To call it the cryptocurrency trial of the decade is probably something of an understatement. The trial of the former FTX boss in the US is being closely watched by the digital assets community. With the SEC pushing back on efforts to authorise a crypto ETF, many fans of crypto will be using the trial to take the temperature in the US about the future of digital assets.
The trial has only just opened, but here are some key observations.
#1. “A math nerd, who didn’t drink or party…”
Bankman-Fried is facing seven charges, among them those traditional stalwarts, wire fraud and conspiracy. The main accusation is that he siphoned off client funds to underwrite a lavish lifestyle in the Bahamas. His defence is going to argue that he has not in fact defrauded anybody. Attorney Mark Cohen, who made opening statements for the defence, said Bankman-Fried’s behaviour in the weeks preceding the collapse did not match the playbook of a seasoned fraudster, but somebody dealing with a legitimate liquidity crisis.
#2. Big names in showbiz in the frame
A number of big names in US sports and entertainment look set to be dragged into this one, as they were paid handsomely to promote cryptocurrency schemes. They and their legal teams may be regretting that participation now. We have already seen how the likes of Kim Kardashian got into hot water promoting cryptocurrencies in the US. Now in the limelight are the likes of comedian Larry David, American football legend Tom Brady and basketball player Stephen Curry. All have been named in the lawsuit.
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#3. This is a massive alleged fraud
The size of the alleged fraud – $10 billion – makes FTX one of the largest in US history, if it can be proven as such. This is still not at the level of the massive $64 billion Bernie Madoff ponzi scheme. But it’s big and of sufficient scale that it is highly doubtful Bankman-Fried will be walking free at its conclusion. The jury will, however, have to get to grips with the intricacies of the crypto markets prior to December last year, and the complex relationship between FTX and its pet hedge fund Alameda Research. Was it premeditated fraud or just, well, someone who didn’t understand what they were doing?
#4. Prosecution must prove fraud
Currently zero plea proposals have been extended from the Bankman-Fried defence team and there is a sense here that prosecutors were expecting something by now. The man himself has continuously denied criminal intent. He argues that he has been undermined by his competitors in the crypto space, and was also not sufficiently vigilant. The prosecution would have to make a case for deliberate fraud, rather than incompetence on the part of a group of maths whizzes who found themselves out of their depth. It is highly unlikely that Bankman-Fried is going to get away scot free, but the court will have one eye on the bigger names in Wall Street finance that could be dragged into this, and won’t want to be.
#5. Other parties could undermine the defence
The weak point for the accused could actually be those around him. There does not seem to have been enough coordination with the other FTX insiders also charged with Bankman-Fried. Are their defence teams talking to each other? Alameda Research CEO Carolyn Ellison and the FTX co-founder Gary Wang have both pled guilty to fraud and are even prepared to testify against their former boss (and in Ellison’s case, her ex-boyfriend). Attempting to influence witnesses before the trial has also moved Bankman-Fried from his parents’ house to a jail cell. This looks messy and could undermine the defence case considerably.
