The sensational rise and tragic downfall of FTX founder Sam Bankman-Fried, saw its climax this past Thursday as he was unanimously found guilty by a New York jury on charges of defrauding his clients and investors of an estimated US$10 billion. His journey through the labyrinthine corridors of cryptocurrency, replete with bold assertions before Congress, a Super Bowl announcement, and aspirations of a presidential candidacy came to an abrupt halt after the celebrated cryptocurrency magnate crashed into a wall of infamy.
Overcoming the magnetic charisma and robust defence of Bankman-Fried, the jury unanimously rejected his plea of innocence throughout the month-long trial held in Manhattan’s federal court. Despite his claims of having never concocted a fraudulent scheme or harbored intentions of betraying FTX’s dedicated clientele, before it dramatically folded into bankruptcy just a year previously, the jury remained unswayed.
Towards the end of the trial, Lewis A. Kaplan, the presiding Judge commanded, “Mr. Bankman-Fried. Please rise and face the jury.” The ensuing scene beheld the power of justice as the jury forewoman pronounced him ‘guilty’ seven times. The culmination of the charges levied at Bankman-Fried included two counts of wire fraud, two counts of wire fraud conspiracy, and three other conspiracy charges, potentially summing to 110 years imprisonment.
The very announcement of the verdict seemed to render him frozen and he remained with his hands clasped before him, visibly stunned as his lawyers sat next to him in quiet resignation. As he finally managed to sit, he spent several minutes staring into nothing. A personal statement, read outside the court by his attorney, Mark Cohen, expressed respect for the jury’s decision, but also disappointment.
Damian Williams, U.S. Attorney, addressing reporters outside, classified it as one of history’s largest financial frauds, stating that through this elaborate scheme, Bankman-Fried was seeking to crown himself the absolute monarch of the crypto world.
The jury was quick to dismiss Bankman-Fried’s protests of innocence, under oath during the three-day testimony that claimed he never intended to defraud his clients, investors, or lenders. He maintained that he was unaware that his firm was plunging into a debt pit, estimated at a colossal US$10 billion, until October 2022.
In the aftermath of the verdict announcement, Bankman-Fried’s parents, both law professors at Stanford University, moved to the front row to lend him some moral support. As he was escorted out of the courtroom, his mother visibly broke down after he nodded towards her.
This trial gained widespread attention due to the scale of the fraud, not seen since the infamous prosecution of Bernard Madoff in 2009, who tricked thousands of investors out of nearly US$20 billion over several decades through his notorious Ponzi scheme. His plan landed him a 150-year sentence, and he eventually passed away in prison in 2021.
The prosecution cast an unforgiving spotlight on the emergent and volatile cryptocurrency industry, and analysts began observing the lifestyle and ambition of a group of young executives residing together in a lavish US$30 million apartment in the Bahamas. These young capitalist dreamers aimed to become the overlords of this nascent industry.
Prosecutors made deliberate efforts to showcase stark contrasts between the well-groomed, suit-clad defendant in court, and the casual appearance he was known for after the establishment of his cryptocurrency hedge fund, Alameda Research, in 2017, and FTX, his cryptocurrency exchange, two years later.
Bankman-Fried’s path to court originated from the testimonies of three former colleagues, his top executives, including ex-girlfriend, Caroline Ellison, who explained how he exploited the funds at Alameda Research to funnel billions from customer accounts at FTX.
Ellison testified that Bankman-Fried believed in his future robust political career and maintained he had a five percent chance of one day serving as the American president. Ellison’s confession about his inevitable downfall and the revelation of his illicit exploits leading to their collective financial loss, signified the end of their pretense for Bankman-Fried and a sense of relief for herself.
Exposing another layer of the fraud was testimony from Gary Wang, FTX’s chief technology officer, revealing that Bankman-Fried directed him to infuse code into FTX’s operations to facilitate unlimited withdrawals from FTX by Alameda Research and to establish a US$65 billion credit line through clients’ money.
The aftermath of this bombshell led to the former head of engineering at FTX, Nishad Singh, testifying about his mental health deterioration from discovering the massive scale of the fraud committed by a man he once revered. He admitted that the revelation and subsequent crumbling of the cryptocurrency giant in November left him contemplating suicide.
Bankman-Fried’s public statements, online communications and his Congressional testimony were leveraged against him, including his assurances to distraught customers scrambling to withdraw their investments. He reiterated their safety and security as late as November 2021, reassuring them that their funds were guarded.
However, the cross-examination painted a completely different story. While Bankman-Fried seemed well-prepared, he began to falter and could not recall significant details about his company or previous public declarations.
The case against him was so well-orchestrated, that a unanimous verdict was reached in half a day of deliberation suggesting the government had meticulously synchronized every move during this colossal trial. Former federal prosecutors were impressed, with Joshua A. Naftalis, a former Manhattan prosecutor now Pallas Partners LLP Partner commenting, “It was a massive fraud, but that doesn’t mean it had to be a complicated fraud, and I think the jury understood that argument.”
The cryptocurrency industry has faced numerous transitions over the years, from its original backdrop of innovative promise and potential for huge earnings to a world riddled with scandal, fraud, and uncertain regulations. The story of Sam Bankman-Fried and his downfall exemplifies the risks and problems faced by this highly volatile industry. It’s also a reminder to potential investors that, for all its ups and downs, the potential for loss and fraud is real.
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