For several years, Sam Bankman-Fried was crypto’s rising star, a seemingly razor-sharp and legitimate figure in the largely opaque world.
As founder of the crypto exchange FTX and its associated hedge fund, Alameda Research, Bankman-Fried wooed private investors and lawmakers alike with his pitch of a crypto trading platform that was safer and more risk-averse than those that had preceded it.
As FTX boomed, Bankman-Fried’s profile rose. FTX and its leading competitor, Binance, would come to process most crypto trades around the world. By the age of 30, Bankman-Fried had amassed billions.
The founder played the part, known for his T-shirt-and-shorts uniform and philosophic pronouncements. Raised by Stanford law professor parents who studied utilitarianism – simply, the idea that moral action is what accomplishes the greatest good for the greatest number of people – he’d view business transactions from a similarly calculated lens.
Bankman-Fried also claimed to ascribe to effective altruism, a philanthropic movement popular among some megarich techies based on the principle of strategically donating so as to accomplish the greatest good for the greatest number of people. Some proponents have encouraged an “earning to give” mentality, where amassing a great fortune is a moral goal as it can be donated.
The doling-out-money mantra extended to politics. He dumped more than $40m into 2022 campaign contributions; most went to Democrats and related committees. But Bankman-Fried also made substantial “dark” donations to Republican candidates and even speculated that he might be the “second or third biggest” GOP donor during the 2022 midterm election cycle, CBS News said.
At his height in 2022, Bankman-Fried rubbed elbows with the likes of Tony Blair and Bill Clinton at a crypto conference in the Bahamas, where he had moved FTX in 2021 in part over its use of a trading mechanism prohibited in the US, per the New York Times. He even recruited the then married Tom Brady and Gisele Bündchen to hawk FTX in TV commercials.
Bankman-Fried’s confidants were along for the ride. At his side was Caroline Ellison, Alameda’s CEO and his on-again, off-again lover.
Ellison, too, projected tech bro-like eccentricities, waxing philosophical about free love and drugs. “Nothing like regular amphetamine use to make you appreciate how dumb a lot of normal, non-medicated human experience is,” she wrote in a now-notorious tweet.
The duo and eight others comprising the financial whiz’s inner circle shared a tony penthouse in the Bahamas, a living arrangement that some, including tech mogul Elon Musk, reportedly described as a “polycule”– that is, “a connected network of people and relationships, all of whom are in some way involved emotionally, sexually, or romantically with at least one other person”. The unorthodox cohabitation reportedly also included easy access to performance-enhancing drugs, with an in-house psychiatrist at the ready to prescribe prescription stimulants.
But Bankman-Fried’s meteoric rise, along with that of his businesses and quirky cronies, came to a screeching halt in November 2022 after CoinDesk reported that Bankman-Fried held billions in FTX’s own cryptocurrency, FTT, and had deployed it as collateral for weighty loans. Shortly after, the CEO of Binance, Changpeng Zhao, tweeted his firm would offload its $500m in FTT holdings, over “recent revelations that have come to light”. FTT tanked.
The developments prompted the equivalent of a bank run among customers, and FTX filed for bankruptcy protection, as did a host of related entities such as Alameda.
In December, the Manhattan US attorney’s office hit Bankman-Fried with financial crimes charges, alleging that he used investor funds to bankroll risky trades and sprawling expenditures at Alameda Research. Authorities have also accused Bankman-Fried of buying luxury real estate and funding the huge political donations with investor funds.
The Manhattan US attorney, Damian Williams, said of the charges: “This was not a case of mismanagement or poor oversight, but of intentional fraud, plain and simple.”
‘Um … Sam, I guess’
On Tuesday, Bankman-Fried will go on trial. The highly anticipated proceedings are poised to serve as a tell-all on FTX and Alameda’s shocking downfall, with jurors weighing whether Bankman-Fried callously lined his pockets with hapless investors’ money. Ellison will play a pivotal role in the case.
In recent court filings, prosecutors said Ellison and two other alleged co-conspirators are poised to take the stand. The other anticipated cooperating witnesses include Gary Wang and Nishad Singh. Wang co-founded FTX and served as its chief technology officer, while Singh served as the exchange’s head of engineering.
The trio, who have all pleaded guilty for their role in the alleged scheme, “formed the defendant’s trusted inner circle during the course of the conspiracy”, prosecutors said.
Ellison’s 19 December guilty plea will almost certainly presage her testimony. “While I was co-CEO and then CEO, I understood that Alameda had made numerous large illiquid venture investments and had lent money to Mr Bankman-Fried and other FTX executives,” Ellison said. She also admitted: “I agreed with Mr Bankman-Fried and others to provide materially misleading financial statements to Alameda’s lenders …”
Bankman-Fried’s former allies are expected to tell jurors that he directed illegal conduct, including the inclusion of code in FTX that let Alameda mishandle billions in customer assets.
Prosecutors are also expected to describe how Bankman-Fried scrambled to “maintain his charade” as FTX tanked, “knowingly tweeting false assurances to FTX customers and trying to raise billions of dollars in investment capital even while he knew that FTX was facing a solvency crisis as a result of his fraud”.
Ellison was key to maintaining the ruse, prosecutors maintain. The feds hope to use Ellison’s 9 November pep talk to Alameda employees as evidence of an alleged fraud plot. In an all-hands meeting with employees – which was recorded by an Alameda staffer – Ellison said she wanted to give a “general overview of the situation”.
“Starting last year, Alameda was kind of borrowing a bunch of money via open-term loans and used that to make various illiquid investments … Then with crypto being down, the crash, the – like, credit crunch this year, most of Alameda’s loans got called,” Ellison said. “And in order to, like, meet those loan recalls, we ended up borrowing a bunch of funds on FTX which led to FTX having a shortfall in user funds.”
At the meeting, Ellison claimed that Binance would buy FTX and cover customer funds. An employee wanted to know: who else knew about the exchange’s shortfall in customer money?
“Yeah, I mean, I guess I talked about it with, like, Sam, Nishad and Gary,’” Ellison purportedly said. When an Alameda employed pressed, “Who made the decision on using user deposits?” she replied, “Um … Sam, I guess.”
The defense
Some court filings from Bankman-Fried’s team have hinted that Bankman-Fried’s defense wants to cast him as a misunderstood figure whose behavior was motivated by desire to help the needy, not garden variety greed.
“The defendant in this case has ADHD, which might affect things like his physical behavior, body language, or eye contact,” Bankman-Fried’s lawyers want to note. His lawyers also want to ask about effective altruism.
Court filings also indicate that his team wants to mount an “advice of counsel” defense – that is, that Bankman-Fried’s coterie of lawyers didn’t apprise him of wrongdoing, indicating that he lacked criminal intent. Judge Lewis Kaplan gave them the green light to question government witnesses about recreational drug use, within certain parameters.
Ellison has yet to face cross-examination, but leaked digital diary entries have already subjected her to the court of public opinion. In those entries, reported by the New York Times, she expressed concern over her own leadership, saying: “Running Alameda doesn’t feel like something I’m that comparatively advantaged at or well suited to do.”
She also voiced angst over her relationship with Bankman-Fried, writing: “I felt pretty hurt/rejected” and that severing communication “felt like the only way I could regain a sense of power”.
Bankman-Fried’s bail was revoked following the article, with prosecutors alleging that he wanted to “interfere with a fair trial by an impartial jury”. Prosecutors also alleged in a court filing: “In addition to tainting the jury pool, the effect, if not the intent, of the defendant’s conduct is not only to harass Ellison, but also to deter other potential trial witnesses from testifying.”
Bankman-Fried maintains his innocence. His representative did not comment when asked about the upcoming trial.
He will remain jailed throughout his six week-long proceedings. If found guilty, the one-time crypto star is all but guaranteed to remain behind bars for what could easily be a decades-long sentence.
Ellison, who is out on bond, also faces the prospect of lengthy imprisonment. Her lawyers did not comment.
But Ellison’s allocution some nine months ago provides insight into her contrite state of mind. “I am truly sorry for what I did. I knew that it was wrong,” Ellison said. Judge Ronnie Abrams then asked: “You mentioned that you knew that what you were doing was wrong. Did you also know that it was illegal?”
“Yes,” she said.
In yet another mark of Ellison’s precipitous fall, the proceedings unfolded in a way that, at her height, she would have likely derided as “dumb”.
“In the past 24 hours, have you taken any drugs, medicine or pills or drunk any alcoholic beverages?” Abrams asked.
“I had one beer at about 8.00pm last night,” Ellison said. “That’s it.”
