By Luc Cohen
NEW YORK (Reuters) – Sam Bankman-Fried is set to go on trial on Tuesday on fraud and conspiracy charges related to the collapse of FTX, the now-bankrupt cryptocurrency exchange he founded and led.
The 31-year-old former billionaire has pleaded not guilty. Below is an explanation of the seven charges he faces.
STEALING CUSTOMER FUNDS
Prosecutors say Bankman-Fried embezzled customer money to plug losses at Alameda Research, a crypto hedge fund he owned, as well as to make investments, buy real estate in the Bahamas, and donate to U.S. political campaigns – sometimes through “straw” donors used to mask the true source of the funds.
He faces one count of wire fraud, two counts of conspiracy to commit fraud, and one count of money laundering conspiracy over the alleged theft of customer funds.
LYING TO INVESTORS AND LENDERS
Prosecutors say Bankman-Fried hid the fact Alameda had borrowed large sums of money from FTX from the exchange’s auditors and used the resulting inaccurate financial statements they produced to reassure investors about his company’s risk management.
Bankman-Fried is also accused of directing former Alameda chief executive officer Caroline Ellison to mislead the fund’s creditors about the money it had borrowed from FTX, in order to convince them not to recall their loans. Ellison has pleaded guilty and is expected to testify at trial.
Bankman-Fried faces one wire fraud count and two conspiracy counts over the alleged misrepresentations to investors and lenders.
WHAT WILL BANKMAN-FRIED’S DEFENSE BE?
Bankman-Fried is expected to argue that FTX’s Terms of Service did not prohibit the exchange from using customer funds for its own purposes, as long as it allowed users to withdraw their money. He has acknowledged inadequate risk management, but denied stealing funds.
His lawyers have also said pooling and reallocation of customer funds was common among cryptocurrency platforms and have signalled they could challenge witnesses from FTX investors and Alameda lenders as to whether they did sufficient due diligence.
WHAT ABOUT THE OTHER CHARGES?
Bankman-Fried once faced as many as 13 charges, but five counts that were brought after he was extradited from the Bahamas – including bank fraud and foreign bribery conspiracy charges – were split off into a separate trial scheduled for March 2024.
Prosecutors also dropped one count of conspiring to violate U.S. election laws after the Bahamas said it never intended to extradite him to face trial on that charge. Prosecutors have said they intend to argue at his Oct. 3 trial that his political donations were a part of his wider-ranging fraud scheme.
(Reporting by Luc Cohen in New York; Editing by Noeleen Walder and Daniel Wallis)
