FTX founder Sam Bankman-Fried convicted of defrauding cryptocurrency customers

The spectacular rise and fall of FTX founder Sam Bankman-Fried in the cryptocurrency industry — a journey that included his testimony before Congress, a Super Bowl advertisement and dreams of a future presidential run — came to an end Thursday when a New York jury convicted him of fraud for stealing at least $10 billion from customers and investors. Jurors dismissed Bankman-Fried’s allegation during evidence in Manhattan federal court that he never committed fraud or intended to defraud consumers before FTX, the world’s second-largest crypto exchange, went bankrupt a year ago. “Mr. Bankman-Fried. Please rise and face the jury,” Judge Lewis A. Kaplan commanded just before a jury forewoman responded “guilty” seven times to two counts of wire fraud, two counts of wire fraud conspiracy and three other conspiracy charges, which carry potential penalties adding up to 110 years in prison. Bankman-Fried is likely to face far less than the maximum at a sentencing set for March 28. As the decision was delivered, Bankman-Fried appeared astonished, his hands clasped in front of him, while his attorneys sat beside him. He sat down and spent some minutes looking down. His lawyer, Mark Cohen, later read a statement outside court to say they “respect the jury’s decision. But we are very disappointed with the result.” “Mr. Bankman Fried maintains his innocence and will continue to vigorously fight the charges against him,” Cohen said. U.S. Attorney Damian Williams, who sat in the front row of the spectator section during the verdict, stood before cameras outside the courthouse and said Bankman-Fried “perpetrated one of the biggest financial frauds in American history, a multibillion dollar scheme designed to make him the king of crypto.” “But here’s the thing: The cryptocurrency industry might be new. The players like Sam Bankman-Fried might be new. This kind of fraud, this kind of corruption is as old as time and we have no patience for it,” he said. He said the case should serve as a warning to every other fraudster who “thinks they’re untouchable, that their crimes are too complex,” that they are too powerful to prosecute or can talk their way out of their crimes because “I promise we’ll have enough handcuffs for all of them.” During three days of testimony, the jury rejected Bankman-Fried’s claim that he never committed fraud or conspired to steal from consumers, investors, or lenders, and that he didn’t realise his firms were at least $10 billion in debt until October 2022. Bankman-Fried’s parents, both Stanford University law professors, walked to the first row behind him after the jury left. His father wrapped his arm around his wife’s waist. As Bankman-Fried was escorted out of the courthouse, he looked back and waved towards his mother, who returned the gesture but then grew tearful, wiping her face with her hand after he departed. The trial drew a lot of attention because it focused on a massive fraud on a scale not seen since the 2009 prosecution of Bernard Madoff, whose Ponzi scheme defrauded thousands of investors out of roughly $20 billion over a decade. Madoff pled convicted and received a 150-year jail term, where he died in 2021. The trial of Bankman-Fried, 31, focused attention on the nascent cryptocurrency sector and a group of young executives in their twenties who shared a $30 million luxury flat in the Bahamas and dreamt of becoming the most dominant player in a new financial area. Prosecutors made sure jurors knew that the defendant they saw in court with short hair and a suit was not the man with big messy hair and shorts that became his trademark appearance after he started his cryptocurrency hedge fund, Alameda Research, in 2017 and FTX, his cryptocurrency exchange, two years later. They showed the jury pictures of Bankman-Fried sleeping on a private jet, sitting with a deck of cards and mingling at the Super Bowl with celebrities including the singer Katy Perry. Assistant U.S. Attorney Nicolas Roos called Bankman-Fried someone who liked “celebrity chasing.” In a closing argument, Cohen said prosecutors were trying to turn “Sam into some sort of villain, some sort of monster.” “It’s both wrong and unfair, and I hope and believe that you have seen that it’s simply not true,” he said. “According to the government, everything Sam ever touched and said was fraudulent.” The government relied heavily on the testimony of three former members of Bankman-Fried’s inner circle, his top executives including his former girlfriend, Caroline Ellison, to explain how Bankman-Fried used Alameda Research to siphon billions of dollars from customer accounts at FTX. With that money, prosecutors said, the Massachusetts Institute of Technology graduate gained influence and power through investments, contributions, tens of millions of dollars in political contributions, Congressional testimony and a publicity campaign that enlisted celebrities like comedian Larry David and football quarterback Tom Brady. Ellison, 28, testified that Bankman-Fried directed her while she was chief executive of Alameda Research to commit fraud as he pursued ambitions to lead huge companies, spend money influentially and run for U.S. president someday. She said he thought he had a 5% chance to eventually be U.S. president. Becoming tearful as she described the collapse of the cryptocurrency empire last November, Ellison said the revelations that caused customers collectively to demand their money back, exposing the fraud, brought a “relief that I didn’t have to lie anymore.” FTX cofounder Gary Wang, who was FTX’s chief technology officer, revealed in his testimony that Bankman-Fried directed him to insert code into FTX’s operations so that Alameda Research could make unlimited withdrawals from FTX and have a credit line up to $65 billion. Wang said the money came from customers. Nishad Singh, the former head of engineering at FTX, testified that he felt “blindsided and horrified” at the result of the actions of a man he once admired when he saw the extent of the fraud. He said the collapse last November left him suicidal. Ellison, Wang and Singh all pleaded guilty to fraud charges and testified against Bankman-Fried in the hopes of leniency at sentencing. Bankman-Fried was arrested in the Bahamas last December and extradited to the United States, where he was freed on a $250 million personal recognizance bond with electronic monitoring and a requirement that he remain at the home of his parents in Palo Alto, California. His communications, including hundreds of phone calls with journalists and internet influencers, along with emails and texts, eventually got him in trouble when the judge concluded he was trying to influence prospective trial witnesses and ordered him jailed in August. During the trial, prosecutors used Bankman-Fried’s public statements, online announcements and his Congressional testimony against him, showing how the entrepreneur repeatedly promised customers that their deposits were safe and secure as late as last Nov. 7 when he tweeted “FTX is fine. Assets are fine” as customers furiously tried to withdraw their money. He deleted the tweet the next day. FTX filed for bankruptcy four days later. In his closing, Roos mocked Bankman-Fried’s testimony, saying that under questioning from his lawyer, the defendant’s words were “smooth, like it had been rehearsed a bunch of times?” But under cross examination, “he was a different person,” the prosecutor said. “Suddenly on cross-examination he couldn’t remember a single detail about his company or what he said publicly. It was uncomfortable to hear. He never said he couldn’t recall during his direct examination, but it happened over 140 times during his cross-examination.” Former federal prosecutors said the quick verdict — after only half a day of deliberation — showed how well the government tried the case. “The government tried the case as we expected,” said Joshua A. Naftalis, a partner at Pallas Partners LLP and a former Manhattan prosecutor. “It was a massive fraud, but that doesn’t mean it had to be a complicated fraud, and I think the jury understood that argument.”