All eyes are on Sam Bankman-Fried this week as the former CEO of crypto exchange FTX goes on trial in one of the biggest financial fraud cases of this decade on Tuesday. And it figures: This is set to be one of those cases that’s going to inspire a bunch of documentaries and books (there’s one already), since crypto is so new, there was so much drama around Bankman-Fried and his former colleagues, there’s the sheer scale of the alleged fraud, and the massive amounts of money involved.
Still, there’s a lot of speculation about what the case could look like. So to get to the meat of the matter, we spoke to a handful of legal experts on what to expect.
Here’s what we know: Bankman-Fried will go on trial for seven counts of alleged fraud and conspiracy over a six-week period, and if sentenced, he could spend the rest of his life in prison. It’s a financial crimes case, and there will be a lot of boring documentation involved, but we can also expect some spicy drama given that a lot of Bankman-Fried’s former colleagues have already pleaded guilty and may be testifying against him.
Some lawyers think the case could drag on for much longer than the six weeks, though. (There’s a separate trial scheduled in March 2024 for charges related to political corruption and money laundering.)
“Crypto is so complicated and so new, the prosecution will have to devote a lot of time just to explain what distinguishes it from ordinary stocks and bonds,” Anthony Sabino, professor of law at the Peter J. Tobin College of Business at St. John’s University, told TechCrunch+.
https://techcrunch.com/2023/10/01/ftx-lawsuit-timeline/
And then there’s the $8 billion that Bankman-Fried is alleged to have scammed from customers. “In one sense, this is your Enron, your Bernie Madoff, that once-in-a-decade sort of trial,” Christopher LaVigne, a partner in the litigation team at law firm Withers, said. “It’s a big deal and just trying to get a sense of the amount of money that was lost and that is currently being spent trying to chase it around. It’s going to go on for a long time to come, just like Bernie Madoff’s bankruptcy [trial] went on forever.”
But it’s a financial crimes case, so there’s also going to be a lot of slower parts where the lawyers and experts get into the nitty-gritty. “There’s going to be the phase of the trial where they have to introduce the transactional evidence, and that’s when jurors fall asleep and it’s just boring. It’s a document case,” LaVigne said. Still, it’s a routine and redundant part of the proceedings and has to be done to make a case on both sides.
According to Christine Adams, a former federal prosecutor who’s currently a partner at law firm Adams, Duerk & Kamenstein, this is essentially a combination of the Elizabeth Holmes Theranos case and the Bernie Madoff case: Both those cases had a seemingly genius founder/mastermind behind a complex and allegedly successful business that eventually turned out to be something much less concrete and legal.
The testimonies of Bankman-Fried’s former colleagues and staffers who entered into plea deals with the government are bound to be exciting, Sabino feels. And a lot of people are anticipating the testimonies of those currently overseeing FTX’s bankruptcy, who will explain what they found upon assuming custody of the firm, its assets, and its records.
Witnesses, evidence and relationships
There’s a lot of evidence stacked up against Bankman-Fried, according to LaVigne. “If the defense is ineffective at undermining the credibility of these main witnesses who clearly seem predisposed to blaming SBF for committing a crime, then that’s going to be the biggest issue.”
In December 2022, weeks after FTX’s collapse, John J. Ray III, the Enron turnaround veteran and current CEO of FTX, represented the company during a House Financial Services Committee hearing regarding FTX. The four-hour hearing covered a lot of ground, which we can expect to be reiterated during Bankman-Fried’s trial.
FTX co-founder and former CTO Gary Wang, and Alameda Research’s former CEO, Caroline Ellison, both pleaded guilty in December 2022 to federal criminal charges in relation to the FTX collapse and will likely serve as key witnesses during the trial, given that they were some of the closest people tied to Bankman-Fried, FTX and Alameda.
Ellison also previously had a relationship with Bankman-Fried, which has spurred a lot of drama.
In July, Bankman-Fried leaked Ellison’s diary to the New York Times, which resulted in U.S. District Court judge Lewis Kaplan revoking his bail ahead of the trial for misbehavior and crossing “a line.”
“She betrayed him by pleading and cooperating against him, then he betrayed her by leaking her diary, and now she is likely going to be a star witness against him at trial,” Adams said. “This is a lot of drama for one trial.”
If the jury sympathizes with Ellison, it may hold it against Bankman-Fried for leaking her diary, Adams said. “This is possible because she has been reported as seeming to be unusually earnest and genuinely remorseful,” she added.
Sometimes the actions that follow the actual crime seal the deal for jurors, said Terrence Yang, a managing director at Swan Bitcoin and a former senior counsel at Merrill Lynch.
In theory and by law, any witness tampering shouldn’t affect the original charges, but in practice, jurors are human beings, he added. He said it wouldn’t be unrealistic if at least one or two jurors Google Bankman-Fried and find out why he’s been in jail.
The “most damning” evidence is sure to come from the former FTX and Alameda executives as well as Ray and other professionals who took control of FTX following its collapse, Sabino said. “We can anticipate Mr. Ray, his accountants and turnaround professionals to testify at length about exactly what assets they found — or were missing — the records that they have, what those records will say, and surely a great deal about what they do not say, and/or missing records or other deficiencies in FTX’s accounting.”
A big question is whether Bankman-Fried will testify and tell the jury his own story, and whether jury members will believe it.
“I believe in our system of justice, but I’m also a realist,” LaVigne said. “Everybody reads the news, and he certainly hasn’t really made himself out to be a super sympathetic character. But he may simply just truly believe he did nothing wrong. It’s not unusual in criminal financial fraud cases, where the alleged fraudster, deep down in their bones, believes to the bitter end that they’ve done nothing wrong.”
Bankman-Fried has maintained his innocence, and he’s done it so loudly and publicly that Judge Kaplan issued a temporary gag order in late July while he was under house arrest (before his bail was revoked).
“I don’t think he did himself any favors,” LaVigne said. “As a practical matter, it gives the government more evidence. Not only does it give them more evidence, it gives them a roadmap.”
By far, one of the defense’s most useful strategies will be to undermine the credibility of the former FTX executives who took plea deals and are now testifying against SBF. One of the lawyers said Bankman-Fried’s case could be compared to the trial of John Gotti, also known as “Teflon Don,” a now-deceased American mobster who stood trial largely based upon the testimony of his underboss, Sammy “The Bull” Gravano.
Gravano testified to horrific acts by Gotti, but in doing so, Gravano had to admit to his own participation in all sorts of murder and mayhem, Sabino said. Gotti’s defense team did everything possible to persuade the jury that Gravano could not be believed, because of his own lengthy criminal history, but the jury gave credit to his testimony and Gotti was convicted.
While the Bankman-Fried case is certainly different, Sabino expects to see a similar scenario in this trial. “Put another way, if the SBF trial starts to look like the crypto equivalent of an organized crime trial, don’t be surprised,” Sabino said. The cross-examination of the former FTX executives will be a “knock-down, drawn-out brawl. Expect nothing less,” he added.
“Either these witnesses hold up or they don’t.”
Potential outcome unknown
Several of the lawyers TechCrunch+ spoke with for this story said they think the government’s case seems pretty strong. After all, the federal government, specifically this district of New York, is not in the business of bringing in high-profile financial cases that they lose.
“The odds seem to be stacked against SBF at this point,” Adams said. “Both the court and the prosecutors are highly experienced in fraud trials, the evidence seems overwhelming, and there are three senior executive insiders at FTX and Alameda who are testifying against him.”
“If the former FTX executives come off as believable, and the technical testimony does not put the jury to sleep, then SBF might be in for a very bad day,” Sabino said. “Conversely, if the defense succeeds in portraying the witnesses who plea bargained as bad actors themselves, SBF’s defense might gain some traction.”
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