- The first week of a criminal trial is important in that it sets the stage for competing arguments.
- The government is arguing that while FTX investors believed their funds were safe, they were actually being diverted to Bankman-Fried’s luxurious lifestyle.
- The defense claims that Bankman-Fried may have been disorganized and foolish, but never intended to steal from anyone.
Ari Redbord is the global head of policy and government affairs at TRM Labs, the blockchain intelligence company. Views expressed are his own.
The first week in a lengthy criminal trial is often the most important. Jury selection, opening statements and the first few witnesses allow the government and defense to tell their respective theories of the case and gain, or lose, credibility with the jury.
With the first week of former FTX CEO Sam Bankman Fried’s fraud trial in the books, let’s take a look at how this first critical week played out.
After one day of jury selection in which the judge and attorneys ultimately chose 12 New Yorkers including a physician’s assistant, a librarian, and a nurse, both sides made opening statements.
Opening statements — while not evidence - are a way to tell the story of your case — to lay out themes, evidence and the theories that the jury will hear in the coming days and weeks.
The opening statements set the scene
In the SBF trial the theories of the case crystalized immediately. The government intends to prove that SBF intentionally defrauded customers by using the money with which they entrusted him to make risky investments and fund a luxury lifestyle.
The defence, on the other hand, intends to counter with the classic Sam was sloppy and careless but he did not have the requisite criminal intent to defraud investors.
In its opening statement, the government called FTX a “house of cards ... built on a lie.”
The Assistant United States Attorney explained that the defendant intentionally “lied to customers” and used those funds for his own “money, power and influence.” “He poured money — other people’s money — into investments,” the AUSA said.
He “spent that money in all sorts of ways on himself.”
The government’s theory of the case is that while investors believed their money was being held safely for them, like a bank, “as if they were sitting right there,” those funds were actually diverted to a “smaller and secretive company” called Alameda Research and SBF also spent investor funds on “luxuries” for himself, his friends and family members.
In addition, the government told the jury that they would hear evidence that Bankman-Fried used the money to make political donations that allowed him to curry favour with politicians on Capitol Hill.
Bankman-Fried’s defense team countered the government’s narrative by arguing that the defendant acted in good faith as FTX grew too quickly.
While SBF may have been foolish and disorganized, he never meant to steal customers’ money. The defense argued that he was simply overwhelmed.
“He did not intend to steal from anyone,” said defense attorney Mark Cohen, who also said that Bankman-Fried “acted in good faith” and that he “didn’t defraud anyone.” ... “No CEO and certainly not Sam could be anywhere and do everything,” Cohen said, previewing that the defense plans to shift blame to cooperating witnesses who have already pled guilty.
Remember, the defense does not have to prove that SBF is innocent, just that the government did not meet it’s high burden of proving beyond a reasonable doubt that SBF acted intentionally — with criminal intent — to defraud investors.
The defence also previewed its strategy for challenging the government’s cooperating witnesses by saying that they are in bed with the government and will say anything they need to in order to save themselves from long prison sentences.
“Cooperation in the real world means testifying in a way that supports the government’s case,” SBF’s lawyer said. “That should overhang everything they say.”
The first witnesses: An FTX investor, engineer, and co-founder
After opening statements, the government called its first witness — an FTX customer who lost $134,000. The first witness in a trial is one of the most important as that witness is intended to provide an overview and engage the jury.
The government called commodities trader Marc-Antoine Julliard in order to tell the story through the eyes of a customer who trusted FTX and SBF’s public persona even when the exchange was teetering.
The witness also allowed prosecutors to ask questions about how a customer engaged with the platform. Julliard said that he traded crypto assets on the exchange and would regularly check his FTX app for updates on his trades and asset prices.
When the prosecutor asked Julliard if he ever expected anyone else to make trades or use funds on his behalf, the witness answered: “If I trade, I’m responsible for my own decisions. ... If someone else traded on my account, and they lose money ... that’s not what I signed up for.”
The government’s second witness, Adam Yedidia, testified under a grant of immunity — meaning prosecutors have agreed not to prosecute him based on his testimony — that he worked at Alameda and as an engineer at FTX, but resigned last year after he “learned that Alameda Research had used customer deposits to pay back creditors.”
The government used Yedidia to explain cryptocurrency and walk the jury through FTX’s celebrity-laden marketing campaign that proclaimed FTX was “the safest and easiest way to trade crypto.”
FTX co-founder Gary Wang, a cooperating witness who pled guilty to conspiring with SBF to defraud FTX customers, took the stand Thursday and quickly admitted that he was involved in the historic fraud allowing SBF’s hedge fund Alameda Research to withdraw unlimited funds from FTX.
Specifically, Wang testified that shortly after FTX opened, Bankman-Fried directed him to write code that would allow Alameda’s FTX account balance to fall below zero.
Wang testified that Alameda had “special privileges” at FTX that ultimately allowed the crypto hedge fund to spend $8 billion of FTX customers’ money.
What’s next?
Next week the government will continue its case with arguably its most important witness. When the trial resumes on Tuesday, the jury will hear from Caroline Ellison, the former CEO of Alameda Research and on-and-off girlfriend of Bankman-Fried.
Given Wang’s testimony and the critical role of Alameda in the alleged fraud, Ellison’s testimony, and credibility, will be critical.
Ellison, who pled guilty to multiple fraud charges late last year, will also be vigorously challenged by the defence, who will attempt to portray her as a puppet of the government who will say anything to save herself.