Sam Bankman-Fried’s fate was sealed in a matter of hours by 12 ordinary New Yorkers and their gut instincts, fortified by government-sponsored pizza in an almost deserted courthouse, nearly a year to the day after FTX’s collapse into bankruptcy shook the crypto world.
An 18-day fraud trial in which the jury was bombarded with talk of “omnibus wallets” and “SQL servers” — and treated to detailed examinations of gremlins in the crypto exchange’s code — came down to a far simpler question.
“Once SBF took the stand it basically became: ‘do I believe him or not’,” said Widge Devaney, a former federal prosecutor now at Baker McKenzie in New York. “I think the jury just looked at him and said: ‘OK, I don’t believe him’.”
The decision by the 31-year-old FTX founder to testify in his own defence, a gamble lawyers tend to advise clients against, was perhaps unsurprising from Bankman-Fried, described by his former colleague and girlfriend Caroline Ellison as “truly risk-neutral” as long as there was some potential upside.
But as prosecutor Nick Roos argued in his closing remarks, the version of events proffered by the former tycoon — that he was caught unawares in October last year by a multibillion-dollar hole in FTX’s balance sheet — required jurors to believe that an MIT physics graduate “who ran two billion-dollar companies and who was testifying before Congress, was actually clueless”.
To find Bankman-Fried not guilty, Roos told jurors on Wednesday, they would have to conclude “he had no idea what was happening at his own company, and he had no idea what he was doing was wrong”.
Claiming not to recall crucial details of FTX’s collapse under cross-examination also did little to help Bankman-Fried’s cause.
But the odds were stacked against the one-time billionaire ever since the US government indicted him in December and proceeded immediately to secure the co-operation of two of his closest consiglieri, Ellison and Gary Wang, while he was in the air being extradited from the Bahamas.
A further plea deal with former FTX coder Nishad Singh swiftly followed and prosecutors were fortunate to have the case assigned to Lewis Kaplan, a veteran judge known for his impatience with delaying tactics.
“This case moved at lightning speed — that was not a coincidence, that was a choice,” said Damian Williams, US attorney for the Southern District of New York, soon after the verdict.
The conviction in what could have been a case mired in complexity was a “warning to every fraudster who thinks they’re untouchable”, he added.
While the unanimous decision by a jury including a librarian and a former Salomon Brothers investment banker could now close the prosecutor’s book on FTX, it leaves the rest of the crypto industry reeling from its association with one of the largest financial frauds in US history.
“The guilty verdict has a huge impact on the broader crypto sector,” said Neama Rahmani, president of West Coast Trial Lawyers. “Many people have the belief, correct or not, that crypto is a scam, and this case reinforces that belief.”
At the height of his power, as FTX achieved a $40bn valuation and was embraced by lawmakers and celebrities alike, Bankman-Fried rose to a level of mainstream popularity no other crypto executive has achieved, championing new US crypto regulation and testifying three times before congressional committees, once with his shoelaces untied.
The collapse of FTX in November 2022 spurred a blitz of enforcement cases from US regulators — led by Gary Gensler’s Securities and Exchange Commission — against the biggest names that survived last year’s crisis in crypto markets, including US-listed Coinbase and Binance, the world’s largest digital assets exchange.
More recently politicians including Democratic senator Elizabeth Warren have renewed calls for a crackdown on the sector over its links to illicit finance and terrorist financing, particularly following Hamas’s attack on Israel last month.
Bankman-Fried’s conviction could now supercharge such efforts.
“SBF is the poster child for all the negative assumptions about crypto,” said Charley Cooper, a former chief of staff at the Commodity Futures Trading Commission. “Gary Gensler, Elizabeth Warren and other proponents of increased crypto regulation will seize upon this as a stark ‘I told you so’ moment.”
After the verdict, Cooper added: “The scrutiny being heaped upon the industry over the past several years will only increase and crypto’s defenders will have their work cut out for them in keeping government stakeholders at bay.”
Leading Silicon Valley and Wall Street investors, which backed FTX with nearly $2bn and lent Bankman-Fried their credibility, will also be under scrutiny after the trial underlined how some were duped by fabricated, amateur balance sheets and were all too keen to believe a “made-up story”.
Sequoia Capital, SoftBank, Lightspeed Venture Partners and crypto specialists Paradigm and Pantera Capital poured hundreds of millions of dollars into the company, only to be tarnished as FTX was revealed as a historic fraud.
After the verdict was announced, Sequoia partner Alfred Lin, who oversaw the firm’s FTX investment, wrote: “Immediately after FTX collapsed, we extensively reviewed our due diligence process and evaluated our 18-month working relationship with [Sam Bankman-Fried] . . . We concluded that we had been deliberately misled and lied to.”
A slew of cryptocurrencies including bitcoin have rallied in recent weeks, suggesting that even a high-profile criminal trial cannot damp enthusiasm for the nascent technology. But in the wake of Bankman-Fried’s conviction, investors, lawmakers and prosecutors are unlikely ever to be convinced again by the crypto industry’s appeal for special treatment.
“You’ve heard it before, whether it was with mortgage-backed securities or other things: ‘You just don’t understand, this is the new paradigm’,” said Devaney of Baker McKenzie. “If you don’t understand, that is a red flag.”
Or, as the Southern District’s Williams put it on Thursday evening, “this case has always been about lying, cheating and stealing”.
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