After two weeks of high-octane testimony, one of the most high-profile financial crime cases in US history is finally drawing to a close with a unanimous guilty verdict against Sam Bankman-Fried. The young billionaire was found guilty of two counts of wire fraud conspiracy, two counts of wire fraud, and one count of conspiracy to commit money laundering. Each of these charges carries a maximum sentence of twenty years in prison. Bankman-Fried was also convicted of conspiracy to commit commodities fraud and conspiracy to commit securities fraud. Each of these charges also carries a maximum of five years in prison. He was found guilty by a twelve-member jury, which included a nurse, retirees, and a special education teacher. The trial concluded just one day shy of a full year after FTX barred its customers from withdrawing their deposits and filed for bankruptcy. The verdict is not just a victory for the US Justice Department, and will likely prove to have deeper implications in regulating the crypto market in the future.
The turning point in Bankman-Fried’s trial came with the testimonies of the former CEO of FTX’s sister company Caroline Ellison, and former FTX executives Gary Wang and Nishadh Singh. The three testified on behalf of the prosecution after pleading guilty to their own actions in relation to the charges, including participating in the conspiracy to defraud the company’s clients. Together, the three witnesses accused Bankman-Fried of orchestrating the entire incident by using customer deposits in FTX to make private purchases such as a luxury condominium in the Bahamas, and covering the losses of the cryptocurrency hedge fund Alameda Research. Caroline Ellison took the stand to testify that Bankman-Fried had instructed her to use FTX deposits to fund Alameda’s own investments and company strategies. Gary Wang also detailed how he and Bankman-Fried both committed financial crimes and acted deliberately to conceal their actions. Nishadh Singh explained how Bankman-Fried had spent the embezzled money. Sam was accused of using the money to buy real estate, make contributions towards his political interests, and fund charitable projects that he was passionate about.
The prosecuting team went on to present how Bankman-Fried repeatedly assured the public of the safety of their funds on social media and mainstream media despite his actions to the contrary. According to their representations, the funds siphoned into Alameda research were in turn used to pay its lenders and make loans to Bankman-Fried and his cohort to make speculative investments of their own. They were also revealed to have made political donations amounting to over $100 million to individuals and parties whom they believed would support the movement towards cryptocurrency legislation. According to the prosecution, Bankman-Fried believed that this would be favourable to the future of his businesses.
The 31-year-old billionaire however protested his innocence to the very end, and his lawyers stated they would continue the fight to establish Bankman-Fried’s innocence in the eyes of the law. Bankman-Fried faced rigorous cross-examination at the witness stand while testifying that the collapse of his cryptocurrency exchange platform was due to incompetence rather than criminal intent. He went on to detail examples of his lapses in judgement, such as failing to form a risk management team for FTX, his assumption that siphoning client deposits into his own businesses without disclosure was not against the law, and his lack of awareness of the extent of Alameda’s debt crisis. In his own words, Bankman-Fried believed that he ‘would be able to build the best product on the market’ with regards to cryptocurrency exchange, while in reality, “it turned out basically the opposite of that”. His defence team went on to argue that the three witnesses Ellison, Wang, and Singh were lying to falsely implicate Bankman-Fried for a lighter sentence for themselves. It is very likely that the prosecuting team will ask for the judge’s leniency in sentencing on account of their cooperation.
According to prosecutors, Bankman-Fried would not have expected to see three of his accomplices appearing against him at the trial, saying that Bankman-Fried would not have thought that the rules would apply to him.
Bankman-Fried will await his final sentencing in federal prison in Brooklyn. In the meanwhile, Judge Lewis Kaplan has asked prosecutors to reconsider whether they wanted to process with another trial which has been scheduled for the same month on a second set of charges.
Sam Bankman-Fried’s verdict is expected to have wider implications for the industry in terms of both investor interest and legislative implications. The crypto space has long battled a reputation associated with different types of fraud. Some believe that Bankman-Fried’s conviction would help reassure investors that his case was an outlier in a legitimate industry. However, it is possible that the case would ultimately serve to reinforce the idea that the cryptocurrency space suffers from a lack of regulation and is largely populated by bad actors due to it. US Attorney Damian Williams was adamant however that the state was not deterred by new innovations in technology when it came to ensuring that justice is carried out on behalf of the people. Speaking outside the Manhattan courthouse early in November, the attorney clarified that “these players like Sam Bankman-Fried might be new, but this kind of fraud, this kind of corruption, is as old as time”. He added that the trial and verdict would also act as a warning to all fraudsters who operate under the assumption that they are untouchable or that their crimes are too complex for the justice system to grasp.
Sam Bankman-Fried’s sentencing is set for 28 March 2024. He is also scheduled to be put on trial for a second set of charges brought against him earlier this year in the same month. These charges include allegations of foreign bribery and conspiracy to commit bank fraud.
(Theruni Liyanage)