The "Trial of the Century" in the currency circle has begun. Sam Bankman-Fried (SBF), the former benchmark tycoon in the currency circle who faces multiple criminal charges, faces a fateful final trial. On Wednesday, October 4, Eastern Time, the first day of the SBF case's trial in the federal court in Manhattan, New York, Assistant Prosecutor Nathan Rehn of the U.S. Department of Justice stated in court that during the creation and operation of FTX, the world's third-largest cryptocurrency exchange, SBF "lied to the world" and only revealed the truth to his girlfriend and some friends.
According to Rehn, SBF is a criminal who carefully planned his actions. Before FTX went bankrupt in November last year, he used the funds deposited by investors on the FTX platform as his personal bank account and misappropriated customer funds wantonly. Only the "own people" in SBF's circle of friends knew that he relied on customers' money to maintain his lifestyle.
Rehn told the jury:
"He (SBF) had wealth, power, and influence, but all of it was based on lies. He perpetrated a massive fraud that defrauded billions of dollars and thousands of victims."
The media noted that SBF showed no expression during Rehn's testimony, but when Rehn emphasized the "billion-dollar fraud," he quickly glanced at the jury, then turned and stared at his laptop.
SBF's lawyers argued that Rehn portrayed SBF in court as a cartoon-like villain when in fact he was just a nerd who was proficient in mathematics.
One of the attorneys, Mark Cohen, said the evidence would show that SBF had a very different background than Rehn's portrayal. He worked hard, didn't drink or go to parties, was an MIT graduate, and that SBF "had no intention of deceiving anyone and no theft occurred."
Cohen said the rise and fall of FTX and its sister hedge fund Alameda Research is a microcosm of the cryptocurrency industry, which has been hit by rapidly changing market conditions throughout the year. This case is in many ways related to the cryptocurrency price fluctuations from 2017 to 2022. Not everyone is suitable for investing in this field.
As for SBF's accusation of misappropriating customer funds to Alameda for speculative trading, Cohen argued that customers had reason to believe that the loans provided by Alameda were permitted and supported by collateral. FTX had 350 employees at the time and had not yet established a risk management team. Company executives such as SBF had to make hundreds of decisions every day, which meant "some things were overlooked."
Cohen also compared it to running a startup, like building an airplane and flying it at the same time.
Wall Street News once introduced that U.S. prosecutors once called the FTX case "one of the largest financial fraud cases in U.S. history." A report from FTX's new management earlier this year disclosed that by the time it filed for bankruptcy last year, FTX had an $8.7 billion shortfall in customer funds.
SBF faces seven charges, mainly involving participation in and conspiracy to commit wire fraud and conspiracy to commit securities fraud. Prosecutors accused SBF of stealing billions of dollars in FTX customer funds for personal use and making up for huge losses from Alameda Research. SBF deceived investors through a scam.
SBF's case is expected to last six weeks. If SBF pleads guilty, he may face 110 years in prison.
The SBF has so far denied all charges. He claimed to be an inexperienced businessman who never knowingly committed fraud.
However, SBF’s former “comrades”—the former CEO of Alameda Research, his ex-girlfriend Caroline Ellison, and FTX’s other co-founder Gary Wang—all pleaded guilty in December last year.
Ellison said at the hearing in December that from 2019 to last year, she and SBF planned it all together, and Alameda had access to an unlimited line of credit in FTX’s account without posting collateral and no negative balance.
Ellison said that in order to conceal the scale of Alameda's borrowings and the fact that Alameda provided billions of dollars in loans to FTX executives and related parties, she and SBF created a clean balance sheet.
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