The trial of Sam Bankman-Fried is still underway

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The trial of Sam Bankman-Fried is still underway

Sam Bankman-Fried's trial, the biggest financial fraud case since Bernie Madoff, is still under way. A 12-person jury has been selected, and the outlines of arguments from both the U.S. Department of Justice and SBF's defense team at Cohen & Gresser have been laid out. The opening arguments were heard yesterday. One of the most crucial decisions of the trial has yet to be made, whether the founder of the collapsed crypto exchange FTX and hedge fund Alameda Research will take the stand.

As many legal onlookers have already said, SBF on the stand may make or break his case. Prosecutors would likely love to try to ensnare the sometimes-disorganized former crypto mogul in a logical trap, and SBF's expert defense lawyers may caution him against it. But SBF loves the spotlight and seems to relish opportunities to explain himself - ultimately testifying is a decision District Judge Lewis Kaplan has said SBF and SBF alone can make.

Should we believe anything Sam Bankman-Fried says, anyway? SBF must commit perjury and promise to tell the truth under oath. Any penalties will likely pale in comparison to the 100+ years in prison the SBF has already faced. There's something paradoxical about believing the testimony of someone who is charged with multiple counts of fraud.

It turns out that alleged lies were at the center of the Sam Bankman-Fried saga from the beginning. That's true from the early days when SBF decided to name his hedge fund Alameda Research to the last days at FTX when SBF regrettably tweeted his exchange was solvent in a failed bid to regain trust amid a run on customer assets.

When Bankman-Fried quit Jane Street, the quant trading firm on Wall St., that serves as a halfway house for many a high-achieving graduate of MIT and Stanford University, he was not immediately escorted off the premises. Although the firm is secretive, it makes its money on the razor's edge of proprietary information that it doesn't want to get out of - SBF was allowed to stay at the firm after announcing his decision to quit. As Bloomberg's Annie Massa, Hannah Miller and Max Chafkin reported in their podcast, SBF said he was leaving to pursue work in the non-profit sector.

Bankman-Fried, already committed to the semi-utilitarian philosophy of Effective Altruism, which states to maximize the good you can do in the world you must maximize your profit, was secretly building Alameda Research. He would go on to recruit about 20 likeminded effective altruists who all but Caroline Ellison, the one day co-CEO of Alameda and future girlfriend of SBF, lacked trading experience. For three years, Bankman-Fried worked at Jane Street, and said the firm applied many of the firm's arbitrage principles to crypto trading.

The arbitrage window eventually closed and Alameda's consistent profits dried up. Although Bankman-Fried would recount the trade as a legendary period, it is likely that the firm actually blew through any accumulated profits, which is why it sought outside funding for venture capitalists. After his accumulated losses began to add up, Alameda co-founder Tara MacAulay led an attempt to oust SBF, which resulted in his discrediting commitments to the EA cause. SBF reportedly rejected the $1 million buyout offer, and many of Alameda's earliest employees, including MacAulay, left to start their own firm called Pharos Capital.

In the end, Ding and Tallinn, who were essentially Alameda's first investors, ultimately refused to return their money, but not before tapped Alexander Pack, who claims to be Alameda's first venture capitalist backer. Although their 'high-level agreement to become Alameda's first investor ultimately fell through, Pack's telling of his attempts to do due diligence is illuminating. Pack found that Alameda began losing money because SBF turned his focus to building the exchange FTX instead of trading.

The biggest conflict of interest in the exchange's business model is the possibility of an exchange owner also owning a trading firm that could trade against the exchange's customers. Despite the claims that the two firms are separated by a firewall, it now seems that was pretty porous. The SBF, FTX and Alameda, have shared offices, shared employees, and it would seem to be shared capital - the reason SBF is in court today.