using stolen customer funds to buy up luxury property including a penthouse in the Bahamas - PLANET PHOTOS
Bankman-Fried has pleaded not guilty. In a letter disclosed to the court, Mark Cohen, Bankman-Fried’s lawyer, argues that FTX’s legal advisers, which included Silicon Valley law firm Fenwick & West, “gave him assurance he was acting in good faith” when he used apps that automatically deleted records at FTX and set up huge loans to company executives.
The letter named three other FTX lawyers involved in “approving decisions”. Meanwhile, Bankman-Fried has publicly criticised another law firm FTX used, Sullivan & Cromwell, for allegedly pressuring him into declaring bankruptcy. In the bankruptcy case, Sullivan & Cromwell called Mr Bankman-Fried’s claims “false”.
Fenwick & West and Sullivan & Cromwell did not respond to requests for comment.
Martin Auerbach, head of the white collar and investigations practice at the law firm Withersworldwide in New York, says Bankman-Fried is likely to try to show he had “surrounded himself with the best and brightest and paid them a lot of money” to advise him on the legality of his actions.
Typically, this also requires the defendant to provide evidence they had given their lawyers the information they needed to provide solid advice.
Bankman-Fried’s lawyers told the court the advice he received from legal advisers was “relevant to rebut” the government’s argument that he acted with criminal intent.
Within days of FTX’s failure ,Ellison, who led Bankman-Fried’s ostensibly separate crypto hedge fund, had signed a guilty plea agreement.
In July, the New York Times published excerpts from her private diaries, which a judge decided had likely been leaked by Bankman-Fried to “frighten” her.
After the leak, Bankman-Fried was returned to prison and his $250m bail revoked. Since then the former crypto prodigy has waited behind bars for his trial to begin.
For the prosecution, evidence related to Ellison could be crucial to proving “criminal conspiracy”, according to a court filing. Days before FTX failed, Ellison addressed staff.
Asked who had authorised taking money from FTX customers to fund its high-risk hedge fund, Ellison said: “Um… Sam I guess.”
Should he be found guilty, Bankman-Fried could sentenced to 115 years in prison.
