A single question has dominated the first week of Sam Bankman-Fried’s fraud trial: which version of this tech bro do you believe?
Prosecutors have cast Bankman-Fried – the 31-year-old founder of the failed cryptocurrency exchange FTX – as the mastermind of a $10bn fraud, among the largest and most nefarious in American history. They say he selfishly squandered the money of customers who put their trust in FTX. He lavished the cash on ritzy properties, ill-gotten influence, glamorous travel, and the highest-profile ads, all while concealing a hidden mountain of debt, they allege.
His lawyers, by contrast, have done their best to portray him as a wayward boy genius – a “math nerd who didn’t drink or party”, according to his lawyers’ opening statement. They describe the motivation for his actions not as malice so much as inexperience with normal business operations. An observer could only wonder whether Bankman-Fried’s misshapen haircut and ill-fitting suit – purchased at Macy’s at a 40% discount, according to the Wall Street Journal – were a ploy for sympathy along the same lines.
This early defense strategy of a hopelessly harried tech founder, of a hi-tech Icarus, sets the stage for the next five weeks of trial. There’s strong skepticism that this approach will work, though, with one legal expert bluntly telling the Guardian: “Jurors aren’t stupid.”
Bankman-Fried is charged with seven criminal counts of securities fraud, wire fraud, and conspiracy to launder money. He has pleaded not guilty to them all.
In his opening, Bankman-Fried’s lawyer Mark Cohen laid the groundwork for a motivation-based defense. Bankman-Fried was a do-gooder at heart, he said. “Sam didn’t defraud anyone. Sam didn’t intend to defraud anyone,” Cohen said. “Sam acted in good faith in trying to build and run FTX and Alameda.” Alameda Research was a hedge fund closely tied to the crypto exchange.
Bankman-Fried “believed, reasonably believed, that loans that FTX made to Alameda were permitted and backed by reasonable security and collateral,” Cohen said. “Sam believed that the loan funds were not spirited away but remained in investments, and Sam did not steal from anyone. He did not intend to steal from anyone.”
FTX was fast-growing and had hiccups similar to other startups, according to Bankman-Fried’s defense. “You know there is an expression about startup companies that you all may have heard. Working on a startup or at a startup is like building a plane as you are flying it,” Cohen told jurors. “You will learn that happened here as well. Sam and his colleagues were building the plane as they were flying it.”
“Things were happening quickly, very quickly. Sam and others made hundreds of decisions a day. At any given point in time there are dozens of things on his to-do list and on others too, everyone else’s too,” Cohen said.
FTX hadn’t launched a complete risk management team by the time of its collapse, which Cohen described as part of the company’s growing pains. “It didn’t have a chief risk officer, which became an issue later on, when the storm hit,” he said.
“As a result, some things got overlooked, some things were still in progress, things a more mature company, an older company would have built out over time. But at FTX they were still works in progress,” he added.
Carl Tobias, a law professor at the University of Richmond, said he did not think this apparent “in over his head” approach amounted to much of a defense against allegations of a $10bn fraud.
“Jurors are not stupid,” Tobias said. “It’s not like he was reared by people who didn’t understand finances, right?” Bankman-Fried’s parents, Barbara Fried and Joseph Bankman, are celebrated Stanford Law School professors. They have accompanied their son to his trial. FTX, now in control of a chief executive appointed by a bankruptcy court, has filed suit against them.
“I just don’t see how the jury’s going to receive that very well, given what he did with all the money of other people. It’s hard to believe that they would have much sympathy for that,” Tobias said. “It’s kind of like ‘So what?’ to people who work for a living, that type of thing, who are likely to be on the jury.”
The defense also took some time this week to blame others for errors related to FTX and Alameda’s downfall. One target of this strategy was Caroline Ellison, Bankman-Fried’s sometimes-girlfriend whom he installed as chief executive of the hedge fund.
In early 2021, when Bankman-Fried worried about a potential downturn, he asked Ellison to take a defensive position. She didn’t – on two key occasions, Cohen alleged. “As the majority owner of Alameda, he spoke to Ms.Ellison, the CEO, and he urged her to put on a hedge, something that would protect against such a downturn,” Cohen said. “She didn’t do so at the time, and this also becomes an issue later on, when the storm hit.”
Christian Everdell, another of Bankman-Fried’s attorneys, also tried using Adam Yedidia, Bankman-Fried’s former confidant turned government witness, to poke holes in prosecutors’ contention that Bankman-Fried played fast and loose with FTX’s money. Bankman-Fried was a billionaire many times over, Everdell said, but did he have a fancy watch? Did he have a yacht? What about a sports car?
Everdell also asked Yedidia whether Bankman-Fried and his cronies’ $35m Bahamas apartment was like communal corporate housing. “This was essentially like dorm living, right?” Everdell asked.
“It was similar to dorm living in certain senses and different in others.”
“Everybody was sort of together, at least those people that I mentioned were together living together in that apartment, right?” Everdell asked, later questioning: “And that allowed you guys, for example, to discuss the business together, right?”
On redirect, prosecutor Danielle Sassoon tried to dispel any notion that the Bahamas apartment was workmanlike.
“Did this feel like a dorm to you?” asked Sassoon.
“It felt like a dorm in the sense that I was living with others, but not like a dorm in the sense that it was very luxurious,” said Yedida.
Bankman-Fried’s trial enters its second week on Tuesday.
