A year ago, Sam Bankman-Fried was still the shooting star of the crypto scene. Now he is on trial. The trial shines a spotlight on the entire cryptocurrency business.
Almost a year after the spectacular collapse of the crypto exchange FTX, the trial against its co-founder Sam Bankman-Fried has begun. US investigators accuse the 31-year-old of, among other things, fraud. According to the indictment, he diverted funds from customers without their knowledge and enriched himself personally. Bankman-Fried denies the allegations.
The trial in New York began with jury selection, a court spokesman confirmed. The trial is scheduled to last around six weeks. In an unusual move, Bankman-Fried himself is expected to testify. There are seven charges in total, ranging from fraud to conspiracy to launder money. If convicted, Bankman-Fried could face – at least theoretically – more than 100 years in prison.
Secretly diverted funds are missing
FTX was one of the largest trading venues for cryptocurrencies like Bitcoin. At the same time, FTX issued its own cryptocurrency called FTT. After doubts arose about the financial situation of the crypto exchange last fall, customers began withdrawing their balances.
But there wasn’t enough money. A financial hole became apparent at FTX: In the end, around $8.7 billion was missing. The reason, according to allegations from the public prosecutor’s office: customer money was secretly diverted to the hedge fund Alameda Research – and also used to finance Bankman-Fried’s expensive lifestyle. The FTX top shared a luxury penthouse in the Bahamas. Advertising campaigns with celebrities such as football star Tom Brady also cost a lot of money. Bankman-Fried was also a generous donor to President Joe Biden’s US Democrats.
Several former companions agreed to cooperate with the investigators and are likely to incriminate Bankman-Fried. After his arrest in the Bahamas and his extradition to the USA, he was initially placed under house arrest in his parents’ house at Stanford University in California. But in August the judge sent him to prison.
Steep climb, deep fall
After the arrest, Bankman-Fried initially spoke of an accounting error. According to the investigators, the mechanisms in the software that would normally have prevented an outflow of funds were disabled. Alameda Research was able to get any amount of money from FTX without anything in return. An open question is whether prosecutors can directly link the defendant to this.
Bankman-Fried founded Alameda Research before FTX in order to profit from price differences in crypto trading between Asia and the USA. In the end, business did not go well and, according to the indictment, the financial holes had to be filled with FTX funds.
Bankman-Fried had previously embodied the rise of cryptocurrencies into a supposedly serious investment like no other. The young entrepreneur became a crypto star who was able to clearly explain the complicated world of digital currencies to the media, politicians and the public. In less than three years, the company reached a valuation of $32 billion and held billions in assets on behalf of its customers. Bankman-Fried’s fortune was now estimated at $26 billion.