- Billions of dollars of customer funds were lost after the price of crypto dipped and FTX collapsed.
- Prosecutors now say that Sam Bankman-Fried committed fraud and conspiracy when he oversaw FTX.
The collapse of FTX in 2022 wasn't the result of fraud or a deliberate scheme to steal from customers; it was just the nature of a volatile cryptocurrency market, Sam Bankman-Fried's attorney argued on Wednesday.
Bankman-Fried, the 31-year-old founder of crypto exchange FTX and Alameda Research trading firm, sat in for the second day of his trial in a Manhattan court on Wednesday where he faces seven criminal charges. Federal prosecutors accuse Bankman-Fried of defrauding customers and siphoning their funds to make outside investments such as in real estate and political donations.
Bankman-Fried has pled not guilty.
His attorney, Mark Cohen, argued during opening statements on Wednesday that Bankman-Fried never intended to defraud anyone or mislead customers to get them to invest in FTX.
And when it comes to the crypto exchange's collapse — causing more than $8 billion in customer funds to vanish — that was simply an unlucky outcome of investing in an unpredictable market with "many factors that no one can control," Cohen argued.
In the lead-up to FTX's downfall last November, the cryptocurrency exchange's valuation peaked at $32 billion while the price of some of the world's largest tokens such as Bitcoin and Ether were in freefall. For the first time since 2021, the crypto market overall was worth less than $1 trillion by June 2022.
Today, crypto's total market cap stands at around $1.08 trillion, according to Statista.
That kind of turbulence is precisely what can overwhelm burgeoning companies like FTX, Cohen tried to argue.
In overseeing FTX and Alamadea, "Sam believed they were both good companies dealing with a liquidity crisis and that they could get through it," he said. He later added, "It's not a crime to run a business."
Prosecutors, on the other hand, argued that all of Bankman-Fried's crypto empire was "built on lies" and that the founder used his customer funds to funnel it to other investments without letting them know.
An attorney on FTX's bankruptcy team last year said that Bankman-Fried ran his company like his "personal fiefdom" and that FTX spent almost $300 million on real estate in the Bahamas.
While Cohen tried to play up the issue of the crypto market, several crypto executives and leaders believe that the problem lies in what they might characterize as fraudulent players like Bankman-Fried, not the digital currency itself.
"Sam should get convicted because he's a criminal," Sheila Warren, CEO of the Crypto Council for Innovation lobbying group told The New York Times. "The industry supports that because a lot of people felt burned by him."
Qiao Wang, founder of Alliance, an accelerator for crypto start-ups, told the publication that people like Bankman-Fried have caused others to sour on the crypto world.
"It hurts the industry," he told the newspaper. "I can't wait to see Sam get punished."