Sam Bankman-Fried was found guilty on Thursday for his role in the collapse of crypto exchange FTX.
After 15 days of testimony and about four and a half hours of deliberations, jurors returned a verdict that found him guilty on seven counts of fraud and conspiracy.
Bankman-Fried looked sunken as the verdict was read out. After the jury was released, he stood, head bowed and shaking as his lawyer spoke in his ear. A few feet behind him, his parents stood watching. As Bankman-Fried was escorted out of the room, he turned back and smiled at his parents. His father, Joe Bankman, put his arm around his mother’s shoulders. As their son left the room, Barbara Fried broke down in tears.
Bankman-Fried was found guilty of stealing billions of dollars from accounts belonging to customers of his once-high-flying crypto exchange FTX. He was also found guilty of defrauding lenders to FTX’s sister company, the hedge fund Alameda Research, which held FTX customer funds in a bank account.
During his trial, Bankman-Fried said he learned in 2020 that FTX customer funds were held by Alameda but he did not take action to safeguard them.
When he later discovered in the fall of 2022 that Alameda owed $8 billion to FTX, no one was fired.
Other charges Bankman-Fried was found guilty of include defrauding investors in FTX and a money-laundering charge.
The verdict caps a yearlong saga that took the 31-year-old Bankman-Fried from a billionaire living in a luxury apartment in the Bahamas to a defendant in one of the biggest white-collar crime cases since Bernie Madoff’s Ponzi scheme that fell apart in 2009.
FTX was once one of the most trusted names in crypto. The trial has been closely watched by regulators, investors and the crypto community for signs of a potential larger crackdown on the largely unregulated crypto market.
The verdict comes a year after FTX entered a death spiral that fueled a panic in the trillion-dollar crypto industry and left an estimated 1 million customers facing potential losses. Prior to its collapse, the exchange attracted millions of users and a coterie of A-list backers, such as Tom Brady and Gisele Bundchen.
FTX, founded by Bankman-Fried in 2019, billed itself as a safe and easy way to start trading cryptocurrencies – digital assets whose values are based largely on a collective hope for their future application, which remains murky.
In the early 2020s, with interest rates at zero and millions of amateur investors stuck at home, FTX’s popularity as a crypto portal skyrocketed. By 2022, FTX was airing Super Bowl ads and plastering its name on the Miami Heat’s arena.
But FTX collapsed into bankruptcy on November 11, 2022 after what was effectively a run on the bank – a customer panic sparked by a leaked document that suggested irregular financial dealings between FTX and another firm owned by Bankman-Fried.
But, unlike bank customers, FTX depositors had no federal insurance fund to compensate them when the cash dried up. And despite FTX’s public assurances that it didn’t invest or move customer deposits in any way, Bankman-Fried’s other firm had been secretly siphoning deposits to repay its own lenders, underwrite executives’ luxury lifestyles, gamble in crypto markets and funnel millions of dollars in US political campaigns.
That other firm was Alameda Research, a hedge-fund-like crypto trading house that Bankman-Fried launched in 2017.
What Alameda was doing
Almost as soon as FTX was created in 2019, Bankman-Fried ordered co-founder Gary Wang to and Chief Technology Officer Nishad Singh to tweak the platform’s code to allow Alameda, as a customer on the exchange, certain “special privileges” that other customers lacked, according to Wang’s testimony.
Both Wang and Singh have pleaded guilty to financial crimes as part of a plea deal with the government.
Those privileges included a virtually unlimited line of credit for Alameda that its executives could tap at any time, Wang testified. Alameda’s main trading account was also given an “allow negative” flag, meaning it could incur a negative balance without repercussion – a privilege that no other FTX customer was granted, Wang testified.
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