Sam Bankman-Fried convicted of fraud

Sam Bankman-Fried was convicted on Thursday for his involvement in the downfall of the cryptocurrency exchange FTX.

Following 15 days of witness testimonies and approximately four and a half hours of discussions, the jury rendered a verdict of guilt on seven charges of fraud and conspiracy against him.

Bankman-Fried appeared downtrodden when the verdict was announced. After the jury was dismissed, he stood with his head lowered and trembling as his lawyer whispered in his ear. A short distance away, his parents observed. As an escort accompanied Bankman-Fried out of the room, he glanced back and smiled at his parents. Joe Bankman, his father, comforted his wife by putting his arm around her. As their son departed, Barbara Fried burst into tears.

Speaking outside the Manhattan courthouse on Thursday, US Attorney Damian Williams commended the jury's decision, stating that the government has a firm stance against fraud and corruption.

But Bankman-Frieds attorney said they were "disappointed."

Bankman-Fried has been convicted of embezzling billions of dollars from the accounts of customers on his former successful cryptocurrency exchange, FTX. Furthermore, he has been found guilty of deceiving lenders of FTX's sister company, Alameda Research Hedge Fund, which possessed FTX customer funds in a bank account.

Throughout the trial, Bankman-Fried admitted that he became aware in 2020 of Alameda's custody of FTX customer funds, yet he neglected to take any measures to protect them.

In the autumn of 2022, upon uncovering that Alameda was indebted to FTX for a staggering $8 billion, no dismissal of personnel took place. Additionally, Bankman-Fried was convicted of defrauding investors in FTX and faced a charge of money laundering among other allegations.

The 31-year-old Bankman-Fried's journey, from being a billionaire residing in a luxurious apartment in the Bahamas to becoming a defendant in a major white-collar crime case, has finally come to a conclusion with the verdict. This case has been compared to Bernie Madoff's infamous Ponzi scheme that unraveled in 2009, making it one of the largest such cases in recent years. The trial of FTX, which was once highly regarded in the crypto industry, has garnered significant attention from regulators, investors, and the crypto community, as it could potentially indicate a broader crackdown on the largely unregulated crypto market.

The ruling arrives one year after FTX plunged into a downward spiral, causing widespread panic within the trillion-dollar cryptocurrency industry and putting approximately 1 million customers at risk of financial losses. Before its downfall, the exchange amassed millions of users and gained support from high-profile individuals like Tom Brady and Gisele Bundchen.

Bankman-Fried established FTX in 2019, positioning it as a secure and user-friendly platform for initiating cryptocurrency trading. These digital assets derive their value primarily from a shared belief in their potential future uses, which remain uncertain.

In the early 2020s, FTX's popularity as a crypto portal soared due to zero interest rates and the increased number of amateur investors staying at home. By 2022, FTX had taken its advertising to the next level by showcasing Super Bowl ads and prominently displaying its name at the Miami Heats arena.

However, FTX's downfall came on November 11, 2022, when it filed for bankruptcy following a customer panic caused by a leaked document that revealed questionable financial transactions between FTX and another company owned by Bankman-Fried.

However, unlike bank customers, individuals who deposited funds with FTX were not covered by any federal insurance fund for compensation in case of bankruptcy. Despite FTX's public statements that it did not use or transfer customer deposits, it was discovered that Bankman-Fried's other company, Alameda Research, had been diverting deposits for various purposes, including repaying its own lenders, funding luxury lifestyles of executives, engaging in speculative activities in the crypto markets, and channeling millions of dollars into US political campaigns. Alameda Research, which Bankman-Fried established in 2017, operated similarly to a hedge fund in the field of cryptocurrency trading.

What Alameda was doing

Upon FTX's inception in 2019, Bankman-Fried swiftly instructed Gary Wang, one of the co-founders, along with Nishad Singh, the Chief Technology Officer, to make adjustments to the platform's code. This was aimed at granting Alameda, as an exchange customer, certain exclusive benefits that were unavailable to other clients, as revealed by Wang's testimony.

Both Wang and Singh have admitted their guilt for financial offenses under a plea agreement with the government.

Wang stated in his testimony that Alameda was granted certain advantages, such as an almost unlimited access to credit that the company's executives could use whenever necessary. Additionally, Alameda's primary trading account was granted the privilege of having a "allow negative" flag, which meant it could have a negative balance without facing any consequences. Wang emphasized that this special privilege was not extended to any other customer of FTX.

Ex-girlfriend, star witness

Throughout the duration of his trial, Bankman-Fried witnessed a series of individuals whom he previously regarded as his most trusted confidantes testify against him. Among these individuals were his co-founders, who were once friends from math camp and MIT, as well as his former girlfriend and reliable business advisor, Caroline Ellison, who is 28 years old.

Ellison, the CEO of Alameda and Bankman-Fried's romantic partner for two years, offered compelling evidence against Bankman-Fried during his three-day testimony for the prosecution. With his intimate knowledge of the inner circle of Alameda and FTX executives, who resided together in a lavish $30 million apartment in the Bahamas, Ellison provided invaluable insight into the events taking place.

Ellison's testimony, often accompanied by strong emotions, presented a narrative that portrayed Bankman-Fried as the ultimate decision-maker at both Alameda and FTX. As the founder and majority owner of both firms, he held significant authority. When questioned about who instructed her to carry out certain actions, whether illegal or not, Ellison's response consistently revolved around the phrase "Sam did."

SBFs Hail Mary

Bankman-Fried's defense was immediately confronted with a group of influential witnesses opposing him, causing significant challenges.

Throughout the trial, his defense attorney seemed to struggle when cross-examining these witnesses.

Lawyers often recommend their clients involved in criminal cases to refrain from testifying, as it exposes them to potentially damaging interrogation from prosecutors. However, several legal experts made an exception in Bankman-Fried's case. With no remaining supporters to challenge the business partners who had betrayed him, taking the witness stand was a desperate move - a gamble that Bankman-Fried had become known for throughout his career.

"Testifying is a challenging task, requiring not only precision in recalling the details of the story, but also mastering the art of composing oneself during questioning and managing the pressures of cross-examination," Fischer expressed. "Ideally, individuals would benefit from engaging in rigorous practice before simulated juries before taking the witness stand." However, Bankman-Fried's trial preparation became noticeably more complex when Judge Lewis Kaplan revoked his bail in August, subsequent to prosecutors alleging that the defendant had leaked documents about Ellison to the New York Times. This action proved to be the tipping point for Kaplan, who had already observed other suspected instances of tampering with witnesses, compelling him to order Bankman-Fried's detention in a federal jail in Brooklyn, New York, thereby restricting his access to legal counsel.

Whats next for Bankman-Fried

Judge Lewis Kaplan set Sam Bankman-Frieds sentencing hearing for March 28. He is expected to remain in a federal jail in Brooklyn while he awaits sentencing.

His legal headaches are far from over.

A second trial is scheduled for March to address five additional charges that were separated from these proceedings. However, Judge Kaplan has requested the prosecutors to determine by February 1 whether they want to proceed with the second trial.

Inside the courtroom

The jury took just under five hours to reach a verdict.

Sitting in the second row of the galley, Sam Bankman-Fried's parents embraced each other tightly as each count was read.

As each "guilty" was read out loud, Joseph Bankman sank his head deeper and deeper into his lap.

Barbara Fried had her arm around him and kept squeezing his shoulder, as did he to her.

Her jaw trembled, and she instinctively rested her palms on her cheeks, absorbing the verdict. Her gaze remained fixed on her son, his eyes lowered and a frown etched on his face.

As the crowd started leaving the courtroom, Bankman-Fried's parents approached him. The lead defense attorney, Mark Cohen, gestured for them to wait patiently while he engaged in a conversation with Bankman-Fried.

Bankman-Fried only glanced at his parents when he approached the exit door, mustering a solemn smile. Barbara Fried, on the other hand, vigorously struck her chest with her hand before burying her face in Joseph Bankman's shoulder.