Sam Bankman-Fried ‘Lied,’ DOJ Tells Jury; Defense Tries to Pin FTX Collapse on Caroline Ellison

UPDATE (Oct. 4, 2023, 19:59 UTC): Adds first prosecution witness in final paragraphs of the story.

UPDATE (Oct. 4, 2023, 21:43 UTC): Adds second prosecution witness.

FTX founder Sam Bankman-Fried’s entire crypto empire was a “house of cards” that was “built on a lie,” the U.S. Department of Justice said in its opening statement at the FTX founder’s trial.

Bankman-Fried’s defense team countered that the onetime FTX founder acted in good faith – even as his businesses grew too quickly and collapsed dramatically through no fault of his own, his lawyers said. They assigned some of the blame to one of his employees, his former paramour Caroline Ellison, and said she failed to install safeguards. Ellison has already pleaded guilty and will testify during the trial.

Bankman-Fried’s criminal trial on fraud and conspiracy charges kicked off Wednesday at 12:30 p.m. in New York. Assistant U.S. Attorney Nathan Rehn told the 12-person jury that the government would present evidence and expert witnesses that would prove the former crypto king “lied to his customers” and used their money to buy himself “money, power and influence.”

“He poured money – other people’s money – into investments,” Rehn said. He “spent that money in all sorts of ways on himself.”

Read all of CoinDesk's SBF trial coverage here.

Bankman-Fried’s lawyers argued in their opening statement that the former founder of FTX and Alameda Research never meant to steal customers’ money – he was simply overwhelmed by the speed at which both his businesses grew.

“He did not intend to steal from anyone,” said the defense’s lead lawyer, Mark Cohen, to jurors selected earlier Wednesday. He also said that Bankman-Fried “acted in good faith” and that he “didn’t defraud anyone.”

The FTX app and terms of service told customers the money they put on the exchange was being kept for them “as if they were sitting right there” – but, in reality, Bankman-Fried diverted those funds to "smaller and secretive company” called Alameda Research and spent them on “luxuries” for himself, his friends and family members, Rehn told the court. In addition, Bankman-Fried used the money to make political donations that allowed him to curry favor with powerful people on Capitol Hill, Rehn said.

“You will learn the defendant took billions of dollars from … accounts [holding customers’ funds] … and he spent it, and customers had no way to know,” Rehn said.

Bankman-Fried took more than $10 billion out of FTX to pay its sister company Alameda Research’s debts in May and June of 2022, and attempted to “orchestrate a cover-up” by ordering the creation of false financial statements, Rehn added. He also testified before Congress, alleging FTX had never stolen customers’ funds, he said.

However, that “lie” blew up when Alameda’s financial statements were “leaked online,” Rehn said, referencing CoinDesk’s award-winning reporting on an internal document from Alameda that set into motion FTX’s collapse last fall.

Read more: Sam Bankman-Fried Scoops Help CoinDesk Win a Loeb Award, a Top Journalism Prize

Still, Bankman-Fried attempted to “cover his tracks,” tweeting false reassurances to his customers, instructing his employees to set up his company’s internal communications platforms to automatically delete messages between him and his employees and falsifying contracts and other documents, Rehn said.

The DOJ plans to present documents, investor files, financial statements and Bankman-Fried’s own deleted tweets during the course of the trial, in addition to witness testimony, he said.

Cohen started his opening statement in defense of Bankman-Fried by asking the jurors to judge “based on real life experiences,” and said he would explain “what really happened.” Moments earlier, an Assistant U.S. Attorney told jurors that the former crypto mogul “lied to the world” and “stole money” while continuously promising customers that their assets on FTX were safe.

The defense claimed that the government was “taking things out of context.” Rather than being a thief, Bankman-Fried was “someone who worked really hard” and whose companies grew very quickly where hundreds of decisions had to be made every day, Cohen said.

“No CEO and certainly not Sam could be anywhere and do everything,” Cohen said.

The government also told jurors about how closely intertwined the supposedly separate entities Alameda Research and FTX were and that Bankman-Fried, even after he stepped down from his role as CEO, remained very involved in Alameda Research’s business decisions.

The defense said there’s “nothing wrong with that,” and that Bankman-Fried remained a majority owner in Alameda, which is why he continued to be highly involved. He also explained that FTX needed liquidity and that Alameda Research took on the role of market maker.

“Totally normal,” Cohen said.

The defense took a shot at the government’s key witnesses – Ellison and former FTX executives Gary Wang and Nishad Singh – saying they were testifying due to cooperation agreements.

“Cooperation in the real world means testifying in a way that supports the government’s case,” Cohen said. “That should overhang everything they say.”

In the months leading up to the trial, Bankman-Fried’s lawyers have said they would argue that the former crypto mogul acted in “good faith” when he loaned funds to FTX and Alameda executives and in no way meant to defraud customers, investors or lenders.

Both the defense’s and the prosecutor’s opening statements came after Judge Kaplan picked a jury of 12 individuals to follow the case on Wednesday. Those jurors were selected from a group of over 80 prospective jurors who appeared in court on Tuesday and were asked a variety of questions, both work-related and personal.

Before the DOJ made its opening argument Judge Kaplan read a set of preliminary instructions to the jury for about 20 minutes, reminding the 12 jurors and six alternates not to conduct any research. He also explained how they should evaluate testimony and weigh it against, and alongside, other evidence like the FTX and Alameda internal documents. Opening arguments did not count as evidence, he said, likening them to movie trailers.

“Your job is to decide the facts … to come to a conclusion about what happened,” Kaplan told the jurors, later adding that he will teach them everything they need to know about the law and how to apply it to reach a verdict.

Prosecutors’ first witness was a French commodities trader named Marc-Antoine Julliard, who lost around $134,000 as an FTX customer.

Based in London, Julliard told the jury that he opened an account on FTX.com in 2021 when crypto assets were booming. After doing his own due diligence on the exchange and its then-CEO Bankman-Fried – reading news articles and posts on X (formerly Twitter) – Julliard said he frequently traded bitcoin and other cryptocurrencies through FTX.

Prosecutors’ initial line of questioning for Julliard focused on Bankman-Fried’s carefully cultivated public image and hinted at opposition to some of the defense’s opening argument. Bankman-Fried came across as the “leader” and “face” of crypto, the witness recalled, adding that several venture capital companies had invested in FTX, which to the commodities trader seemed like “a vote of confidence” in the platform and its CEO.

In response to a series of questions from Assistant U.S. Attorney Danielle Kudla, Julliard said that he traded crypto assets on the exchange and would check his FTX app for updates on his trades and asset prices daily, almost hourly.

Kudla walked Julliard into an almost immediate rebuttal of an argument made by the defense in its opening statements, asking him if he engaged in margin trading (the defense argued margin traders, under the FTX terms of service, could have had their funds moved by the exchange behind the scenes).

“I would not,” he said.

Even as potential problems at FTX became headline news in November 2022, Julliard initially left his funds on the service. He said he was reassured by a series of tweets from Bankman-Fried – which Kudla presented to the jury – wherin the FTX founder insisted the exchange was solvent and did not invest client funds.

Once Julliard ultimately tried to withdraw his funds on Nov. 8 – a day after the tweet thread was posted – he said he was unsuccessful.

Kudla asked if Julliard ever expected anyone else would trade his FTX-based funds on his behalf.

“If I trade, I’m responsible for my own decisions,” he said. “If someone else traded on my account, and they lose money ... that’s not what I signed up for.”

Julliard said he still wasn’t able to access any of his funds.

A second witness, Adam Yedidia, described himself as a “longtime friend” of Bankman-Fried who met the defendant while the two were studying together at the Massachusetts Institute of Technology. Yedidia told the court he served a brief stint at Alameda before working as an engineer at FTX, but he resigned last year after he “learned that Alameda Research had used customer deposits to pay back creditors.”

Yedidia testified under a grant of immunity – meaning prosecutors won’t charge him for any crimes based on what he says in court.

In response to one set of questions from Assistant U.S. Attorney Danielle Sassoon, Yedida walked the jury through a brief explanation of cryptocurrencies. His explanation was followed up by a visual aid produced by FTX. The animated crypto-explainer video served the double task of clarifying basic blockchain concepts for the jury, and showcasing how Bankman-Fried positioned FTX as an ethics-motivated blockchain company focused on equity and serving under-banked communities.

Prosecutors also showed Yedidia – and the jury – a number of FTX ads that specifically zeroed in on the exchange’s proclaimed safety and targeting toward retail investors. “In this video, who said FTX was the safest and easiest way to trade crypto,” Sassoon asked after one clip. “Tom Brady,” he responded, referring to the former National Football League quarterback. After the jury was shown a follow-up clip, which Yedidia recalled as an FTX Super Bowl ad, he was asked to identify another of FTX’s celebrity promoters: comedian Larry David.

Asked to describe Bankman-Fried’s role by Sassoon during his testimony, Yedidia said he oversaw FTX’s “grand strategy.” He will resume testimony on Thursday.

Elizabeth Napolitano contributed reporting.