Federal prosecutors on Wednesday opened the criminal trial of Sam Bankman-Fried, the founder of the failed cryptocurrency exchange FTX, with a simple message: He deliberately “lied to the world,” leading to one of the biggest financial frauds of a generation.
Mr. Bankman-Fried’s lawyer advanced a far different narrative. The former crypto mogul, the lawyer said, was simply a well-intentioned entrepreneur who acted “in good faith” to make his firm successful, with no intention to defraud anyone.
The dueling arguments are at the crux of Mr. Bankman-Fried’s trial, which has become the highest-profile reckoning for a business executive since the Theranos founder Elizabeth Holmes was convicted of fraud early last year.
A onetime crypto wunderkind, Mr. Bankman-Fried, 31, became a tousle-haired billionaire virtually overnight, only to see his company collapse last year and his fortune evaporate. He has been charged with orchestrating a conspiracy to use $10 billion that FTX’s customers had entrusted to him for all manner of personal projects, including venture capital investments, political donations and luxury real estate purchases.
“It looked like Sam Bankman-Fried was on top of the world,” Thane Rehn, a lead prosecutor, told a packed room at the federal courthouse in Manhattan on Wednesday. “All of it was built on lies.”
Mr. Bankman-Fried’s lawyer, Mark Cohen, soon hit back. “It’s not a crime to run a business in good faith that ends up going through a storm,” he said. He called the prosecution’s portrayal of his client a “cartoon of a villain” that distorted the facts.
Mr. Bankman-Fried, who has spent the last seven weeks in jail, appeared in court with close-cropped hair that had been cut recently by a fellow detainee. He wore a suit and tie and watched the proceedings flanked by his other lawyers, while his parents, the Stanford law professors Joseph Bankman and Barbara Fried, sat a few rows behind him.
His trial has become a closely watched referendum not only on the fall of FTX but on reckless behavior across the cryptocurrency industry. A frenzy over digital coins like Bitcoin and Ether swept up millions of everyday investors before the market imploded last year, wiping away people’s savings and sending a procession of start-ups into bankruptcy.
When FTX collapsed in November, Mr. Bankman-Fried became a symbol of the industry’s excesses. At the height of its power and influence, his company was valued at $32 billion and Mr. Bankman-Fried was widely hailed as a leader capable of bringing obscure crypto technology into the mainstream of global finance. He jetted back and forth from FTX’s base in the Bahamas to meetings in Los Angeles and Washington, where he rubbed shoulders with celebrities and politicians, and had his photograph plastered on billboards and magazine covers.
Now FTX is bankrupt and the crypto markets have cratered, leading to dozens of lawsuits and tens of billions of dollars in losses that have devastated the finances of individual investors around the world.
Mr. Bankman-Fried, who in private writings has called himself “one of the most hated people in the world,” has pleaded not guilty to seven counts of fraud and money laundering. If convicted, he could face what amounts to a life sentence in prison.
The FTX founder faces an uphill battle in the trial. Three of his top executives have pleaded guilty to fraud and agreed to cooperate against him — including his on-and-off girlfriend, Caroline Ellison, who ran Alameda Research, a hedge fund that Mr. Bankman-Fried started.
Prosecutors and defense lawyers said in court that they had not held any negotiations over a plea agreement, and that no deal had ever been offered to Mr. Bankman-Fried.
On Wednesday, Mr. Rehn accused Mr. Bankman-Fried of “fraud on a massive scale,” casting him as a schemer who was “not what he appeared to be.” He said Mr. Bankman-Fried had moved funds that customers deposited with FTX to Alameda, which then funneled the money into investments and donations.
Mr. Rehn repeatedly invoked the cooperating witnesses, stressing that people who say they participated with Mr. Bankman-Fried in the scheme would testify against him. He also pointed to Mr. Bankman-Fried’s posts on X, the social media service formerly known as Twitter, and commercials used to promote FTX, calling them lies intended to deceive customers.
“He was taking these customer deposits, and spending them for himself,” Mr. Rehn said. “The defendant was keeping his customers in the dark.”
Prosecutors have marshaled millions of pages of digital evidence, including text and email logs, as well as snippets of computer code that showed how FTX moved customer money to Alameda. They have an audio recording from the week of FTX’s collapse in which Ms. Ellison appears to admit that she and Mr. Bankman-Fried worked together to steal customer deposits. And they have won a series of pretrial disputes, allowing them to present evidence that Mr. Bankman-Fried has contested and prevent his legal team from mounting certain defenses.
Mr. Cohen, the defense lawyer, pushed back against the public narrative that Mr. Bankman-Fried was a con artist intent on stealing customer money.
“Sam didn’t defraud anyone,” he said. “Sam acted in good faith.”
Casting his client as “a math nerd who didn’t drink or party,” Mr. Cohen walked the jurors through FTX’s history, arguing that Mr. Bankman-Fried had acted in his customers’ interests, even if he didn’t always make the right decisions.
“No one person, no C.E.O., certainly not Sam, could be everywhere and doing everything,” he said.
Mr. Cohen also attacked the credibility of Ms. Ellison and the other cooperating witnesses, pointing out that they were trying to avoid long prison sentences. He said that Mr. Bankman-Fried had urged Ms. Ellison to put hedges on Alameda’s trading activity, but that she had ignored him, leading to some of the problems that caused the business empire to implode.
“You must consider what Sam did and said in real time,” he said. “He made business decisions that he thought were right when he made them.”
After the opening statements, prosecutors called their first witness, Marc-Antoine Julliard, an investor in London who lost more than $100,000 in cash and Bitcoin in FTX’s collapse. Mr. Julliard said he had thought FTX would keep his money safe.
Another witness, Adam Yedidia, a college friend of Mr. Bankman-Fried’s who worked at Alameda and FTX, said he had quit just before FTX filed for bankruptcy when he learned that its customer money had been siphoned off to Alameda. Testifying under immunity, Mr. Yedidia also discussed the lavish apartments in the Bahamas that prosecutors have said were bought with FTX customer money.
The opening statements and witness testimony began shortly after the judge overseeing the case, Lewis A. Kaplan swore in a jury of nine women and three men. During the selection process, one prospective juror said he and his twin brother had lost money in the crypto market, while another said she worked for a financial firm that had lost funds with FTX and Alameda. Both were excused.
A third candidate repeatedly said he didn’t know if he could be impartial because he didn’t understand how cryptocurrencies worked.
“You probably have a lot of company in this courtroom,” Judge Kaplan responded.
The prospective juror, who was excused, said the whole concept of crypto rubbed him the wrong way, reminding him of the Ponzi scheme carried out by the disgraced financier Bernard Madoff.
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