BY ANDREW R. CHOW
GOOD QUESTION
LAST SEPTEMBER, SAM BANKMAN-FRIED WAS DESCRIBED on CNBC as the “Michael Jordan of crypto.” Just over a year later, the founder of the cryptocurrency exchange FTX is on trial in a federal court in Manhattan in one of the most anticipated criminal proceedings of the year.
FTX was a crypto exchange that allowed its users to buy, sell, and hold cryptocurrencies, and use financial mechanisms to bet on those tokens’ price movements. It collapsed in November 2022 following a rush of withdrawals, with the exchange unable to account for billions of dollars in customer funds. Upon filing for bankruptcy, FTX owed its top 50 creditors alone $3.1 billion. Federal prosecutors charged Bankman-Fried with fraud, conspiracy to commit money laundering, and several other counts.
Bankman-Fried, who has pleaded not guilty to all charges, told Congress in a February 2022 hearing that “as a general principle, FTX segregates customer assets from its own assets across our platforms.” But prosecutors allege that instead of keeping customer funds siloed, FTX officials lent those deposits to Alameda Research, Bankman-Fried’s hedge fund, at the founder’s direction. Prosecutors allege, first, that Bankman-Fried oversaw a technical “backdoor” that allowed him to funnel money out of FTX customer accounts undetected—and, second, that he then used those funds to buy luxury real estate, donate to political campaigns, and repay Alameda’s lenders. In the trial’s opening arguments on Oct. 4, Bankman-Fried’s lawyers said he had a “good faith” belief that the way FTX and Alameda handled customer funds was permitted, and that the relationship between the two companies was “reasonable under the circumstances.” A separate trial, scheduled for March 2024, will include allegations of campaign-finance violations.
IN ORDER TO CONVICT Bankman-Fried, prosecutors will have to establish intent: to prove that he willfully lied and misled investors. Furthermore, they must prove his guilt “beyond a reasonable doubt”—a higher standard than in civil cases—and a jury would need to reach a unanimous verdict for a conviction.
“Intent is the entire name of the game, and it’s maybe the most difficult element for the government to prove,” says Tim Howard,
