Sam Bankman-Fried, the “crypto genius”, before the judges

“I'm broke, I wear an electronic bracelet and I'm one of the most hated people in the world (…). And the truth is, I did what I thought was right.” Addicted to Twitter, Sam Bankman-Fried (SBF) wrote these lines shortly after his arrest, in December 2022, in a long series of posts that he ultimately never published on the social network, but entrusted to a crypto influencer . The founder of the FTX platform intends to defend this posture against all odds during the trial which will open on October 3 before the jury of a federal court in New York.

The thirty-year-old is the central figure in the most resounding scandal that the cryptoasset market has ever known. An alleged fraud that caused a million investors to lose more than $8 billion and devastated an industry still struggling to recover. SBF will answer to seven counts, including money laundering, fraud and conspiracy to commit several types of fraud for the alleged defrauding of customers and investors of the FTX platform and its sister company Alameda Research.

For six weeks, the trial promises a great unpacking. The latter has already largely started since the sudden collapse of the FTX platform, in November 2022. Because the former “little crypto genius” was quickly let go by the members of his inner circle. In unison to share luxurious residences in the Bahamas, romantic relationships or recreational substances, the quartet of insiders who managed the FTX empire alongside SBF shattered at the first sounds of the legal sirens. “One for all” has transformed into everyone for themselves. First to sit down at the table, Caroline Ellison. This former girlfriend of “SBF”, appointed general manager of Alameda Research in October 2021, admitted to misuse of client funds. Alameda Research was the first pillar of the small crypto empire built by SBF in less than five years.

At the end of 2017, he created this company specializing in high-risk trading of cryptoassets, after working for three years for the hedge fund Jane Street, where he met Ellison. As he explained in an interview with Forbes, SBF defines itself more as a “mercenary” than a “crypto evangelist”: “I would speculate on orange juice if it brought me more.” But at that time, easy arbitrage opportunities between geographic areas on cryptoassets allowed him to quickly earn a lot of money. In 2019, he founded FTX, a platform designed “for traders”, allowing transactions on complex crypto products. Until the end of 2021, the company is experiencing crazy growth, riding the madness around cryptos and NFTs. It claims to be the second largest cryptocurrency exchange platform in the world, behind the giant Binance. At the same time, with an atypical look of a teenager with shaggy hair, SBF is building its image as a “little crypto genius”, capable of fundraising and spectacular marketing operations, who only needs five hours of fractional sleep to give the best of himself, despite attention deficit hyperactivity disorder, for which he is being treated.

His success - and his fortune, once estimated at $26 billion - allows him to attract an ecosystem of sports stars, financiers and politicians of all stripes who accept generous donations. His speech on the need for regulation in a sector which sorely lacks it appeals to many. He is being interviewed in Congress and will even, with the nerve, obtain a meeting with Jerome Powell, the president of the Federal Reserve, to discuss crypto. But behind all this smoke and mirrors, the investigation by the US Department of Justice shows that there was no control and a total mixing of assets between the companies FTX and Alameda Research.

The mechanism comes to a halt in the spring of 2022 with the sudden drop in certain cryptoassets and the fall of TerraUSD. To cover financial losses, fund transfers are intensifying. At the beginning of November, FTX could no longer return the money they had deposited to its clients. According to Caroline Ellison, former managing director of the company Alameda Research, “SBF” was aware and would have even ordered the intensification of these transfers in an attempt to avoid bankruptcy, which the person concerned fiercely denies. This is the question that the trial will have to decide: how much did SBF know, and since when? He has pleaded not guilty to all charges against him. His line of defense: he was unaware of doing illegal things. He presents himself as a manager who did not really know what was happening in terms of accounting as he had so much to do, or even poorly advised by lawyers... He barely recognizes failures in risk management procedures...

A disciple of “pragmatic altruism”, a current of thought popular in Silicon Valley, SBF repeatedly repeats that his only goal was to make his fortune as quickly as possible in order to finance good causes which are his. dear…

This line of defense has had difficulty coping with certain behaviors since his arrest. Although he had obtained house arrest at his parents' house upon payment of a 250 million bail, Sam Bankman Fried was sent back to Brooklyn prison last August, after publication in the New York Times extracts from Caroline Ellison's diary. Justice saw this as an attempt to suborn the witness and manipulate media coverage...

Also read Friends, lovers and colleagues: the secrets of the quartet that orchestrated the rapid rise and collapse of FTX

The Justice Department has other damning testimony. In December, his former study friend, Gary Wang, co-founder and head of technology at FTX, indicated that he had been responsible for modifying the codes of FTX's information system between 2019 and 2022 while knowing that this would give Alameda Research special privileges. Nishad Singh, CTO, and recently, Ryan Salame, former CCO also pleaded guilty and admitted to illegal transfers of client funds from FTX to Alameda. In addition to these testimonies and the active collaboration of these relatives directly involved in the operations, the American Department of Justice gathered the financial accounts of the companies, recordings of meetings, emails, and boxes of documents.

But this trial could well be an opportunity to also shed new light on this affair. While in December, John Ray, the chief executive officer of FTX appointed after the company's filing for bankruptcy, largely attributed FTX's collapse to "the absolute concentration of control in the hands of a very "a small group of grossly inexperienced and not very knowledgeable individuals, who have not implemented any of the required systems or controls", the company is now interested in the role of San Bankman-Fried's parents. In a complaint filed in September, FTX's new management accuses Joseph Bankman and Barbara Fried, both prominent lawyers with Stanford degrees, of having "siphoned millions of dollars from the FTX group for their personal benefit."

Specializing in tax law, Joseph Bankman is said to have actively participated in the financial arrangements of the trading company Alameda Research and the jungle of 130 offshore subsidiaries of FTX International. As well as the design of the FTT cryptocurrency, launched by his son during the creation of the FTX platform. Joseph Bankman was both “strategic advisor and general supervisor of FTX’s activities,” FTX US general counsel explains in the complaint. However, the couple is suspected of having benefited via another financial arrangement from a “donation” of 10 million from Alameda Research, as well as a property worth 16.4 million in the Bahamas, paid for with funds provided by FTX Trading. A “family business” which, if proven, raises many questions…

However, only the son will be in the dock for this trial. For the seven charges - another trial could take place at a later date - Sam Bankman-Fried is theoretically liable to more than 100 years in prison if the sentences are combined. Without waiting for the epilogue, a book on his life will be released the same day the trial opens. Signed by journalist Michael Lewis, who spent six months with him before his arrest, Going Infinite. The Rise and Fall of a New Tycoon also promises its share of revelations…