FTX founder Sam Bankman-Fried did not steal billions from his own customers because he believed in "good faith" that a trading firm he controlled could use funds on deposit with his cryptocurrency exchange.
This was the argument made by Bankman-Fried's defense lawyer Wednesday as the criminal trial of the 31-year-old crypto entrepreneur got underway with opening arguments from both sides.
Bankman-Fried is accused by prosecutors of embezzling billions in FTX customer funds, committing money laundering, and misleading investors and lenders.
"Sam didn’t defraud anyone. Sam didn’t intend to defraud anyone," Mark Cohen, Bankman-Fried’s defense attorney, told the jurors. "There was no theft."
The defense strategy that emerged Wednesday in the Manhattan courtroom was to present the fallen crypto star as a math nerd who did his best to navigate a fast-growing startup through a crazy period in the crypto markets, making decisions on the fly.
"Sam and others made hundreds of decisions a day," Cohen said. "Some things were overlooked."
Bankman-Fried listened to his lawyer’s remarks while wearing a gray suit and a purple tie, fidgeting at times and using a laptop in front of him. He also did look at the jurors, of which there are nine women and three men.
Prosecutors offered a much different picture. Assistant US attorney Thane Rehn, in his opening remarks, said Bankman-Fried stole billions from thousands of people after promising customers that the money they deposited with FTX was theirs.
A run on the exchange last November revealed that $8 billion was missing. A trading firm called Alameda Research had secret access to FTX customers’ money, Rehn said. By the summer of 2022, Bankman-Fried had used Alameda to take more than $10 billion from FTX, according to Rehn.
Bankman-Fried used that customer money to make property purchases in the Bahamas and to gain political influence, Rehn said, as well as to cover loans.
"The defendant lied to the world," Rehn said.
A select few knew that Bankman-Fried was taking customer money, according to Rehn, and some members of his inner circle are expected to take the stand to testify about what they witnessed.
"They will tell you how they helped the defendant commit the fraud and how they helped him keep it secret," he added.
Some details of FTX’s demise are likely to come from Caroline Ellison, the former CEO of Bankman-Fried's hedge fund Alameda Research and a one-time romantic partner, as well as two former FTX executives: co-founder Gary Wang and chief engineer Nishad Singh.
All three have pleaded guilty to criminal charges and agreed to testify against Bankman-Fried.
'How could that be theft?'
But Bankman-Fried's defense lawyer said FTX didn't lie to its customers and its relationship with Alameda was no secret. FTX's wire transfer instructions show that money sent to FTX goes into an account where the custodian is Alameda.
The relationship between these two firms will be a key point of discussion during the length of the trial. Alameda, Bankman-Fried's defense lawyer said, was a customer of FTX while also acting as a payment agent and market maker on its behalf.
FTX's customer agreement permitted Alameda to receive loans from FTX and Bankman-Fried reasonably believed, according to his attorney, that there were no laws or terms of service preventing the loan of customer deposits to Alameda if those loans were collateralized.
"How could that be theft?” his attorney said.
When Bankman-Fried became concerned about crypto prices going down, his attorney said he spoke to Ellison about it and urged her to put on a hedge. She didn’t do it, according to Cohen.
"Sam acted in good faith and took reasonable business measures," Cohen said, noting that they "believed they had assets to weather the storm."
The end came, according to Cohen, when the CEO of Binance, FTX’s largest competitor, put out a tweet attacking FTX. It triggered a run on FTX.
During the crisis, Cohen said, Bankman-Fried tried to stabilize the situation and repay customers.
"It’s not a crime to run a company that ends up going through a storm," Cohen said.
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