For some time, Sam Bankman-Fried portrayed himself as the successor to the financial titan J.P. Morgan. Today, however, he prepares to convince a jury that he is not, in fact, a modern Bernie Madoff.
The legal saga of Bankman-Fried, originator of the now defunct cryptocurrency brokerage FTX, is set to Launch on Tuesday with jury selection. Southern District of New York prosecutors anticipate presenting evidence pinpointing Bankman-Fried’s alleged misappropriation of billions in FTX customer deposits to fuel his hedge fund, purchase real estate, and illicitly contribute millions to both Democrat and Republican campaigns in a bid to gain leverage over cryptocurrency legislation in Washington.
Despite the intricacy of the cryptocurrency world, the prosecutor’s case against Bankman-Fried intends to distil complexities into a simple narrative for the jury: he misused customer funds.
“Evidence will be presented showing the route and usage of the money,” prefaces Michael Zweiback, co-founder of legal firm Zweiback, Fiset, & Zalduendo LLP, and past federal prosecutor. He adds that, “The focus will not be on the complex investment but the plain and simple fraud.”
Bankman-Fried, prior to the collapse and subsequent bankruptcy filing of FTX last November, was a potent force within the cryptocurrency industry. With an estimated worth of U.S. $32 billion, he engaged with ex-presidents, bipartisan politicians, A-listers, and CEOs alike. Amid the implosion of smaller crypto firms in 2022, Bankman-Fried publicly pledged to stabilise the market. This magnanimity in crisis drew parallels with J.P. Morgan.
Rapid growth characterised the life of FTX, founded by Bankman-Fried, a self-professed video game enthusiast and progeny of Stanford University professors in 2019. The fledging enterprise soon attracted significant Silicon Valley investment and rose to the rank of the second-largest cryptocurrency brokerage, trailing only the behemoth Binance.
The unraveling of Bankman-Fried’s crypto empire began in early November when the financial instability of Alameda, FTX’s affiliated hedge fund, was exposed. Investors, already anxious from witnessing the downfall of other crypto firms, swiftly withdrew their money from FTX, pushing the firm into bankruptcy.
John Ray III, the restructuring specialist tasked with FTX’s complex bankruptcy, benchmarked FTX’s conditions as more extreme than the infamous corporate corruption case, Enron.
Bankman-Fried is poised to encounter his ex-FTX colleagues for the first time since the firm’s downfall. Several key figures have cooperated with the prosecution by pleading guilty to lesser charges in exchange for their testimony against him.
His defense team is expected to mitigate the charges, attributing FTX’s demise to market trends and his managerial blunders instead of fraudulent activity. Bankman-Fried himself had been active on social media and in interviews months prior, attempting to establish his narrative: he messed up, but he didn’t deceive.
Currently in custody in New York after having violated his bail terms, Bankman-Fried once had access to a computer through which he intended to justify his choices and actions. That privilege was revoked after the presiding judge, Lewis A. Kaplan, found probable cause that he was attempting to manipulate potential key witnesses.
In the aftermath of FTX’s decimation, the cryptocurrency industry is yet to stabilise. Ethereum and Bitcoin still lag at two-thirds of their former value a year ago, trading volume in crypto has halved, and the NFT market is virtually extinct. Even former market adversaries like Binance and Changpeng Zhao are now embroiled in similar legal predicaments.
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