Photo illustration by Cath Virgina / The Verge
The trial could have huge implications for the crypto industry. Stay up to date as The Verge covers the trial from the Manhattan court.
Sam Bankman-Fried, the founder of failed cryptocurrency exchange FTX, is on trial for seven counts of wire fraud and conspiracy to commit wire fraud.
Bankman-Fried founded FTX because he was frustrated with other exchanges used by his crypto trading firm Alameda Research, according to a profile from FTX investors Sequoia Capital. But FTX was a fraud “from the start,” the Securities and Exchange Commission alleges.
Bankman-Fried is accused of misappropriating and embezzling FTX customer deposits, according to the superseding indictment. He represented himself as the Good Boy of Crypto, “spending millions of dollars to promote FTX and its sister company FTX.US as safe places to invest in cryptocurrency,” the indictment says. Meanwhile, “FTX’s finances contained a multi-billion-dollar deficiency caused by his own misappropriation of customer funds from the exchange.”
The customer money was used by Bankman-Fried to, variously, make billions of dollars of investments, buy $200 million of real estate, and repay Alameda’s lenders, according to the indictment.
The entire scheme came to light after CoinDesk published a blockbuster article about Alameda’s balance sheet. It showed that FTX and Alameda were very closely linked and that a lot of the balance sheet consisted of the FTT token, which was issued by FTX. That article led to Binance CEO Changpeng “CZ” Zhao — a former investor in FTX — saying he would sell his holdings of FTT.
A series of events resulted, which ended in FTX’s bankruptcy and Bankman-Fried’s resignation from the company. Ellison was charged by the SEC with manipulating the price of FTT, which inflated Alameda’s balance sheet. That misled people about FTX’s risk exposure from Alameda.
Besides the financial shenanigans, there is also the salacious aspect of the case. Bankman-Fried’s ex-girlfriend and childhood friend are testifying against him. The court has ruled questions about recreational drug use and political donations are fair game.
