Sam Bankman-Fried’s crypto fraud trial neared its end with closing arguments on Wednesday in Manhattan federal court following weeks of testimony that lifted the veil of FTX’s stunning collapse – and a broader murkiness surrounding digital currency markets. The prosecution quickly painted Sam Bankman-Fried as an unabashed scammer rather than the image of the wayward math nerd proffered by the defense throughout the trial, saying he created a “pyramid of deceit” with his cryptocurrency exchange, FTX.
Assistant US attorney Nicholas Roos also used Bankman-Fried’s own testimony against him.
“FTX was bankrupt. Billions of dollars from thousands of people, gone,” Roos said. “He spent his customers’ money, and he lied about it.”
Just before 10am, Roos started his closing argument by describing the final days of FTX in November last year, which started with the crypto equivalent of a bank run.
Exchange customers learned in a Coin Desk article that Alameda Research, FTX’s sister hedge fund, held billions in FTX’s own cryptocurrency, FTT, and had used it as collateral for hefty loans. Following the report, the Binance chief executive, Changpeng Zhao, tweeted that his exchange would unload its $500m in FTT holdings. FTT crumbled, bringing FTX and Alameda down with it.
“With each day, the withdrawals grew – millions of dollars turned into hundreds of millions of dollars, which turned into billions of dollars. Thousands of people around the world were trying to withdraw their investments, their savings, their nest eggs for the future, but their withdrawals were not being processed. Money wasn’t being returned,” Roos told jurors.
“They were overcome with anxiety. With each additional click of the withdrawal button their dread turned into despair. Their money was gone.”
Bankman-Fried faces seven counts on conspiracy and fraud charges for allegedly siphoning FTX customer funds into Alameda; the prosecution contends that he did so to cover Alameda’s widening debt following the spring 2022 crypto crash. He has pleaded not guilty.
Roos described Bankman-Fried’s alleged antics as “a pyramid of deceit built by the defendant on a foundation of lies and false promises, all to get money. Eventually it collapsed, leaving countless victims in its wake.
“The defendant is responsible,” Roos said, pointing to Bankman-Fried at several points.
When Bankman-Fried’s lawyer, Mark Cohen, presented his closing, he in effect argued that the prosecutor’s case hinged too heavily on Bankman-Fried’s scruffiness rather than the substance of his actions. Cohen argued: “The government has sought to turn Sam into some sort of villain, some sort of monster.
“Testimony about his hair, his clothes, testimony about his sex life, photos of him with big hair, photos of him with messy hair, photos of him with playing cards,” Cohen said. “His appearance and his romantic relationships have nothing to do with whether he’s guilty to the specific charges in the indictment.”
“We’ll agree that there was a time when Sam was probably the worst-dressed CEO in the world and had the worst haircut … and we’ll agree that Sam would talk to just about everyone … and that made his life messy … but that’s not a crime,” Cohen said.
“The reason the government focused so much of its case on Sam’s appearance is because every movie needs a villain.”
Cohen repeatedly told jurors that Bankman-Fried was acting in good faith and insisted this was a defense to the charges in this case. The attorney said he wanted to show jurors “an alternative way to think” about what happened as well as Bankman-Fried’s behavior on the witness stand. He said that Bankman-Fried’s testimony before lawmakers showed that he wasn’t a cunning criminal.
“If he was a criminal mastermind, why in the world would he go in front of Congress and [be] subject to public questioning when he didn’t have to?” Cohen said. “The answer? He wouldn’t.”
Cohen also rejected the government’s contention that Bankman-Fried lined his pockets and bolstered a luxury lifestyle using customer money.
While the government portrayed Bankman-Fried’s spending hundreds of millions in marketing as an “aha!” moment, to purportedly show his misuse of this money, Cohen said, he thought marketing costs were in keeping with the industry.
Cohen also addressed the sprawling Bahamas properties, including a $30m apartment Bankman-Fried lived in with top FTX executives, downplaying their purpose as workmanlike.
“Why did Sam purchase these properties? Why did FTX purchase them?” Cohen said. “Sam is clear on this in his testimony – the Bahamas real estate was corporate housing for FTX employees.”
FTX, he said, was trying to court top professionals who “uprooted their lives” to move there when they could just have easily gone to work at Google or Facebook.
The prosecution also argued in closing that Bankman-Fried’s decision to testify in his own defense last week – a rare move for criminal defendants, given the perils of cross-examination – was not worth the risk.
“The defendant took the stand and he told a story – and he lied to you,” Roos said of Bankman-Fried’s direct testimony. “Did you see on Friday how his testimony was smooth, like it’d been rehearsed a bunch of times?”
Roos noted that Bankman-Fried testified about “a bunch of things that didn’t really matter” for the case – like his bookish living situation at MIT. And when it came to explaining various things during direct examination, he appeared to have “perfect memory”.
“He never said he couldn’t recall,” Roos said, but when it was prosecutors’ turn, this professed lack of memory “happened over 140 times during his cross-examination”.
“He had to be asked and re-asked. He looked away. He lied about big things and he lied about little things,” Roos argued. “He asked for terms to be defined that he used freely on direct examination earlier.
“He approached every question like up was down and down was up … he came up with a tale that was conveniently put together in a story that excluded him from a fraud,” Roos continued.
Cohen tried to downplay Bankman-Fried repeatedly saying he didn’t recall facts during cross-examination. He said, “if he remembered something he told you, if he didn’t remember something he told you as well.”
The prosecutor argued that Bankman-Fried used hi-tech subterfuge to cheat customers who trusted that FTX was as safe as he claimed – and treated their money as “his personal piggy bank”.
Alameda, FTX’s sister hedge fund, was able to borrow exchange customer money and rack up debt on a whopping $65bn line of credit, unlike other exchange clients.
“He set up a system, a public system, for everyone and a secret system just for Alameda, and he directed others to make it work that way,” Roos said. “No other customer had a set-up like Alameda.”
There was also the liquidity issue. FTX had a system that barred customers from continued margin trading when their liquidity dipped below a certain level; this was not the case with his hedge fund.
“He knew that Alameda was exempt from the rules that applied to all the other customers,” Roos said. “What is the result of Alameda’s secret exemption? The defendant took billions of dollars of customer funds, leaving an enormous gap between what it said it had … and what it actually had in cryptocurrency wallets.”
All the while, Bankman-Fried was peddling a false sense of security, Roos argued.
“He ran ads saying FTX was safe, the safest and easiest way to buy and sell cryptocurrency he told Congress and the public by, quote, ‘logging into a customer account at FTX customers can immediately view assets they own held in custody at FTX,” Roos said. “That last part is critical – assets they own, held in custody by FTX.
“That wasn’t true. When customers logged into their account they saw a balance. Behind the scenes, that money wasn’t there.” Ads featuring the Seinfeld creator Larry David and football legend Tom Brady were part of this web of deception.
Roos also argued: “He was taking money from FTX customers when he was saying something different publicly – that makes him guilty of fraud.”
Cohen closed by asking jurors to take Bankman-Fried’s intent into account, though laws governing securities fraud do not take hinge on intent in the same way other criminal statutes such as murder do.
“Some decisions and judgments turned out very well,” Cohen remarked, saying shortly thereafter, “some decisions turned out poorly, especially about hedges. Business decisions made in good faith are not grounds to convict.”
