Sam Bankman-Fried’s judgment day

Hello and welcome to the latest edition of the FT Cryptofinance newsletter. This week we’re reacting to the guilty verdict laid down on Sam Bankman-Fried. 

Sam Bankman-Fried, former chief executive of collapsed crypto exchange FTX, was convicted of fraud and money laundering late on Thursday evening in a verdict that concluded crypto’s criminal trial of the year.

He stood virtually motionless as he faced the jury — nine women and three men — who collectively delivered guilty verdicts on seven charges, including wire fraud, money laundering and conspiracy to commit securities fraud.

Sam’s regression from crypto kingpin in the Bahamas to convicted criminal in New York in just 12 months shows how swiftly the US justice system has taken action on the crypto industry’s largest failure in its roughly 14-year history.

“Isn’t it interesting that when there’s political will to go after fraud cases, we can get it done in record time. This is light speed compared to most other cases: it only took 12 months,” said Aidan Larkin, founder and chief executive of Asset Reality, a company that manages seized assets for law enforcement agencies.

“If you’re pro-industry, you could take the stance that this is one less bad actor in the sector, and it’s a cautionary tale that will improve standards for crypto. The contrary position is ‘typical crypto’ — the swiftness of the verdict reiterates just how risky this whole sector is,” he added.

For the time being at least, the former FTX chief is still protesting his innocence: “We respect the jury’s decision. But we are very disappointed with the result. Mr Bankman-Fried maintains his innocence and will continue to vigorously fight the charges against him,” said Mark Cohen, a lawyer for the former paper billionaire.

No doubt, the crypto sector will be due a post-mortem once the dust settles on Sam, but for the past few weeks this newsletter has aimed to bring you the twists and turns from the courtroom itself. Before sector-wide judgment is cast, I want to consider — for a final time — Sam’s Hail Mary: taking the stand himself in a bid to sway the jury in his favour.

He did so facing what seemed like a never-ending series of personal testimonies against him. In particular, three of his closest former associates — Caroline Ellison, Gary Wang and Nishad Singh — all said under oath they committed financial crimes alongside the former chief executive. 

Initially, his decision to stand raised eyebrows as it is not a common strategy for a defendant: it exposes them to cross-examination by the prosecution and can, obviously, carry a lot of risk. But, as Mark Kornfeld of Buchanan Ingersoll and Rooney PC told me, the fact Sam did should not have come as a surprise.

“Many, many times the defendant never takes the stand. It seemed like here [the decision] was based on the avalanche of testimony and evidence presented . . . the defendant must have felt that he needed to testify and had nothing to lose, and a lot to gain in his mind.”

We now know, of course, that Sam’s testimony failed to win him any friends on the jury bench. The prosecution pointed to statements previously made by Sam — like calling a subset of crypto investors “dumb motherfuckers” and writing “fuck regulators” in a message to a journalist in November 2022 — as evidence of his true intent. He also conceded his advocacy for crypto regulation was “just PR”.

He was also presented with a list of emails, congressional testimony and other written statements where he represented Alameda Research — FTX’s sister trading firm — as an entirely separate entity to FTX.

Faced with the prosecution’s probing, the former FTX chief also acknowledged that Alameda had “distinct rules’‘ for its positions on FTX. What’s more, when he was pushed on whether he disclosed this information to the public, Bankman-Fried said he didn’t think so, and that he was simply “not sure”. 

In contrast, when Sam was questioned by his own lawyers last week (without a jury present), he cut a completely different figure: one who offered long, caveated answers that even drew exasperated comments from the judge. 

But, crucially, when probed by the prosecution, the former FTX chief said he could not recall specifics relating to their questions on roughly 140 occasions — a contrast in demeanour that was never likely to win favour with the jury. 

“Ironically, SBF’s confident appearance under his own lawyers’ questioning made it seem that he was perfectly capable of remembering complex details. As a result, his seeming inability to answer questions under cross-examination would likely have looked even more suspicious,” said Yesha Yadav, professor of law at Vanderbilt University Law School. 

“Can SBF come across as fundamentally honest and decent, if not to most of the jury then at least to one person?” added Yadav, speaking to me earlier this week ahead of the verdict. 

The answer, we now know, was no.

What’s your take on the final days of the Bankman-Fried trial? As always, email me at [email protected]. 

Weekly highlights

• The UK this week pushed ahead with plans to regulate the crypto sector, when on Monday the Treasury published its response to a consultation on the future of rules governing the industry. Under the Treasury’s proposals, stablecoins will be regulated under the Payment Services Regulations, which set the standards for traditional payment service providers. The update also comes as the FCA has sought to expand protections relating to crypto products promoted to the public. 

• The Securities and Exchange Commission continued to cast its watchful eye over the crypto sector this week when it filed a subpoena against PayPal over the payment giant’s plans for a dollar-pegged stablecoin. The subpoena, filed on Wednesday, related to the “production of documents”, PayPal said, adding it is co-operating with the regulator. 

Soundbite of the week: Crypto whistleblowers and the CFTC

This year alone, the Commodity Futures Trading Commission has paid $16mn in awards to whistleblowers, according to a statement made by Commissioner Christy Goldsmith Romero this week. 

The Commissioner went on to describe whistleblowers as “vital” and said the CFTC would not be able to fully protect consumers without them, but the real nub of the issue here is that Romero name dropped crypto as an industry that generated the majority of whistleblowing tips this year. 

“The majority of tips received this year involved crypto — an area that continues to have pervasive fraud and other illegality.” 

Data mining: Solana back from the dead

A longstanding casualty of the crypto market crisis of ’22 has been Solana, the crypto network that — during its heyday — was pitched as the innovation that would fulfil all the lofty promises of the mania-filled sector: rapid, low-cost transactions fuelling new sectors such as NFTs, the metaverse and decentralised finance. 

None of that has come true, of course: the NFT market is dead, few people mention the metaverse anymore (mercifully) and there is now less money in decentralised finance projects than since the earliest days of 2021. 

Solana also suffered from a unique reputational issue: it was one of the darlings of the sector, according to Sam Bankman-Fried. Nevertheless, Solana has experienced a revival, surging almost 80 per cent in the past month. 

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Cryptofinance is edited this week by Laurence Fletcher. Please send any thoughts and feedback to [email protected]

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