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Sam Bankman-Fried FTX trial — five things you need to know

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Sam Bankman-Fried will face his first day in court over a litany of charges less than a year after the calamitous collapse of cryptocurrency exchange FTX.

The former CEO of the bankrupt exchange is set to face 21 days in court during his criminal trial scheduled from Oct. 4 to Nov. 9. Bankman-Fried has been in pre-trial detention at the Metropolitan Detention Center since Aug. 11 and has filed several unsuccessful motions seeking his release to prepare for his trial.

United States District Judge Lewis Kaplan denied the former FTX CEO’s latest motion for release, citing concerns that Bankman-Fried was a flight risk given the severity of charges being faced and the potential length of time he could spend behind bars if convicted. The former FTX CEO has been granted permission to meet with his legal team at 7 am on active court days.

Proceedings will begin with jury selection on Oct. 3 before the trial itself gets underway on Wednesday, Oct. 4. Cointelegraph has highlighted five major talking points ahead of one of the biggest cryptocurrency-related trials in history.

What happened to FTX?

Once hailed as the darling of the cryptocurrency industry, FTX was co-founded in 2019 by Bankman-Fried and Gary Wang and went on to become a household name in the United States due to its high-profile sponsorships and campaigns.

Over the next three years, the company carried out a series of fundraising rounds that included a preliminary $900 million raise in July 2021 and another $420 million raise in October 2021. 2022 promised to be fruitful for the exchange as it kicked off the year with a further $400 million fundraising round headed up by the likes of SoftBank and Temasek, valuing the company at an estimated $32 billion.

FTX signed several major sponsorship deals during those two years. These included Mercedes’ Formula 1 team, as well as a reported $135 million deal for the naming rights of the Miami Heat’s NBA arena.

The company appeared to be in sound standing as the wider cryptocurrency ecosystem wavered after the implosion of the Terra/LUNA stablecoin. Several high-profile cryptocurrency lending firms were caught in the fallout, which led to FTX making a $240 million offer to acquire BlockFi as well as a failed bid to bailout Voyager Digital.

Things began to unravel in November 2022, with rumblings of trouble at FTX related to its relationship with Bankman-Fried’s quantitative trading firm Alameda Research and the latter’s dependence on FTX’s native exchange token FTT.

The house of cards came crumbling down as Binance CEO Changpeng ‘CZ’ Zhao announced that the exchange would sell its FTT token holdings, which played a role as a catalyst for the liquidity crisis at FTX as the value of FTT plummeted.

On Nov. 11 2022, FTX, FTX US and Alameda Research began bankruptcy proceedings, with Bankman-Fried resigning as CEO. John Ray III, the man who handled the infamous Enron bankruptcy, was appointed as acting CEO to review and monetize remaining assets of the FTX group.

Seven counts

Bankman-Fried stands accused of seven counts of conspiracy and fraud relating to the collapse of the exchange.

The U.S. Justice Department had originally announced an eight-count Indictment with fraud, money laundering, and campaign finance offenses in December 2022. This included two counts of wire fraud conspiracy, two counts of wire fraud, and one count of conspiracy to commit money laundering.

An excerpt from the Justice Department’s indictment of Sam Bankman-Fried on Dec. 13, 2022. 

Bankman-Fried was also charged with conspiracy to commit commodities fraud, conspiracy to commit securities fraud, and conspiracy to defraud the United States and commit campaign finance violations.

The latter campaign contributions charge was subsequently dropped by the Justice Department in July 2023, due to an extradition agreement with The Bahamas from whence Bankman-Fried had been deported.

Who will testify?

The Justice Department informed presiding Judge Kaplan that it would call up several witnesses for the trial, including former FTX clients, investors and staff.

The U.S attorneys noted that they expected FTX customers who had deposited funds on the defunct exchange to testify regarding their expectations and understanding of the exchange’s deposit policy and the ability to withdraw funds at any time.

Investors that purchased shares in FTX are expected to testify about their expectations of the company being a custodian of user funds as well as the full scope of custodianship in regard to cryptocurrency exchanges.

Lastly, the Justice Department expects cooperating witnesses, who pled guilty to participating in a conspiracy to commit fraud alongside Bankman-Fried, to testify about their interactions with the former CEO, as well as about statements and actions he carried out in the months leading up to the bankruptcy.

Among the cooperating witnesses expected to appear are Wang, FTX engineering director Nishad Singh and Bankman-Friend’s ex-girlfriend and former Alameda Research CEO, Caroline Ellison.

How long could SBF be in jail?

According to the Justice Department, Bankman-Fried’s alleged crimes carry significant prison time.

The counts of wire fraud conspiracy, wire fraud, and money laundering all carry a maximum sentence of 20 years. Meanwhile, charges of conspiracy to commit commodities fraud, conspiracy to commit securities fraud and conspiracy to defraud the United States carry five-year maximum sentences.

According to CNN, the 30-year-old could face over 100 years in prison if he is found guilty of a multitude of charges brought against him by the U.S. government.

Biggest fraud case in U.S. history?

Legal experts have already suggested that Bankman-Fried’s trial could signify one of the most significant fraud cases in U.S. history. $8.9 billion of customer deposits and investor funds went missing in the wake of FTX’s collapse, while an estimated $7.3 billion of liquid assets have since been recovered through bankruptcy proceedings.

Bernie Madoff arguably remains the most enigmatic fraud case in America, as the recent rendition of his $19 billion Ponzi scheme in a Netflix documentary highlights the grand scale of his influence and shadowy scheme.

While Bankman-Fried may not have caused as significant a level of financial harm as Madoff, his own image and that of FTX’s brand as a visibly active cryptocurrency proponent has thrust the story into the spotlight as a modern-day parallel of the late Madoff’s 17-year fraud.

Bankman-Fried also became involved in the U.S. political landscape, donating over $40 million to democratic committees and candidates in 2022. The former FTX CEO reportedly even considered paying Donald Trump $5 billion to not run for president in the United States, according to author Michael Lewis’s upcoming biography.

Bankman-Fried maintains his innocence, having pleaded not guilty to all charges brought against him in Aug. 2023.

Magazine: Blockchain detectives: Mt. Gox collapse saw birth of Chainalysis