Sam Bankman-Fried took more than $10 billion from unsuspecting customers of his now-bankrupt FTX cryptocurrency exchange, a U.S. prosecutor said Wednesday in opening statements at the 31-year-old former billionaire's fraud trial.
Prosecutors with the U.S. Attorney's office in Manhattan say Bankman-Fried 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 U.S. political campaigns and candidates.
Thane Rehn, a prosecutor, said it looked like Bankman-Fried was on top of the world a year ago after amassing power and influence. 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, Rehn said.
'NOT WHO HE APPEARED TO BE'
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."
Bankman-Fried's lawyers are expected to give their opening statement later on Wednesday. The former FTX chief has pleaded not guilty and is likely to argue that while he failed to manage risk adequately, he did not steal money.
His lawyers are expected to try to shift the blame for FTX's dramatic failure to the cooperating witnesses, and argue they are implicating Bankman-Fried in order to seek lenient sentences.
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.
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 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.
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