- Sam Bankman-Fried's defense attorneys have argued that FTX's collapse is complicated and he didn't know everything.
- They've argued his ex-friends who pleaded guilty just want a lighter sentence.
During opening statements at Sam Bankman-Fried's trial, it quickly became clear that prosecutors and his defense attorneys had very different approaches.
Prosecutors told a simple story of straightforward theft. Bankman-Fried, they alleged, stole funds deposited by customers of his cryptocurrency exchange, FTX, by moving it to his hedge fund, Alameda Research, and took out loans for his own benefit.
Three of his close friends and associates — Caroline Ellison, Gary Wang, and Nishad Singh — had already pleaded guilty to conspiring with Bankman-Fried and would testify in the trial. The mechanics, involving financial concepts like cryptocurrency, highly leveraged loans, and market-makers, could be esoteric. But in a federal courthouse in downtown Manhattan, Assistant US Attorney Thane Rehn put it in plain terms.
"He spent the money on lavish houses for himself, his parents, and his friends," Rehn said. "He spent it so he could get introduced to celebrities. He spent millions more on political donations to gain influence in Washington. He poured money — other people's money — into his own investments to try to make himself even richer."
Bankman-Fried's attorneys say it was a little more complicated.
According to his lawyer Mark Cohen, the whole case is in the mechanics. Alameda took legitimate loans from FTX for legitimate business purposes, including for market-making purposes, he said. "Some things got overlooked" in the details at FTX, and Ellison made irresponsible decisions as the CEO of Alameda, Cohen said, leaving FTX exposed to disaster if cryptocurrency prices fell.
Crypto prices did fall in 2022, Cohen said, which led to the mess where customers couldn't withdraw money from their FTX accounts. But, he suggested, the losses could also be attributed to risky margin trading from customers. Very unfortunate? Sure. Criminal? Absolutely not, Cohen argued.
As the trial has gone on, it's become clear that Bankman-Fried's lawyers have a problem.
According to testimony from Bankman-Fried's former friends and business associates, the excuses about Alameda's market-making capabilities and spot margin trading are red herrings.
They just took the money, they've all said.
It's complicated, SBF's lawyers say
In their opening statement and cross-examination of witnesses, Bankman-Fried's lawyers have tried to complicate the story in two particular ways.
One, FTX allowed users to engage in spot margin trading. That allowed users to put up collateral in order to make particularly risky trades on the exchange. In certain circumstances where they were on the wrong side of a trade, they could lose money from their accounts.
Two, Bankman-Fried's lawyers have stressed Alameda's role as not just a trading firm on FTX, but as a market maker. Alameda had special privileges that allowed it to hold a negative balance on FTX — ultimately, negative $65 billion. Ellison, the now-former CEO of Alameda, testified that meant Alameda had an essentially unlimited line of credit from FTX, without any regard for whether the money belonged to customers.
To secure an acquittal in a criminal trial, defense attorneys need to convince just one juror to have reasonable doubt of their client's guilt. Prosecutors have accused Bankman-Fried of fraud, money laundering, and conspiracy, with a potential sentence of over a century. If any juror doubts even one count, it could help Bankman-Fried, who is 31 years old, spend less time in prison.
It's a high bar to clear, according to Sarah Krissoff, an attorney at Cozen O'Connor and former federal prosecutor in New York. But Bankman-Fried's attorneys may convince jurors that Bankman-Fried genuinely believed his actions were acceptable in the wild-west cryptocurrency industry.
"He thought this was okay in this world where crypto wasn't regulated, and so he had sort of no concept that this was a fraud," Krissoff said. "Now, the issue is that if all of the other insider witnesses have said, 'I knew this was wrong, and I pled guilty to crimes related to it.'"
Ellison, Singh, and Wang were all in Bankman-Fried's inner circle. Ellison led Alameda Research for much of 2021 and 2022. Wang co-founded Alameda and FTX with Bankman-Fried and led the latter as its chief technology officer. Singh knew Bankman-Fried since he was in high school and was the top developer at FTX, having intimate knowledge of its code. All of them lived together in a $35 million penthouse that Bankman-Fried purchased in the Bahamas with Alameda's funds. And all of them pleaded guilty to conspiring with Bankman-Fried to take customer money.
The challenge for Bankman-Fried's attorneys is to convince jurors that he didn't know about any wrongdoing. They've suggested that Bankman-Fried's former lieutenants and close friends are motivated to testify against him in hopes of getting lighter sentences for themselves.
"The question isn't so much necessarily, 'Is all of that wrong, or is that stuff criminal?'" said Paul Tuchmann, an attorney at Wiggin and Dana, and a former federal prosecutor in New York. "It's 'Did SBF know about it? Did he direct them to do it?'"
Everyone has pointed fingers at SBF
But while the defense attorneys have tried to obfuscate each witnesses' relationship with Bankman-Fried and his knowledge of wrongdoing, those witnesses have been forthright on the witness stand.
"The government has flipped everybody else in order to prosecute Sam Bankman-Fried," Krissoff said. "And by doing that, the fact that multiple other individuals have agreed 'I knew I was doing something wrong, I was committing a crime, I did something wrong, I knew it was illegal at the time' — it doesn't help his intent argument."
Bankman-Fried does have some points in his favor. In one memo shown to jurors, circulated in the fall of 2022 — before FTX and Alameda collapsed — Bankman-Fried lamented Ellison's skills running Alameda while he focused on FTX. He said the trading firm would have done better if he were at the wheel, which bolsters the defense attorneys' argument that Ellison, but not Bankman-Fried, is to blame.
But Ellison has held Bankman-Fried firmly responsible.
It was Bankman-Fried, she testified, who directed her to spent "in the ballpark of $10 billion" in customer deposits to repay loans as Alameda was collapsing.
"He was the one who set up the systems that allowed Alameda to take the money, and he was the one who directed us to take customer money to repay our loans," she said.
Who told Ellison to come up with a bunch of alternative balance sheets to give a rosy portrait of Alameda's finances to lenders?
"Sam directed me to," Ellison testified.
Who was responsible for the margin trading system that Bankman-Fried's lawyers suggested was to blame for lost customer deposits?
"Sam directed a lot of these specifics of how the code should run and what it should be doing," Singh testified. "As an example, Sam designed all the rules for the margin system and the liquidation engine, and Gary implemented them."
Every witness who developed FTX's software also pointed out that the spot margin trading program — which actually did introduce the possibility of customers losing funds — was something that individual customers needed to opt into. And FTX often bragged that its liquidation engine was so well-designed that losing funds would be extremely rare. In order to lose those segregated funds, customers would need to have their collateral liquidated, for market makers to reject those positions, and for a separate insurance fund to be completely drained, according to Can Sun, FTX's former top lawyer.
"It has been FTX's consistent position that they have never depleted the insurance fund, we have never clawed back users, and we have no intention of clawing back users as well," Sun testified in the trial. "It was one of FTX's main marketing and selling points."
Bankman-Fried's lawyers will have a tough time changing the narrative in front of the jury. One way to do it would be if Bankman-Fried took the witness stand himself and testified about his version of the story.
Doing so would be incredibly risky, particularly because Bankman-Fried has given so many interviews about his experience already. If prosecutors catch him in a lie during cross-examination, his potential sentence could be much harsher.
"He's challenged here," said Krissoff, the former federal prosecutor. "He would be in a much better position if he had not spoken out publicly so much about this before and he could just craft his testimony fresh."
The trial is expected to wrap up in the next week or two, depending on whether or not Bankman-Fried decides to testify.