Jury selection begins for Sam Bankman-Fried case

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Jury selection begins for Sam Bankman-Fried case

Sam Bankman-Fried tried to convince politicians and the public that he was the next J.P. Morgan. Now, he has to convince a jury that he wasn't the next Bernie Madoff.

The trial of Bankman-Fried, the founder of FTX, will begin Tuesday with jury selection. Prosecutors from the Southern District of New York are expected to lay out a case against Bankman-Fried that shows that he stole billions of dollars in FTX customer deposits and used the money to finance his hedge fund, buy real estate, and make millions of dollars illegal campaign donations to Democrats and Republicans in an attempt to buy influence over cryptocurrency regulation in Washington.

While the case will involve the intricate world of cryptocurrencies, prosecutors are expected to try to boil it down to the simplest of terms for jurors.

Bankman-Fried was one of the most powerful individuals in the cryptocurrency industry, having played a crucial role in FTX collapsed and filed for bankruptcy last November. Last year, analysts calculated that the company had an estimated net worth of $32 billion. He met with former presidents, politicians on both sides of the aisle, celebrities, and CEOs. When smaller crypto firms started imploding in early 2022, Bankman-Fried told the public he would help prop up the market, resulting in the comparisons with J.P. Morgan.

FTX, which was established in 2019, grew rapidly thanks to the 31-year-old Bankman-Fried. Bankman-Fried, the son of Stanford University professors who was known to play the video game during meetings, attracted investment from the top echelons of Silicon Valley. FTX, a leading crypto broker, became the second-largest in the market, behind Binance.

Bankman-Fried and his inner circle of executives were running their then-growing crypto empire from The Bahamas, out of the luxury apartment complex Albany, where celebrities like Tiger Woods and Justin Timberlake have vacation homes.

FTX had effectively two lines of business, a brokerage where customers could deposit, buy, and sell cryptocurrency assets on the FTX platform, and an affiliate hedge fund known as Alameda Research, which took highly speculative positions in various cryptocurrency investments. At the end of last year's cryptocurrency market declines, prosecutors allege Bankman-Fried directed funds to be moved from FTX's customer accounts to Alameda to plug holes in the hedge fund's balance sheet.

The house of cards that Bankman and his lieutenants built came to crashing down early November, when reports surfaced about the condition of Alameda's balance sheet. After a few years of experiencing several crypto firms collapse, spotless investors quickly pulled their money out of FTX and within days the firm was bankrupt.

The restructuring expert John Ray III, the restructuring specialist who was tasked with cleaning up FTX in bankruptcy, described the conditions inside of FTX as worse than Enron, long considered the benchmark for corporate malfeasance in popular culture.

Bankman-Fried is expected to meet with his former lieutenants at FTX for the first time since its collapse. In exchange for their testimony, they have agreed to plead guilty to lesser crimes. This includes Caroline Ellison, who was the CEO of Alameda and Bankman-Fried's off-and-on girlfriend, as well as FTX co-founder Gary Wang.

Ryan Salame, another top executive at FTX, pleaded guilty on Sept. 7 to making illegal campaign contributions to Republicans on behalf of Bankman-Fried, who was publicly making contributions to Democrats. It is not known whether Salame will testify against Bankman-Fried.

Ellison is expected to be the prosecution's central witness. Prosecutors are likely to count her to demonstrate that the collapse of FTX was not due to a few mistakes, as Bankman-Fried alleges, but to fraud. She also said in a statement through her lawyers that funneling FTX customers' money into Alameda was wrong.

He said in a remote interview with the New York Times' Andrew Ross Sorkin late last year.

Bankman-Fried, 57, was extradited to New York from The Bahamas in December. Bankman-Fried had been allowed to live with his parents in their Palo Alto, California home before his bail was revoked, under strict rules limiting his access to electronic devices. Bankman-Fried was ordered to be jailed after Judge Lewis Kaplan said there was probable cause to believe he was trying to tamper with potential witnesses, including Ellison.

The crypto industry has not recovered from its collapse, despite FTX's collapse. The price of Ethereum and Bitcoin, the most common cryptocurrencies, are still down two-thirds from where they were a year ago and the volume of trading in crypto is half what it was. The market for NFTs, artificially scarce digital objects meant to make unique digital versions of memorabilia or pictures, has all but evaporated. Roughly 3,000 NFTs trade hands daily, compared to more than 40,000 a day a year ago, according to NonFungible.com.

Even Bankman-Fried's former competitors face their own legal scrutiny. The SEC and other regulatory agencies filed charges against Binance this summer, similar to those against FTX, including commingling customer funds with the firm's investments. The SEC has charged Coinbase, a publicly traded cryptocurrency exchange, with securities violations.