The trial of a former cryptocurrency whiz kid who at his height commanded a financial empire worth some $32 billion is underway in New York, with opening statements in Sam Bankman-Fried’s criminal trial beginning Wednesday.
Prosecutors allege the 31-year-old stole $8 billion from FTX, the crypto exchange he founded, both for his personal use and to cover ballooning losses at Alameda Research, a crypto hedge fund run by his on-and-off girlfriend, Caroline Ellison.
Ellison figures to play a prominent role in the trial. The 28-year-old pleaded guilty to fraud charges in December and is expected to be a star witness for the prosecution.
In opening statements Wednesday, U.S. Attorney Thane Rehn cast Bankman-Fried as ultimately in control at Alameda, despite Ellison’s title of CEO.
“He was using her as a front — in reality, he was still calling the shots at Alameda,” said Rehn, noting Bankman-Fried founded the hedge fund before FTX. “Alameda had secret access to FTX assets. Once Alameda had it, the defendant could spend it as he pleased.”
“The defendant took billions of dollars in FTX customer deposits from Alameda bank accounts and he spent it — and the customers had no way to know that their money was being used in this way,” said Rehn.
Bankman-Fried has pleaded not guilty to the seven-count indictment, which levels charges of conspiracy, fraud and money laundering.
Defense attorney Mark Cohen countered that Bankman-Fried didn’t knowingly defraud anyone and believed the loans between FTX and Alameda were “permitted.”
“They’d have you think he was quite the villain — almost the cartoon of a villain,” he told jurors, describing Bankman-Fried instead as “a math nerd who didn’t drink or party.”
FTX played a dominant role in the cryptocurrency fervor that gripped parts of the tech world in 2021 and 2022.
At its height, FTX ran Super Bowl ads and owned the naming rights to a Formula One racing team and the sports arena that’s home to the Miami Heat. Bankman-Fried also lavished money on high-profile celebrity endorsements, reportedly paying Tom Brady $55 million for 20 hours a year for three years.
That all came tumbling down over a matter of days in November 2022, after a Coindesk report raised concerns about Alameda’s balance sheet. Specifically, the hedge fund appeared to be holding billions of dollars’ worth of FTT tokens, a crypto coin invented by FTX with no intrinsic value.
A bank run followed and FTX imploded, going from the world’s third-largest cryptocurrency exchange to bankrupt in under a week.
Bankman-Fried was arrested in the Bahamas a month later and extradited to the U.S., where his $250 million bond was revoked after he leaked Ellison’s diary to The New York Times.
FTX’s new CEO John Ray III, a bankruptcy lawyer who oversaw the liquidation of Enron, was aghast at the state of FTX’s books.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information,” he said in bankruptcy court last November.