Moment that mattered: Sam Bankman-Fried is found guilty of fraud

Sam Bankman-Fried leaves the US federal court in New York on 30th March 2023 after pleading not guilty to charges of fraud and conspiracy

Sam Bankman-Fried leaves the US federal court in New York on 30th March 2023 after pleading not guilty to charges of fraud and conspiracy

On the 27th floor of the Daniel Patrick Moynihan US Courthouse in lower Manhattan, Sam Bankman-Fried was found guilty on seven counts of fraud and money laundering at exceptional speed. It had been a trial for the modern age. Bankman-Fried had been the golden child of the cryptocurrency industry; at one point he was worth a staggering $26 billion and was courted by politicians, celebrities and plutocrats alike. He was, on paper at the least, one of the richest and most influential people on the planet.

The trial sparked a media feeding frenzy and was inundated by hundreds of people each day; TV crews, print journalists, Instagram live-streamers, Tik-Tok-ers and podcasters, all vying for the limited number of available seats. On the freezing cold New York afternoon of 2nd November the jury took less than five hours to convict Bankman-Fried of stealing billions, leading to the collapse of his FTX cryptocurrency exchange. The jury was so quick with its verdict that Zeke Faux, who had followed the trial from the start, managed to miss it.

“I didn’t really think the jury would turn it around the same day,” says Faux, an investigative journalist for Bloomberg and author of the book Number Go Up – a coruscating take on cryptocurrencies and Sam Bankman-Fried’s role in their rise and fall. The book was released in September 2023 and would go on to play a crucial role in the courtroom drama. “[Although] I never thought that the outcome was much in question,” he adds. “US federal prosecutors almost always win.”

I never thought that the outcome was much in question. US federal prosecutors almost always win”

Sam Bankman-Fried’s fall from grace was remarkable. An MIT graduate and former trader, he shot to prominence in 2019 after founding FTX. The exchange dealt in cryptocurrencies, digital currencies that are run and maintained by a decentralised system known as the blockchain. They are largely unregulated, untraceable and operate mostly outside government control. FTX offered an exchange where cryptocurrencies could be safely tr

aded, and took off just as their price soared. The value of a single Bitcoin, for example, went from under $3,600 at the start of 2019 to over $60,000 by the autumn of 2021. By the time Bankman-Fried had turned 30, his company was worth $40 billion.

By the end of 2021 crypto was everywhere and Bankman-Fried was its cuddly, shaggy-haired, philanthropic front man. He had nurtured a highly successful anti-brand, a sort of aloof maths nerd persona. He became known simply by his initials, SBF, and embraced a philosophy called ‘effective altruism’, a turbo-charged off-shoot of utilitarianism, but adapted for the billionaire age to justify making obscene amounts of money as an imperative to change the world for the better.

SBF promised to give all of his money away while living in a luxury $30 million purpose-built compound in the Bahamas. There was lurid gossip about how he allegedly lived there with some of his staff in a polycule, a network of polyamorous sexual relationships. He was tabloid gold.

“I met him first at a crypto conference and he told me the story about effective altruism, and I thought it was fascinating,” says Faux. “I was sceptical of crypto. And he presented himself as also being sceptical of crypto. So I was really focused on this question of ‘Will he give the money away?’”

At the start of 2022 Faux went to the Bahamas and shadowed SBF for weeks at a time, observing his alternative lifestyle, trying to get a handle on his business and his claim to practise effective altruism. As far as Faux could see, SBF had spent more money – a cool $135 million – on renaming the Miami Heat basketball stadium the FTX Arena than anything he had so far given to charity.

Faux suggested to his interviewee that, given his cachet in the business world, he could simply start a cryptocurrency and make $6 billion for charity tomorrow. “He [SBF] said ‘I would never run a scam. Six billion is cool but I think I’m gonna make a trillion dollars, way more than I could make from any scam’,” recalls Faux. “But what I did not get was that he was already running a scam. The exchange was the scam. It was sitting right there in front of me.”

What I did not get was that he was already running a scam. The exchange was the scam ” – Zeke Faux, Journalist and author

SBF, it turned out, had been funnelling money that FTX was receiving from depositors into his hedge fund Alameda Research which, Faux says, “was going out and gambling it away, doing all sorts of crazy stuff with it.” Faux had quizzed SBF about the relationship between FTX and Alameda in the Bahamas. SBF had admitted that Alameda was given “more leeway” than other traders, which Faux recognised as being highly incriminating. “I had thought, ‘That’s a pretty bad thing to say, you shouldn’t have said that to me’.”

A week later, in early November 2022, a crypto news website broke a story detailing FTX and Alameda’s relationship, leading to a surge of customers withdrawing their money from FTX. Within ten days FTX had filed for bankruptcy. Within a month SBF was arrested in the Bahamas and later extradited to the US.

The trial was highly embarrassing for Bankman-Fried. His inner circle at the company, including his ex-girlfriend and former CEO of Alameda Research Caroline Ellison, cut deals with federal prosecutors to testify against him. They painted a picture of a man willing to take huge risks at almost any cost if justified by the outcome, and who carefully curated his dishevelled public persona. SBF decided to take the stand but it was a disaster: he came across as truculent and evasive. “The prosecutor pulled out a hard copy of Number Go Up, walked it over to him and was like ‘Mr Bankman-Fried, turn to page 223. What do you say right there?’” says Faux. “And for quite a while, she went over all the dumb things that he had said to me in the book. And all the things he admitted to, and he had no answer for it.”

Many of the people who lost money when FTX collapsed might get most of it back. Some of the bets SBF made via Alameda Research have paid off, including investing in Anthropic, an AI company now worth tens of billions of dollars. However, Faux doesn’t feel this was enough to let SBF off the hook. “Say you robbed Fort Knox, and then spent all the money on lottery tickets, and some of them won,” he says. “And now that you have been arrested, you’re offering to return the money. You still robbed Fort Knox. That’s a crime.”

After hitting a high of $64,400 in November 2021, the value of Bitcoin plummeted, hitting a low of  $16,000 at one point. Yet despite the shock to the system represented by  Bankman-Fried’s arrest and trial, the cryptocurrency has gone on to stage a massive rally, hitting a value of $70,000 per Bitcoin for the first time in March 2024. “The appeal of cryptocurrency is proving at least somewhat durable,” says Faux. However, he says, the SBF case may nonetheless have left a permanent mark. “I can’t imagine that we’ll just forget everything that happened,” he says.

Sam Bankman-Fried faces spending decades in jail for making a gamble too far. “When SBF was riding high, if you asked him, ‘Would you flip a coin if the outcomes were, heads you win $100 billion and tails you lose it all and go to jail for life?’ he would have said: ‘Flip that coin, and if it comes up heads, flip it again’,” says Faux. “But I wonder, now that it’s come up tails, does he feel like he just got unlucky, or does he wish he never picked up the coin at all?”

Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall by Zeke Faux is published by Weidenfeld & Nicolson and available in hardback for £25

Posted on Friday, June 21st, 2024 - Categories: #53 - Oct-Dec 2023, App Issues.