SBF on trial: The man blamed for crypto’s collapse is about to get his day in court

Inside the Metropolitan Detention Center, the Brooklyn jail where he is being held, Sam Bankman-Fried, once the head of a multibillion-dollar crypto empire, sounds as if he’s being treated like most inmates there—which is to say, shabbily. Arrested on federal fraud charges in December, after the collapse and bankruptcies of his hedge fund Alameda Research, his crypto exchange FTX, and related companies, Bankman-Fried was out on $250 million bond at first. But the judge overseeing his case revoked bail in August after prosecutors complained of Bankman-Fried’s “escalating evasions of his bail conditions,” and the 31-year-old was jailed.

Nowadays his lawyers have said he’s subsisting on peanut butter sandwiches—alas, Bankman-Fried, who is vegan, can’t eat the “flesh diet” served in jail, one lawyer said. His therapist, who’d also been an executive coach at FTX, wrote the court saying Bankman-Fried had only a small amount of his medications on hand when he was jailed, and needed a consistent supply of Adderall, for ADHD, and Emsam, for depression. (On Monday, his lawyers noted in a filing he’s been getting only a half dose of Adderall.)

With their client’s six-week trial scheduled to start October 3, Bankman-Fried’s lawyers appeared to be leaning hard on his onetime reputation as an intellectual standout as they attempted to get him back out on bail, saying their access to him is limited while he’s jailed.

“This case is highly technical and complex, and we need our client to help us understand the facts and explain many of the issues,” they wrote in Monday’s filing. FTX’s November breakdown, and Bankman-Fried’s arrest the following month, seemed to have everything to do with the opacity and newness of the crypto industry: wild profits, inexperienced investors, often-misunderstood protocols, new technology, etc. Regulators and legislators are examining Bankman-Fried’s actions as they consider new rules for cryptocurrency, while other executives in the sector evaluate whether his trial will taint the industry or help clean it up.

Yet at its core the case is not about emerging technology but rather old-fashioned fraud, with the allegations against Bankman-Fried echoing those of so many white-collar criminals past and present: that he used his company to enrich himself illegally.

When the trial kicks off on Tuesday, I’ll be inside the courtroom, bringing you the play-by-play. I worked from a desk inside federal court for years covering cases for The New York Times, and now I cover criminal justice for a range of publications. I’ve covered the trials of Martin Shkreli; Vinnie Asaro, a Mafia member accused of participating in the heist immortalized in Goodfellas; terrorists, white-collar fraudsters, gang leaders, and more. The stakes are, obviously, enormously high, and emotions tend to run hot.

In this case, the personalities are particularly big. There’s Bankman-Fried, of course, and you can expect prosecutors to paint him as a privileged kid greedy for money, his way smoothed by his parents’ connections, and defense lawyers to emphasize his intense work habits, philanthropy, and intention of trying to pay customers what they were owed.

Three of Bankman-Fried’s former executives—including ex-girlfriend and former Alameda CEO Caroline Ellison, and his MIT fraternity brother Gary Wang—are expected to testify against him. His lawyers, Mark S. Cohen and Christian R. Everdell, represented Ghislaine Maxwell; Everdell was formerly a federal prosecutor in the same office that he’s currently facing off against in Bankman-Fried’s trial.

A lead prosecutor in the case, Nicolas Roos, worked on the cases against Steve Bannon and Michael Cohen; another, Danielle Sassoon, was a Supreme Court clerk for Justice Antonin Scalia. And Judge Lewis A. Kaplan is used to high-profile cases: He oversaw the E. Jean Carroll defamation case against former President Donald Trump, which Carroll won; a civil suit against Kevin Spacey for sexual misconduct, in which the actor was found not liable; and the terrorism trial of Osama Bin Laden’s son-in-law and a senior spokesman for Al Qaeda, who was convicted.

I’ll be there for it all—who won points during the day, who lost them, what the courtroom looks and feels like, how to understand the complex points of law in the case, the e-mails or Slack messages from inside FTX offered into evidence, where the jury seems to be leaning—and sharing it with you in daily updates here. Feel free to ask me anything about the trial that you don’t understand or would like to know—@stephcliff on X, or you can reach me via my website. I hope you join me for the ride.

Before the proceedings get going, here are a few things you should know about how we got here, what to look for in the trial, and what it all means.

The fall of one of crypto’s brightest stars

For Bankman-Fried, things were spiraling out of control by November 2022. For days, he’d scrambled to save his companies: Alameda Research, his hedge fund; the crypto exchange FTX; and several associated businesses. When news leaked that Alameda’s multibillion-dollar balance sheet was troubled and a huge chunk of it was made up of an FTX cryptocurrency (the two entities were supposed to be entirely distinct), a customer run on FTX ensued. Bankman-Fried halted trading, and executives found out that the exchange didn’t have the money to cover customers’ withdrawals—that it was short a breathtaking $8 billion.

Bankman-Fried’s hold on the company he’d built began collapsing. Within days, FTX would file for bankruptcy. And by the next month, Bankman-Fried, once the darling of the crypto world, the billionaire whiz kid who was supposed to bring a thoughtful moral framework to the feral industry, would be arrested and charged with federal crimes. A prosecutor, in a December hearing, called his actions a “fraud of epic proportions,” accusing him of “stealing billions” from potentially more than 1 million victims—customers, lenders, banks, and investors of FTX.

Bankman-Fried has pleaded not guilty, and has not publicly offered a broad explanation for his actions since his arrest; in a Twitter thread after details of FTX’s problems became public, he wrote, “I’m sorry. . . . I fucked up.” He added, “I was substantially off on my sense of users’ margin” and said he was working to do “right by users.” A spokesman for Bankman-Fried declined to comment for this report.

Headquartered in the Bahamas, FTX and Alameda’s apparent successes, and the related money, meant that their young leaders—Bankman-Fried, now 31; and Caroline Ellison, Nishad Singh, and Gary Wang, all in their late 20s at the time of FTX’s cave-in—led an attention-grabbing lifestyle. FTX quickly became a gigantic success story, valued at $32 billion in January of last year. The four lived together in the “Orchid Penthouse,” a $30 million condominium in the Bahamas. The company spent $243 million on more than 30 real estate properties in the Bahamas, bankruptcy investigators later wrote in court filings.

FTX ran commercials with NFL great Tom Brady and his then-wife, supermodel Gisele Bündchen, as well as a Super Bowl ad with writer-comedian Larry David. FTX’s charitable wing gave away millions. Bankman-Fried testified before Congress and gave keynote speeches at crypto events worldwide, often wearing a T-shirt and shorts while espousing a type of philanthropy called effective altruism: Here, it seemed, was the next generation of innovator. That his parents, Joseph Bankman and Barbara Fried, were well-known Stanford Law professors interested in morals and risk seemed only to add to his credibility.

An examination of documents and testimony in a multitude of FTX-related cases reveals an extravagant world, from the company paying for a yacht for one executive, to spending millions on hotels in a single month, to business practices like approving expenses with emojis via Slack, to paying for a Bahamas house that Bankman-Fried’s professor parents lived in, to an FTX philanthropy executive discussing with Bankman-Fried’s little brother the possibility of buying the Micronesian island nation of Nauru.

In the months since FTX’s implosion, the story of its apparent soaring success has been laid bare, revealing mismanagement, excess, confusion, hubris, divided loyalties—and, prosecutors say, federal crimes: Bankman-Fried faces six counts of fraud and one of money laundering.

Underneath the sophisticated, often befuddling overlay of cryptocurrency, and the whiz-kid reputation of Bankman-Fried, the charges against the FTX founder suggest classic fraud rather than anything particularly innovative. John J. Ray III, an executive appointed to sort out FTX’s affairs in bankruptcy, had also overseen the Enron bankruptcy. At Enron, he told Congress in testimony about FTX in December, “the crimes that were committed . . . were highly orchestrated financial machinations by highly sophisticated people to keep transactions off balance sheets.” At FTX, though, “this is just taking money from customers and using it for your own purpose. . . . This isn’t sophisticated whatsoever. This is just plain old embezzlement.”

FTX’s spending: a yacht, real estate, hotels

In its glory days, FTX and Alameda spent liberally. That six-bedroom “Orchid Penthouse” where Bankman-Fried, Ellison (who was sometimes romantically involved with Bankman-Fried), Singh, and Wang lived was in the tony Albany development in the Bahamas. A writer for the venture firm Sequoia Capital, which had invested in FTX, gushed in a 14,000-word profile of Bankman-Fried for the investment firm that Albany was “one of the most stunningly gorgeous places I’ve ever set foot in. The boat basin is filled with superyachts, megayachts, even a glittering gigayacht or two.” He went on to describe that the Orchid building “cuts toward the sandy beachfront like the prow of a ship through a wine-dark sea.” (The profile has since been removed from Sequoia’s site.)

Spending a week “embedded” at FTX, the writer was at last given an hour-long interview with Bankman-Fried, during which Bankman-Fried did not make eye contact and played rounds of the video game Storybook Brawl as he discussed effective altruism, an idea that philanthropic effort needs to do the most good for the most people in measurable terms. (Thus, earning lots of money and giving it to certain causes should be encouraged.) The profile asked whether Bankman-Fried was “the new Jay Gatsby,” and concluded he was not, due mainly to his philanthropic bent (Gatsby, ostensibly, was not into effective altruism).

At FTX there was also a startling amount of money spent on random things: $379,013 on catering in September 2022, right before the implosion; and more than $10 million in the first nine months of 2022 for hotels. There were the expenses the company covered: the $2.5 million for an Alameda executive’s boat, the multimillion-dollar transfers for executives’ Bahamas apartments that were titled in their names, its bankruptcy investigators later wrote in court filings. There were the questionable transfers, like tens of millions sent to Bankman-Fried in 2021 and 2022 that were recorded as “Investments in Subsidiaries: Investments-Cryptocurrency.”

Bankman-Fried’s parents, too, seemed to benefit from FTX’s success. Bankman was officially employed at the company for almost a year before the collapse, according to a civil lawsuit filed this month against Bankman and Fried by the FTX debtors (those representing FTX in bankruptcy). The company bought a $16.4 million ocean-view Bahamas home that the couple lived in, and covered their Bahamas permanent-residency fees, the lawsuit said.

The FTX debtors also cited a $10 million payment from Alameda to a Bankman-Fried account on the FTX exchange that was almost immediately rerouted to a Bankman FTX account. Bankman and Fried, through spokespeople, called the September lawsuit’s claims “completely false,” and said that the house was owned by FTX and used by Bankman as “temporary housing” while he worked in the Bahamas.

There were the internal systems that bankruptcy experts struggled to even describe: the records stored in Google folders; the “majority of entities” within FTX that didn’t prepare financial statements at all, while those that did used things like QuickBooks (meant for individuals and small businesses), Slack, shared drives, Google docs, or Excel spreadsheets to track assets and liabilities; the expenses and invoices that were submitted on Slack and approved by emoji, according to filings in the bankruptcy case.

Bankruptcy investigators found no accurate list of bank accounts, or people authorized to sign for those accounts. Investigators couldn’t find a complete list of employees, or the terms of their employment, nor could they locate some of the “presumed employees,” wrote John Ray, the bankruptcy expert who took over as CEO of FTX after Bankman-Fried’s departure, in a November bankruptcy court filing.

The website for an FTX audit firm “indicates that they are the ‘first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland,’” Ray wrote. There were the passwords kept in plain text; there were assets that were simply lost. “We don’t know where all of our wallets are,” Ray told Congress in December after taking over.

Ray described untangling FTX’s records as “pure hell” in a February bankruptcy court hearing. One lawyer working on the bankruptcy said at a November bankruptcy court hearing that FTX was the “personal fiefdom of Sam Bankman-Fried.” At an April bankruptcy court hearing another lawyer called it “a digital Potemkin village, or perhaps more apt, a video game.”

Bankman-Fried himself described Alameda as “hilariously beyond any threshold of any auditor being able to even get partially through an audit,” in an internal note quoted in court documents. “Alameda is unauditable. I don’t mean this in the sense of ‘a major accounting firm will have reservations about auditing it’; I mean this in the sense of ‘we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.[’] We sometimes find $50m of assets lying around that we lost track of; such is life.”

The case against Bankman-Fried

Bankman-Fried was arrested in the Bahamas on December 12, at the request of U.S. authorities who had opened a federal criminal case against him. As he and his lawyers discussed whether he would agree to extradition to the U.S., on December 19 Gary Wang, in the morning, and Caroline Ellison, in the afternoon, appeared in a federal courtroom in Manhattan. Both pleaded guilty—Ellison to six counts of fraud and one of money laundering, and Wang to four counts of fraud. And both had agreed to cooperate with the government and testify against Bankman-Fried.

Bankman-Fried made his first court appearance in Manhattan on December 22, after agreeing to be extradited to the U.S., and pleaded not guilty at a hearing in early January. The pace at which the government put together the case against Bankman-Fried, though fast, is not unprecedented.

“Usually where, as here, so many high-level players rushed to sign up as cooperators, the general contours of a scheme can come together pretty quickly, and the hot documents quickly identified,” says Daniel Richman, a former Manhattan federal prosecutor and a law professor at Columbia Law, adding that the detailed bankruptcy investigation likely helped prosecutors gather information quickly.

In February, Nishad Singh also pleaded guilty, to six counts (four of fraud, one of money laundering, and one of making illegal political contributions); he also agreed to testify against Bankman-Fried. Ryan Salame, another former executive, pleaded guilty in September, but is not expected to cooperate against Bankman-Fried.

After Bankman-Fried’s arrest, a federal magistrate judge allowed Bankman-Fried to stay out of jail, guaranteed by a $250 million bond and confined largely to his parents’ house in Palo Alto, California. But prosecutors complained about his behavior, from the small (using a virtual private network to watch the Super Bowl via a Bahamian subscription) to the big (contacting, via Signal, a former executive and potential witness, saying he’d “love” for them to “use each other as resources when possible, or at least vet things with each other”) to the  bigger (giving private documents of Ellison’s to a reporter, which would generally be allowed under First Amendment law but is problematic when interpreted as a defendant intimidating a witness). In August, Judge Kaplan revoked Bankman-Fried’s bail, sending him to the Metropolitan Detention Center.

Bankman-Fried faces seven counts, six of fraud and one of money laundering (other counts, related to political contributions, are scheduled to be tried separately in March). Prosecutors in this case have signaled they will focus on several allegations against Bankman-Fried at trial: that he transferred customers’ money held on the FTX cryptocurrency exchange to Alameda Research, resulting in the multibillion-dollar deficit on the exchange; that he directed a subordinate to write code that gave Alameda special privileges on the FTX exchange; that he falsely told investors, customers, and lenders that FTX and Alameda were separate entities; and that he spent customers’ money on himself, other executives, and pet projects—without customers’ knowledge or consent.

What the prosecutors aren’t expected to emphasize: the technical details of crypto. “The mantra at the Southern District is ‘thin to win,’ so expect the prosecutors to give jurors the crypto education they need, through some combination of experts and cooperating witnesses,” Richman says. “But their main point will likely be that this is a simple case of using and taking money that is not yours. A jury that does not appreciate the plain criminality of the conduct is far less likely to convict.”

Defense filings suggest that Bankman-Fried’s lawyers will argue that the crypto world had its own set of rules, and that their client was playing by those—unaware of any illegal things other executives at his companies were doing. However, the defense has already absorbed some blows; Judge Kaplan ruled against allowing several of its proposed experts to testify, and has denied a number of its key motions.

Meanwhile, crypto executives have their own views over the likely fallout of the trial, and over what they know of Bankman-Fried’s conduct. “The trial is a good step forward; prosecuting the fraud that’s been rampant in crypto is extremely important, and trying to legitimize not only cryptocurrency but the processes surrounding it,” R.A. Wilson, chief technology officer of the crypto exchange 1GCX, tells Fast Company. “Essentially anywhere that you’re dealing with finance, there are going to be people who take advantage of the system. Unfortunately, in such a nascent space it does look bad because it’s such a large percentage of what we would consider the business that’s been tainted, but I think people will look at it and make their own judgments.”

Beyond the criminal cases against Bankman-Fried, Ellison, Singh, Salame, and Wang, and the civil lawsuit against Bankman and Fried, the fallout is still far from over. FTX’s collapse triggered other crypto bankruptcies, along with raising huge questions about the future of the industry. Customers have been pummeled, from the Ontario Teachers’ Pension Plan, which invested $95 million with FTX and had to write down its investment to a value of $0, to individuals who’ve written to court trying to get their money back, like Warren Winter of Germany, who had almost $350,000 on FTX when he tried to withdraw it on November 10 and hasn’t recovered any of it.

There is a long line of FTX creditors and lenders asking for money back, too. In the extremely complex FTX bankruptcy case, investigators said in April that they’d tracked down $7.3 billion in assets for distribution, and continue to work on locating more. The number of related lawsuits is astounding. Even people tertiary to FTX’s operations, like its ad stars Tom Brady and Gisele Bündchen, are being sued. Bankman-Fried is a defendant in cases from the Securities and Exchange Commission and the Commodity Futures Trading Commission, along with his criminal case and multiple civil suits, which could drag on for years, if not decades.

As they angled to get their client out of jail with his trial looming, Bankman-Fried’s lawyers suggested a range of precautions if he was released: a temporary residence in Manhattan, with a private security guard who’ll stay with him in the evenings and make sure he doesn’t access cellphones, a computer, or a TV; an agreement that he’ll speak only to his defense team, brother, or parents.  As the lawyers wrote of Bankman-Fried in Monday’s filing, “He alone knows the facts which are also critical in preparing his defense.” On Thursday, Judge Kaplan denied the motion.

Update, September 28, 2023: This article has been updated with Judge Kaplan’s ruling on the motion for release.