The key questions as Sam Bankman-Fried faces his reckoning

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He faces an uphill battle. Three of his closest advisers have pleaded guilty and agreed to testify against him. Prosecutors have accumulated millions of pages of digital evidence, including text transcripts, financial records and emails, and they plan to introduce about 1300 exhibits at the trial. The judge, Lewis Kaplan, has repeatedly sided with the prosecution in procedural disputes, rejecting expert witnesses the defence had hoped to call and allowing the government to use evidence that Bankman-Fried had contested.

For the past month and a half, Bankman-Fried has also had to prepare his case from a jail cell in Brooklyn, after Kaplan revoked his bail, ruling that he had tried to interfere with witnesses.

“It doesn’t appear that there’s any sort of path to victory” for Bankman-Fried, said Renato Mariotti, a former federal prosecutor.

Caroline Ellison, the former CEO of Alameda, will testify against Bankman-Fried.

Also looming over the trial is the question of whether Bankman-Fried, who is unusually garrulous for a criminal defendant, will testify — a high-risk move that defence lawyers tend to discourage.

“It will surely be painful for him to remain quiet if he believes or convinces himself that the government is mischaracterising his transactions and his closest associates are making up stories about him,” said Daniel Richman, a law professor at Columbia University and a former federal prosecutor. The downside is “he might not respond well to forceful cross-examination.”

A representative for Bankman-Fried declined to comment. A spokesperson for the US attorney’s office for the Southern District of New York, the division that is prosecuting Bankman-Fried, also declined.

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Known for his signature outfit of T-shirts and shorts, Bankman-Fried rose to prominence as a rare good guy in the loosely regulated world of crypto. He founded FTX in 2019 and raised $US2 billion ($3.2 billion) in venture funding, promising to work with regulators to write new rules for the industry. He was also a prolific political donor, contributing more than $US5 million to support Joe Biden’s 2020 presidential run.

Then, over four frantic days in November, FTX and its sister hedge fund, Alameda Research, imploded, with customers unable to withdraw more than $US8 billion in deposits. The companies filed for bankruptcy, and Bankman-Fried was charged with counts including securities fraud, wire fraud and money laundering. A count accusing him of violating campaign finance law was eventually dropped, along with a handful of other charges, though all could be revived at a second trial next year.

The key figures

Many of his closest allies have turned on him. Caroline Ellison, Alameda’s CEO and Bankman-Fried’s on-and-off girlfriend, pleaded guilty and agreed to cooperate with the prosecution. She was joined by two co-founders of FTX, Gary Wang and Nishad Singh, who admitted to conspiring with Bankman-Fried to defraud customers. A fourth high-level executive, Ryan Salame, also pleaded guilty, without agreeing to cooperate.

The collapse of FTX sent shockwaves through the world of crypto.

The collapse of FTX sent shockwaves through the world of crypto.Credit: AP

After his arrest, Bankman-Fried was confined to his parents’ house in Palo Alto, California, where he entertained guests and had a pickleball court installed in the yard. In August, Kaplan revoked those privileges and sent him to the Metropolitan Detention Center after he shared some of Ellison’s private writings with The New York Times.

Ellison is poised to be a crucial figure at the trial. She, Wang and Singh were close friends with Bankman-Fried and lived together in a five-bedroom penthouse in the Bahamas, where FTX had its headquarters. But even within that tight circle, Ellison had unique access — and a long romantic history with her boss that could create one of the most dramatic and personal moments of the trial.

In court filings, prosecutors have previewed some of the evidence they plan to present, including notes that Ellison took at meetings with Bankman-Fried, as well as spreadsheets that “kept track of illicit money flows.” Prosecutors have also lined up testimony from FTX investors and customers who lost money in the firm’s collapse.

‘It doesn’t appear that there’s any sort of path to victory.’

Former federal prosecutor Renato Mariotti

The contours of Bankman-Fried’s defence are less clear. After FTX’s bankruptcy, he blamed an accounting error that he said had caused billions of users’ dollars to vanish without his knowledge. He has also criticised his colleagues, especially Ellison, saying she failed to manage risk at Alameda. And in legal filings, Bankman-Fried’s lawyers have indicated that they’ll argue that outside law firms authorised his actions at FTX.

More recently, the defence has also suggested that FTX’s use of customer deposits to make investments was akin to how a bank operates. The problem for Bankman-Fried is that FTX was an exchange, a type of company that isn’t supposed to put customer money at risk.

As the trial approaches, the defence has faced setbacks. Bankman-Fried has had trouble getting access to documents from jail, his lawyers say, because of a spotty internet connection and battery problems with a laptop he was given.

Kaplan has mostly dismissed those complaints. Last month, he rejected the defence’s attempt to stop prosecutors from citing evidence related to FTX’s bankruptcy filing and Bankman-Fried’s resignation from the company. The judge said those events were “intertwined inextricably” with the charges. And in a ruling Sunday, he said he might limit the defence’s ability to argue that some of the decisions made at FTX involved lawyers.

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“The issues in this case are pretty straightforward,” Kaplan said at a court hearing last week.

The pretrial disputes have put the defence on the back foot. But ultimately the legal wrangling could help Bankman-Fried mount an appeal if he loses at trial.

“The defence here is doing a really nice job of creating a record on that,” said Jordan Estes, a former federal prosecutor in Manhattan. “They’re setting up this theme that they’re not getting due process, they’re not getting a fair trial.”



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