According to U.S. authorities, Sam Bankman-Fried embezzled money from FTX cryptocurrency exchange depositors since he started it in 2019, and the shortage caused its collapse when crypto prices fell last year.

Bankman-Fried believed, in his own words and his lawyers’ explanations, that FTX, like a bank, could invest customers’ money as long as they could withdraw it. He was unaware that his closest colleagues had jeopardized funds.

A Manhattan federal jury will consider these competing tales in Bankman-Fried’s fraud trial for six weeks starting Oct. 3. The 31-year-old former millionaire will be tried on seven counts of fraud and conspiracy.

After leaving Jane Street as a quantitative trader to create crypto hedge fund Alameda Research in 2017, Bankman-Fried has pled not guilty.

A conviction would complete his stunning collapse. As bitcoin and other digital assets rose in 2020 and 2021, he became a poster child for responsibility in the volatile cryptocurrency business.

He put FTX’s emblem on a Miami basketball stadium and MLB umpires’ jerseys. He got famous sportsmen and actresses to promote the site as safe. After his net fortune reached $26 billion, he committed to donate most of it to pandemic preparedness.

The crypto price crash of 2022 saw other large digital currency platforms fail, with Bankman-Fried bailing out several. FTX survived.

However, CoinDesk revealed an Alameda balance sheet in November, revealing the fund was significantly exposed to FTX’s FTT cryptocurrency. That caused a consumer withdrawal tsunami the exchange could not recover from.

Prosecutors claim it was a facade. Bankman-Fried is accused of diverting billions of dollars in FTX deposits to patch Alameda losses, acquire luxurious real properties, and donate to crypto-friendly U.S. political campaigns.

“This is one of the biggest financial frauds in American history,” Manhattan U.S. Attorney Damian Williams stated in December 2022 after Bankman-Fried was arrested in the Bahamas, where FTX was located.

Bankman-Fried admits poor risk management but denies theft. He planned to tell Congress in a December hearing over FTX’s collapse that he made a mistake and didn’t know how much FTX had lent Alameda due to a “quirk” in the company’s internal controls, according to a Forbes draft and Bankman-Fried confirmation. Bankman-Fried was arrested before testifying.

His attorneys believe Bankman-Fried should be permitted to provide evidence that he had a “good faith” conviction that his treatment of customer cash was legal and by FTX’s terms of service. Bankman-Fried must have planned to conduct a crime to be convicted.

“It’s always been Bankman-Fried’s best strategy to show that he’s not a criminal mastermind – he was just out of his depth,” said Buchanan Ingersoll & Rooney defense lawyer Mark Kasten, who is not involved in the case.

Ex-colleagues to testify
prosecutors plan to call three former Bankman-Fried associates—former Alameda CEO Caroline Ellison, former FTX technology chief Gary Wang, and former engineering chief Nishad Singh, who shared a $30 million Bahamas penthouse with their former boss—to prove their case.

All three pled guilty and promised to assist the authorities.

Bankman-Fried allegedly ordered Wang to tweak FTX’s computer code to allow Alameda to borrow limitless amounts of money, a capability other exchange customers lacked. Singh pleaded guilty to knowing by June 2022 that Alameda had borrowed billions from FTX without consumers’ authorization.

In her guilty hearing, former love companion Ellison testified that she and Bankman-Fried decided to disguise that Alameda had provided billions to FTX officials for personal use from the fund’s lenders.

Since mid-August, when U.S. District Judge Lewis Kaplan revoked Bankman-Fried’s $250 million bail, he has been preparing for trial from behind bars. Kaplan found he likely tried to intimidate Ellison by sharing her writings, in which she described her Alameda job struggles with

On Sept. 14, Bankman-Fried blamed Ellison for Alameda’s collapse in New York Times articles.

“Instead of discussing risk management, she ignored my advice until it was too late,” he wrote.

Bankman-Fried’s attorneys have stated in court documents that they would attack all three witnesses’ reliability.

Experts said they would likely challenge any testimony that their client knew well before the collapse about his companies’ dire financial straits because their case is that FTX customers’ inability to withdraw funds last November was caused by Bankman-Fried’s mistakes running his business, not a fraud scheme.

When did Bankman-Fried realize there wouldn’t be enough money? Former federal prosecutor and Wiggin and Dana partner Paul Tuchmann remarked. There wasn’t enough money for all the deposits. When did he know? His reason for believing that was when?”