The next chapter in the fall of one-time crypto billionaire Sam Bankman-Fried is set to begin Tuesday as the former FTX head goes on trial in New York City.
Jury selection in Bankman-Fried’s trial is scheduled to begin Oct. 3, while the trial itself is expected to last about six weeks.
Bankman-Fried, who was once viewed as a leader in digital currencies and a rare tech CEO who was attuned to ethics, will face federal charges of wire fraud, securities fraud and money laundering that defrauded customers of his digital currency exchange, FTX, and lenders to his cryptocurrency hedge fund, Alameda Research.
He has pleaded not guilty to all of those charges. If convicted, several of the counts would come with maximum sentences of 20 years in prison.
A stunningly swift rise
“SBF,” as he was popularly known, co-founded Alameda Research in 2017 and FTX in 2019. The latter offered low trading fees and benefited from the then-booming crypto market. It snapped up competitors and marketed itself aggressively to become one of the largest players in the field. A celebrity-stuffed Super Bowl ad helped make it one of the best known as well.
FTX was also based in the Bahamas, temporarily putting it beyond the reach of U.S. regulators.
On paper, FTX’s valuation skyrocketed and estimates of Bankman-Fried’s personal wealth peaked at $26 billion. He became a significant political donor, giving publicly to Democrats and privately to Republicans, and breaking with other tech and crypto figures by calling for some regulation of the industry.
Along the way, he began telling interviewers that he wasn’t pursuing fabulous wealth for its own sake. He framed it as an ethical imperative: making billions in crypto was just a means to an end, he explained. It was the best way to accumulate a huge fortune he would use to make the world a better place, and do it as soon as possible.
His background as the son of two Stanford legal scholars, one an expert on taxes and the other on ethics, was often noted.
He also began to cross over into popular culture, cultivating an image of a 30-year-old who dressed like a college kid, with messy, curly hair and a near-uniform of T-shirts and cargo shorts, even if he was speaking in public to world leaders.
And then it all fell apart
On November 2, 2022, Coindesk reported that much of the balance sheet of Bankman-Fried’s trading firm, Alameda Research, was composed of a token, called FTT, issued by FTX itself, not by a separate asset with a known and established value. That was unusual, and a major financial liability for Alameda.
Days after that report, Changpeng ‘CZ’ Zhao, CEO of rival crypto platform Binance, said his company would sell off all its FTT tokens. That huge sale tanked the value of FTT and badly damaged Alameda’s balance sheet.
Digital currency traders started pulling their money from FTX, and the platform soon blocked customers from further withdrawals. Binance agreed to buy FTX in a bailout, then backed out of the deal.
While FTX and Alameda were supposed to be separate businesses, it soon became clear that they were deeply intertwined — and that FTX had given customers’ money to Alameda so it could invest the funds. Bankman-Fried continued to try to raise money to save the business, but both firms, as well as FTX US, filed for bankruptcy on Nov. 11.
He was soon replaced as the CEO of FTX by bankruptcy expert John Ray, who said he had never seen ‘such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.’
Billions of dollars were missing
For a short time after the collapse, Bankman-Fried granted interviews and tweeted about his situation, maintaining an unusually public and prominent image for a person facing a criminal investigation as reporters and lawyers dug through the wreckage of his businesses. At different times he was apologetic, seemingly open, and contemptuous, suggesting he hadn’t meant most of what he’d said about trying to do good.
He was scheduled to testify before Congress when he was arrested in December, in the Bahamas. He was extradited to the U.S. and initially remained on house arrest but was jailed in August after prosecutors said he had leaked diary entries by Caroline Ellison, his ex-girlfriend and the former CEO of Alameda, to The New York Times.
Ellison, like several other FTX insiders, is expected to testify against Bankman-Fried at the trial.
Bankman-Fried is expected to be tried in March 2024 on five additional counts, including bribery of a foreign official. He has also pleaded not guilty to those charges.