Sam Bankman-Fried's lawyer laid out his defence case at his fraud trial on Wednesday, portraying the 31-year-old former billionaire as a "math nerd" who overlooked risk management in building his FTX exchange, but did not steal customer money.
Bankman-Fried has pleaded not guilty to charges he used FTX customer money from the exchange's 2019 launch until its November 2022 bankruptcy in order to prop up his hedge fund, Alameda Research, buy luxury real estate, and donate to US political campaigns and candidates.
In his opening statement, defense lawyer Mark Cohen acknowledged that FTX lent money to Alameda, but said Bankman-Fried – who graduated from the Massachusetts Institute of Technology with a physics degree in 2014 – "reasonably believed" that those loans were permitted and backed up by collateral.
"There was no theft," Cohen said. "Sam didn't defraud anyone. Sam didn't intend to defraud anyone. Sam acted in good faith."
Instead, Cohen said some key aspects of FTX's business like risk management got "overlooked" as the startup grew rapidly.
"Sam and his colleagues were building the plane as they were flying it," Cohen said. "No one person – no one CEO, certainly not Sam, could be everywhere and do everything."
Bankman-Fried's trial kicked off on Tuesday, nearly a year after the collapse of FTX shocked financial markets and tarnished the budding entrepreneur and philanthropist's reputation as an honest actor in a crypto sector prone to scams and purported get-rich-quick schemes.
Earlier on Wednesday, prosecutor Thane Rehn said Bankman-Fried took more than $10 billion from unsuspecting FTX customers. He said the former crypto tycoon claimed in television commercials and in FTX's terms of service that customers' cryptocurrency would always belong to them, not the exchange.
But Bankman-Fried, Rehn said, "was not who he appeared to be."
"All of it was built on lies," Rehn said. "He was using his company, FTX, to commit fraud on a massive scale, and the money he was spending to build his empire - it was money he was stealing from FTX customers."
Bankman-Fried did not take the money all at once, and a growing customer base helped him paper over the theft, Rehn said. But all along, Rehn said he had been directing customers to deposit their money to accounts controlled by Alameda, and had used FTX's computer code to let Alameda withdraw deposits.
When Alameda's risky investments in cryptocurrency began to lose money in May and June of last year, Bankman-Fried "doubled down" and took more money from FTX than ever before, Rehn said. But he said the scheme fell apart in November 2022, when a leaked Alameda financial statement set off panic by FTX customers.
"In the end, the hole that the defendant had created at FTX was too big," Rehn said. "Once customers started asking for their money back, the whole thing came crashing down."
Inner circle
Prosecutors are expected to call three former members of Bankman-Fried's inner circle – former Alameda chief executive Caroline Ellison and former FTX executives Nishad Singh and Gary Wang – to testify against him. All three have pleaded guilty and agreed to cooperate with prosecutors.
"They will give you an insider's view of how the crimes occurred," Rehn said in his opening statement, without naming the witnesses.
Earlier on Tuesday, a jury of 12 primary members and six alternates was selected.
Bankman-Fried's parents, Stanford Law School professors Joseph Bankman and Barbara Fried, were seen arriving at the federal courthouse in lower Manhattan on Wednesday morning. They had not attended the trial's first day.
Their names were both on a list read by a prosecutor on Tuesday of possible witnesses or individuals who may be otherwise mentioned in testimony, along with Bankman-Fried's brother Gabriel Bankman-Fried and former Donald Trump staffer Anthony Scaramucci. That does not necessarily mean they will be called to testify.
Once known for his casual attire and mop of unkempt curls, Bankman-Fried sported a trim haircut and wore a suit and tie in court on both Tuesday and Wednesday.
He has been detained at the Metropolitan Detention Center in Brooklyn since Aug. 11, when Kaplan jailed him for likely tampering with witnesses, including by sharing Ellison's private writings with a reporter. Bankman-Fried and Ellison were at times romantic partners.
