FTX Founder Sam Bankman-Fried leaves Manhattan Federal Court after a court appearance on June 15, 2023 in Recent York City.
Michael M. Santiago | Getty Images
As lawyers in Sam Bankman-Fried’s criminal trial presented their closing arguments on Wednesday, prosecutors reminded jurors of the mountain of evidence provided by key witnesses, while defense counsel accused the federal government of portraying the FTX founder as a “monster.”
The prosecution kicked off the proceedings, trying to present the 12 jurors a transparent sense of why they’ve spent the past 4 weeks sitting in a lower Manhattan courtroom.
“Almost a 12 months ago, 1000’s of people from all around the world who deposited money with FTX began withdrawing funds,” Assistant U.S. Attorney Nicolas Roos told the court.
Roos said there’s “no serious dispute” that $10 billion in customer money that was sitting in FTX’s crypto exchange went missing, with some of it going to pay for real estate, investments, loan repayments and political donations.
The primary thing the jury has to come to a decision, Roos said, is whether or not Bankman-Fried knew that taking the cash was flawed.
“The defendant schemed and lied to get money, which he spent,” Roos said.
Bankman-Fried, the 31-year old son of two Stanford legal scholars and graduate of Massachusetts Institute of Technology, faces a possible life sentence if convicted on charges, which include wire fraud, securities fraud and money laundering, all tied to the collapse late last 12 months of FTX and sister hedge fund Alameda Research. He pleaded not guilty.
The trial, which began in early October and is about to wrap up in the approaching days, has largely pitted the testimony of Bankman-Fried’s former close friends and top lieutenants against the sworn statements of their former boss and, for a lot of of them, former roommate.
The federal government’s key witnesses included Caroline Ellison, Bankman-Fried’s ex-girlfriend and the previous head of Alameda, and FTX co-founder Gary Wang, who was Bankman-Fried’s childhood friend from math camp. Each pleaded guilty in December to multiple charges and cooperated as witnesses for the prosecution.
FTX founder Sam Bankman-Fried is questioned by prosecutor Danielle Sassoon (not seen) during his fraud trial over the collapse of the bankrupt cryptocurrency exchange at federal court in Recent York City, U.S., October 31, 2023 on this courtroom sketch.
Jane Rosenberg | Reuters
When it was time for Bankman-Fried’s team to mount a defense, lead counsel Mark Cohen left the majority of the case to his client, who spent three days on the stand telling the jury that he didn’t defraud anyone, didn’t take customer money and tried to work along with his deputies to maintain FTX from failing.
Roos spent Wednesday morning asking the jury to take a look at the evidence. At one point, he asked, “Who’s responsible? He then stepped out from behind the rostrum and towards the defense table, pointed on the defendant and said, “This man, Samuel-Bankman-Fried.”
“A pyramid of deceit was built by the defendant,” Roos said. “That ultimately collapsed.”
The facts, as listed by Roos, were that customers believed their deposits were their very own and never to be utilized by anyone else; that FTX ads continually said the exchange was the safest and easiest technique to buy cryptocurrency; and that $10 billion was missing.
‘Uncomfortable to listen to’
Roos told the jury that Bankman-Fried lied to them, reminding them how smooth the defendant was in answering questions from his own attorney but how “he was a unique person” when it was the prosecutors’ turn. He had an ideal memory on Friday, Roos said, telling the jury that Bankman-Fried knew the small print in regards to the layout of his Airbnb office in California, the explanation he went to Hong Kong and why he picked the Miami Heat arena because the one for FTX to sponsor.
That each one modified when the federal government was asking the questions.
“It was uncomfortable to listen to,” Roos said, adding that Bankman-Fried said “I can not recall” over 140 times during questioning by the federal government.
“To consider his story, you’d should ignore the evidence,” Roos said. “You’d should consider the defendant, who graduated from MIT and built two multibillion-dollar corporations, was actually clueless.”
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Critical to the failure of FTX was the use of customer funds to cover losses in Alameda’s books following the plunge in crypto prices last 12 months. Roos said Bankman-Fried is the one who gave special privileges to Alameda, which he began before founding FTX, allowing it to siphon customer money. He knew it was flawed, Roos said, which is why he kept it secretive.
Roos said Bankman-Fried had been lying to the general public about Alameda’s “secret benefits,” and was being untruthful when he told the general public and the media that Alameda was identical to everyone else.
“Those were lies,” Roos said. Had they known the reality, “investors would have run for the exits,” he said.
Bankman-Fried blamed “messy accounting,” Roos said, adding “give me a break.” He said those comments contradicted what he told Congress, that he’d reconciled the books.
Judge Lewis Kaplan, who presided over the trial, began court almost a half hour late on Wednesday because a juror was stuck in traffic. Then there have been technical issues, because the second row of monitors within the jury box stopped working. That led to a 1- minute break.
Later in Roos’s closing, he brought up the infamous spreadsheet of the seven alternate versions of Alameda’s funds that Ellison had put together when third-party lenders were asking for an update. Bankman-Fried testified that he’d seen a spreadsheet but didn’t remember the small print and didn’t ask Ellison questions on it. Roos called the reason “implausible.”
FTX founder Sam Bankman-Fried is questioned by defense lawyer Mark Cohen as he testifies in his fraud trial over the collapse of the bankrupt cryptocurrency exchange, at federal court in Recent York City, U.S., October 30, 2023 on this courtroom sketch.
Jane Rosenberg | Reuters
Roos referred to metadata showing that Bankman-Fried was part of a gathering for about half-hour where the opening in FTX’s balance sheet and repaying lenders were discussed. Metadata shows he was studying the Google Doc of the corporate’s funds, with numbers indicating the billions in borrowing from FTX.
Roos brought up testimony from three firsthand witnesses who said that they’d spoken with Bankman-Fried in regards to the giant hole within the balance sheet. Ellison said there was no technique to repay it, and Singh testified that Bankman-Fried admitted to him that “we’re a little bit short on deliverables.”
Bankman-Fried “had the arrogance to think he could get away with it,” Roos said.
Spending freely
One other point chatting with the defendant’s intent, Roos said, was his tweeting.
Bankman-Fried’s plan last November, when he knew there was barely enough money to process one-third of client assets, was to send a confident tweet thread. Singh testified that he wasn’t comfortable with the plan, yet Bankman-Fried went on to tweet that “assets are effective” because the bank run was underway, Roos said.
Bankman-Fried knew Alameda had a negative net asset value of $2.7 billion, Roos said, but desired to make one other $3 billion in enterprise investments. The one technique to try this was with FTX customer funds, he said.
Moreover, Roos told the jury, client money went to $100 million in real estate expenses, including a $30 million penthouse within the Bahamas and $16 million for his parents’ home.
In referencing the Super Bowl picture with Katy Perry and others, Roos called Bankman-Fried a “celebrity chaser.”
Roos walked the jury through a timeline of key moments, as follows:
- On Sept. 1, Bankman-Fried saw that FTX had a $13.7 billion hole.
- On Sept. 7, Bankman-Fried wrote a protracted memo proposing the shutdown of Alameda. Still, he spent $45 million for a stake in Skybridge Capital.
- Then, on Sept. 22, he paid $4 million to himself.
- 4 days later, he sent $250 million to Modulo Capital, a hedge fund within the Bahamas.
- And on Oct. 3, he funneled $6 million for political donations.
“That is all it’s essential to know to search out him guilty,” Roos said.
In closing the prosecution’s case, Roos referenced the seven charges facing Bankman-Fried and why he might be convicted of each.
In highlighting counts three and 4, which charge the defendant with wire fraud against Alameda’s lenders, Roos emphasized the importance of Bankman-Fried’s knowledge of the choice balance sheet. For count five, conspiracy to commit securities fraud on FTX investors, the first evidence got here from investors who expressed concern a couple of conflict of interest between Alameda and FTX and who said they would not have put in money in the event that they knew the reality. Bankman-Fried also lied about revenue, Roos said.
The prosecution reminded the court that Bankman-Fried directed losses to be shifted to Alameda and that FTX’s insurance fund had made up numbers. Add all of it up, Roos said, and it debunks the defense’s primary argument that Bankman-Fried acted in good faith and believed all the things would work out.
“This was a fraud that occurred on a large scale,” he said.
‘Every movie needs a villain’
Following the federal government’s closing argument, Cohen began his statements at a little bit before 3 p.m. He said the federal government is portraying Bankman-Fried as a “monster” and depicting him as a “villain” and a “bad guy.” Lawyers brought out testimony about his sex life and showed photos of him “looking awkward with celebrities,” Cohen said.
He said Bankman-Fried would check with nearly anyone who would listen, behavior that would make life messy but is not criminal. He said the prosecution has made the case right into a “movie,” and the defense is showing what it’s like in the true world, where things are messy.
“Every movie needs a villain,” Cohen said.
He claimed the case against his client was built on the false premise that FTX was a fraudulent enterprise established to intentionally steal customer funds from its “very earliest days.”
Cohen broke the case up into two time periods. The primary was 2019 to 2021, when there isn’t any indication of criminal intent. Up until June 2022, everyone involved thought they were operating probably the most successful crypto exchange on the planet, Cohen said.
The second period was from June to November of 2022. Crypto winter had led to the failure of a number of businesses within the industry. That is the first time it became clear that Alameda was using customer funds. In the autumn of that 12 months, Bankman-Fried saw a liquidity problem, not a solvency problem, Cohen said. He all the time thought there have been sufficient funds on and off the exchange.
While FTX’s lack of a risk management system or chief risk officer reflected poor system controls, bad business decisions aren’t crimes, Cohen said.
The federal government carries the heavy burden of proving Bankman-Fried operated with criminal intent, and “it has not,” Cohen said. He added that prosecutors called Bankman-Fried “evil” and “conceited” and described him as a “criminal mastermind.” But in stepping into specific actions, “there’s nothing wrongful about margin trading,” he said.
Cohen said his client provided the court with good faith answers about what he remembered, and asked why a criminal mastermind would go speak in front of Congress. He described the federal government’s assumptions as “heads I win, tales you lose.”
Cohen told the jury that if any members of Bankman-Fried’s inner circle truly thought something nefarious was happening, they’d options, including resigning, leaving the Bahamas or “blowing the whistle.” None of them did, he said.
During much of Cohen’s closing, Bankman-Fried had his head awkwardly turned to the best toward the jury box. Near the tip, he was looking down, fighting back tears.
Court adjourned late Wednesday after Cohen finished along with his closing argument. The federal government will get its shot at rebuttal Thursday morning, after which the jury will get its instructions ahead of deliberations.
Judge Kaplan said he wasn’t rushing jurors, but he said he was willing to remain late Thursday and that the federal government would cover dinner and certain give jurors a free ride home.
— CNBC’s Dawn Giel contributed to this report.
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