The Rise and Fall of Sam Bankman-Fried: A Trial of Infamous Crypto Entrepreneur and the Allegations of Financial Fraud

He had asked his lawyers for advice at the time. And was subsequently reassured by them. So what could he do?

According to his lawyers, the fact that Sam Bankman-Fried (31), former founder of crypto marketplace FTX, used billions from FTX customers through a loan structure to make up for investment losses, had not been a problem at all. According to his lawyers, it was “a solution that met all the requirements to solve his problems,” said Bankman-Fried. “I was glad we found him.”

Bankman-Fried made this statement in court in New York, where the former crypto billionaire is on trial this month in one of the largest financial fraud cases in American history. Bankman-Fried is suspected of conspiracy, money laundering and fraud, among other things. He allegedly defrauded investors and customers of billions and used money from his company FTX to enrich himself and colleagues. If found guilty, he could face up to 100 years in prison.

Bankman-Fried claims he is innocent. According to him, the decisions that led to FTX’s bankruptcy were a shared responsibility with the rest of the top management and there was no malicious intent behind it. No conscious strategy of a group of entrepreneurs to steal money, but naive enthusiasm of an amateurishly managed start-up that became worth billions out of nowhere.

‘SBF’, as his nickname is, said he had made “a lot of small and a lot of big” mistakes. His biggest mistake: not appointing a ‘chief risk officer’ [hoofd risico]. “There was no supervision of what we did.”

On Thursday, SBF told his story in court for the first time, initially without the presence of the jury members. That was difficult, noted Judge Lewis Kaplan, who stated that “the problem is that the witness responds to questions in what I would call an interesting way.” At times, SBF left long silences and often did not answer the question. SBF had “no specific memories” of most of the facts presented to him.

The judge regularly asked the former multi-billionaire – at the hearing dressed in a suit from the Macy’s department store that, according to The Wall Street Journal 40 percent was discounted – to “listen to demand”. On Friday, Bankman-Fried was interrogated again in the presence of the jury and the entrepreneur became a lot more specific in his answers.

The fact that SBF took the risky step of speaking during his trial was certainly surprising. Bankman-Fried, who has been in custody since August, had difficulty properly preparing his trial, according to his lawyer. Due to his vegan lifestyle, the visibly lost SBF has been living on a diet of “bread, water and peanut butter” for months, according to his lawyer.

Staggering crypto prices

The American Sam Bankman-Fried has become one of the most prominent crypto entrepreneurs in the world in recent years. His platform FTX, where customers could trade cryptocurrencies, accounted for 4 to 9 percent of global crypto trading at its peak. At the beginning of 2022, FTX (after an investment round of 400 million dollars) was worth 32 billion dollars (then 31 billion euros). It made Bankman-Fried one of the richest young entrepreneurs in the United States.

When crypto prices worldwide faltered in late 2022 after a series of scandals, SBF’s empire collapsed within weeks. Bankman-Fried was found to be using money from FTX customers to fund investments from his other company, investment fund Alameda Research. After those investments came under pressure, large sums of money were moved from FTX to Alameda Research.

When FTX went bankrupt in November 2022, billions of customers turned out to be untraceable. Hundreds of thousands of customers who hoped to get rich by trading crypto lost their money. The same was true for employees of FTX and Alameda Research, who, with the encouragement of top management, used their savings to buy shares of their employer at a discount.

In December last year, SBF was arrested in the Bahamas. FTX had its office there, in order to stay out of sight of American regulators who were becoming increasingly concerned about the volatile trading in crypto.

amphetamines

It would later appear that FTX had a corporate culture of partying, drinking and drugs on the archipelago. The top of FTX actually consisted of a group of friends of young people in their twenties and thirties, who never kept accounts and used amphetamines to be able to work as long as possible. There was hardly any question of a serious company, as became apparent during the trial. The accounting was partly done via chat programs with messages that were automatically deleted. And employees borrowed money from their own companies to take out mortgages.

Getting rich with crypto had always been his goal, Bankman-Fried often stated in interviews. SBF was an important face of ‘effective altruism’, a movement in which adherents dedicate their lives to ‘doing good’. He hoped to earn as much money as possible to give away as much as possible. A philosophy that Bankman-Fried had inherited from his parents, professors at Stanford University in California and present in court every day.

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SBF as the brain

While his parents continued to support him, his friends turned against him. Three of them pleaded guilty in exchange for a reduced sentence and testified against Bankman-Fried in recent weeks.

Caroline Ellison, who ran Alameda Research, said during her testimony that Bankman-Fried had masterminded the scheme to use $10 billion from clients to prop up Alameda Research. “He was the one who set up these systems and allowed Alameda to withdraw the money,” she said. “And he was the one who instructed us to use customer funds to pay off our loans.”

According to Ellison, who also had a love affair with Bankman-Fried, SBF encouraged her to lie, including by deliberately lying to investors about the financial position of their company. Things went wrong in June 2022, when the lenders behind investment fund Alameda Research became restless after the crypto market started to collapse. Alameda had invested heavily in crypto companies and the investors wanted their money back, Ellison said.

At that point, according to Ellison, SBF decided that FTX customer funds could be used to do that. She followed his instructions “even though I knew it was wrong,” Ellison said. Alameda investors were not told where exactly the money came from.

Her story was corroborated by FTX chief technology officer Nishad Singh and Gary Wang, co-founder of FTX and responsible for building a “backdoor” in FTX’s programming code that allowed money to be funneled into Alameda. Both witnesses stated that they contradicted Bankman-Fried, he would not listen and they carried out his orders. “In the end it was Sam’s decision,” Wang said.

The lawsuit against Bankman-Fried is expected to end next week. It may then take several days – or many months – until the jury reaches a verdict.

2023-10-27 17:27:19
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