Regardless of what you may think about cryptocurrency—whether it has great potential or it is only a fad or a scam—the most common misunderstanding about the upcoming trial of Sam Bankman-Fried, also known as SBF, is that it is a case about cryptocurrency.
Twenty years ago, I led an investigation as a result of which special agents from the Drug Enforcement Administration and the Internal Revenue Service, along with prosecutors from the U.S. Attorney’s Office for the Southern District of Florida, obtained an indictment against an organization involved in shipping cocaine and heroin to the United States, financed in part by Miami real estate. That case, however, was not about real estate. It was about drug trafficking and structuring financial transactions to evade reporting requirements.
And so it is with the case of Bankman-Fried, founder of the cryptocurrency trading firm Alameda Research and CEO of the more widely known cryptocurrency exchange FTX. Cryptocurrency is not on trial here, because the case against Bankman-Fried is not about cryptocurrency. It’s about fraud.
The Indictment
In a seven-count indictment, Bankman-Fried is charged with wire fraud on customers of FTX; conspiracy to commit wire fraud on customers of FTX; wire fraud on lenders to Alameda Research; conspiracy to commit wire fraud on lenders to Alameda Research; conspiracy to commit securities fraud on investors in FTX; conspiracy to commit commodities fraud on customers of FTX in connection with purchases and sales of cryptocurrency and swaps; and conspiracy to commit money laundering.
In essence, Bankman-Fried is accused of misappropriating and embezzling FTX customer deposits and using billions of dollars in stolen funds to enrich himself, support the operations of FTX, fund speculative venture investments, and pay for Alameda’s operating costs. He is also accused of providing false information to FTX’s investors and Alameda’s lenders.
Bankman-Fried has pleaded not guilty and his trial is set to begin on October 3.
How Prosecutors Will Likely Set Out to Prove Their Case Against Bankman-Fried
Prosecutors have indicated that they intend to call at least three of Bankman-Fried’s alleged co-conspirators to testify at trial. They have also indicated that they intend to call other former employees of Alameda and FTX, as well as customers of FTX, investors in FTX, and lenders to Alameda. They have further indicated that they intend to call an expert witness whose financial analysis should show the nature and extent of Bankman-Fried’s alleged fraud.
In presenting their case against SBF, prosecutors will likely want the jury to understand the history of Alameda and FTX. Prosecutors might begin by calling a witness who can testify to the formation of Alameda in 2017, and FTX in 2019.
Prosecutors will likely also want the jury to feel comfortable with testimony and exhibits that will make frequent references to cryptocurrency. For that reason, prosecutors might ask one of their early witnesses to explain to the jury how trading firms like Alameda work, or are supposed to work; and how exchanges like FTX work, or are supposed to work.
Likewise, prosecutors might want one of their early witnesses to explain to the jury how customers of cryptocurrency exchanges use fiat money, like dollars, to purchase cryptocurrency, how transactions are recorded on a blockchain, and how customers can hold, trade, or convert that cryptocurrency back to fiat money.
With that background and understanding in place, prosecutors could begin building their case against Bankman-Fried.
Insider Testimony Against SBF
From court papers filed in the Bankman-Fried case, prosecutors are likely to call as witnesses at least three of Bankman-Fried’s alleged co-conspirators—Gary Wang, who co-founded FTX with Bankman-Fried and was Chief Technology Officer at FTX; Nishad Singh, who was Head of Engineering at FTX; and Caroline Ellison, who was an employee at Alameda Research and was later CEO at Alameda Research—each of whom has agreed to cooperate with the government.
Wang, Singh, and Ellison will all be able to provide valuable insider testimony about Bankman-Fried’s acts. They will also be able to provide equally valuable evidence relevant to proving what Bankman-Fried knew or what he intended…
Read More: The Sam Bankman-Fried Case Is Not About Crypto, It’s About Fraud