Between the Balance Sheets at the Biggest White-Collar Trial Since Bernie Madoff
The trial of Sam Bankman-Fried, the former billionaire wunderkind behind the now-defunct cryptocurrency exchange FTX, has revealed astonishing new details of what the government says was a secret criminal syndicate hiding in plain sight.
This case has the potential to affect future government policy ranging from criminal justice to technology and financial regulations.
Once valued at $32 billion, FTX collapsed in November 2022 amid allegations of fraud by its founder, Sam Bankman-Fried, an MIT-trained physicist who goes by the acronym “SBF.” Prosecutors allege SBF stole billions of dollars, charging him with wire fraud, money laundering and campaign finance violations.
He has pleaded not guilty.
The highlight of the trial so far has been the government’s star witness, Caroline Ellison, former CEO of FTX’s sister company, a hedge fund called Alameda Research. Ellison says SBF ordered her and other co-conspirators to illegally funnel customer funds into risky crypto bets, massive political donations and luxury real estate purchases.
Ellison is also SBF’s on-again, off-again girlfriend—now decidedly off for good. She described their romance as tumultuous and one-sided, made even more so by the professional power imbalance that existed between them. Unlike other executives, Ellison lacked equity and had to run all major decisions by SBF, making him her boss as well as her boyfriend. Yeah, pretty awkward.
Ellison lived with SBF and other FTX employees in a $40 million Bahamas penthouse rumored to be an amphetamine-fueled polyamory pad, straight out of The Wolf of Wall Street. But those curious about the salacious details of what happened on those beanbags have been left disappointed by the trial. At one point, the testimony got so technical and in the weeds that one juror fell asleep.
Everyone perked up last week when prosecutors played a secret recording of Ellison made during an all-hands meeting as both companies melted down. On the recording, she is asked who decided to start cooking the books, papering over Alameda’s losses with FTX customer money. In response, Ellison said, “Um, Sam, I guess,” and giggled. “FTX basically always allowed Alameda to, like, borrow user funds, as far as I know.”
And that is the prosecution’s case in a nutshell. They hope her testimony will convince the jury that SBF directed his subordinates to fake balance sheets, create backdoors in FTX’s code and even bribe Chinese officials with Thai sex workers. At one point during her testimony, Ellison fought back tears as she described the implosion of the FTX Group, saying she felt a sense of relief knowing she wouldn’t have to lie anymore.
Ellison herself has already pleaded guilty to seven counts of fraud and conspiracy that, because of the amounts of money involved, come with the potential of life in prison. But her cooperation means that she will likely serve little time, or perhaps none at all. It’s a stark reminder that white-collar criminals often receive plea deals unavailable to those convicted of regular old burglary.
There are other policy considerations at play as well. Congress is currently working on legislation to determine when digital assets should be treated as securities regulated by the U.S. Securities and Exchange Commission (SEC) or commodities under the purview of the Commodity Futures Trading Commission. Since FTX went bankrupt, federal regulators at the SEC have cracked down on certain crypto tokens, claiming they are unregistered securities. The SEC is also in the process of ruling on multiple bitcoin exchange-traded fund applications.
So far, the trial has contained some fascinating anecdotes, including a telling thought experiment Ellison posed to SBF: Picture a high-stakes coin flip—heads, the world is magically made two times better; tails, the world is utterly destroyed. He said he would flip the coin every single time.
This was SBF’s approach to risk management, both in his business and personal affairs. FTX’s new CEO, John Ray III (who also oversaw Enron’s bankruptcy proceedings) has said the exchange was SBF’s “personal fiefdom,” operating with a “complete absence of trustworthy financial information.” Auditors and investigators are still trying to follow the money trail, hoping to claw back at least a portion of customer funds.
No word yet on potential testimony from Ellison’s co-CEO at Alameda, Sam Trabucco, who disappeared into international waters on a yacht allegedly purchased using company funds and has not been seen since.
The trial is expected to wrap up in November.