Crypto's founder Bankman-Fried never was a criminal, but he did it

Crypto's founder Bankman-Fried never was a criminal, but he did it

Bankman-Fried, at this time last year, had a luxury lifestyle as the CEO of Crypto exchange FTX, said his assistant US Attorney, Thane Rehn, in the cadence of a high schooler delivering his lines in a student play. Bankman-Fried hung out with Brady. He was on the cover of magazines, lived in a $30 million penthouse, and spent time with world politicians. Rehn, 68, said that he had never been asked to speak at a meeting of the state's congressional delegation.

Rehn's story is well-known to anyone who's following the news. In May and June of 2022, Alameda Research, the crypto trading firm that ostensibly helmed by Caroline Ellison, didn't have enough money to pay its bills, so it pulled over customer money to repay loans. By September, the FTX balance sheet was so large that customers could never be repaid.

I was very curious, having learned yesterday that bankman-fried had never been offered a plea deal since he and his attorneys had told the government they would not negotiate. Surely there would have been some manner of evidence, some thing, that would have made him so confident.

If FTX was a plane, it was a plane flying with a key component missing - namely the risk officer, an executive whose job it is to, well, manage risk. This is an important thing, as risks can range from reputational to regulatory and financial.

FTX was named as FTX because it was a futures exchange that sat between winners and loser of bets, to borrow a phrase from Bloomberg's Matt Levine. If the winners don't pay up, FTX can't pay out what it owes to the winners. The business requires risk management, as risk officers exist to identify business' potential risks, monitor, and mitigate them. This is to say nothing of the regulatory risks surrounding crypto.

Bankman-Fried, he said, was a math nerd who didn't party. As a result, that paints a picture of someone who's pretty deliberate, particularly since he immediately left MIT and went back to work on Wall Street. If he had been a party-hardy trainwreck, I could see overlooking a risk officer in order to do another line, or a supermodel, or something else important. Man, it's no good when your defense lawyer just made you sound worse than the prosecution already did. And while Cohen tried to make the conventional white-collar defense argument that Bankman-Fried was simply too busy to oversee what everyone did every day, he just made me more suspicious. Why should I hire a risk officer and delegate? That's the whole point! I could barely even hear Cohen blaming Caroline Ellison and Changpeng 'CZ' Zhao for the debacle over the 'no risk officer' ringing in my ears.

After the defense's opening statements, things got worse for Bankman-Fried. Marc-Antoine Julliard, the first witness, called the case and said that the money had been stuck on FTX. Juilliard, born in Paris, lives in London, testified that he trusted FTX because Bankman-Fried came across as a leading figure of the industry. When he was evaluating the exchange, he thought the sheer volume of users was also important - at that time, FTX was among the top three biggest exchanges. Plus, major VC firms had invested, and they don't commit hundreds of millions without doing due diligence, checking the books, the accountancy of the firm, going through several compliance processes, so that was a vote of confidence for me.

In November 2022, things went wrong for Julliard. He followed Bankman-Fried on Twitter and read aloud the tweets, along with t invest client assets' and a few others, which gave Julliard the impression that his money was there - the problem might have been technical or regulatory. When he tried to get his money out on November 8th, it was too late. We saw screenshots of his withdrawal attempts: $20,000USD and about 4 Bitcoins, which were worth about $20,000 at the time, about $100,000 inaccessible.

It is a thankless task to cross-examine a customer whose money is gone, but Cohen tried anyway. He said that Julyliard was a licensed commodities broker, who was trading in crypto because he didn't have to disclose it, that Julliard knew crypto was new and risky, and that Julliard didn't review the terms of service agreement he'd assented to when making his FTX account.