As SBF Trial Begins Here is What You Need to Know About the FTX Drama

In Summary
- SBF facing 13 charges including pocketing client funds.
- The former billionaire has already pleaded not guilty to all charges.
- His defence is expected to argue that FTX’s terms and conditions allow customer funds to be rehypothecated if it allows users to withdraw their funds.
The stage is set for one of the highest-profile financial criminal cases ever documented. Sam Bankman-Fried is set to go on trial this Tuesday for a slew of fraud and conspiracy charges related to the collapsed FTX crypto exchange.
The former FTX CEO has already pleaded not guilty to all charges. Below are details of the charges he is facing.
Pocketing Client Funds
FTX was closely tied to Alameda Research, an investment hedge fund owned by SBF. It’s accused that this entity arm was used as the vehicle of choice by SBF to embezzle billions of dollars from customers. The Alameda portfolio has been used to purchase real estate and donate to US political campaigns, most notably being the second highest donor to Joe Biden’s presidential campaign.
Lying to Investors and Lenders
The capers between FTX and Alameda don’t stop there, with further allegations by prosecutors that SBF obfuscated borrowing and lending between these two entities to produce falsified financial statements to investors. These funds were also used to bet on highly speculative crypto tokens.
More Cases to Come
SBF faced as many as 13 different charges at once, including bank fraud and foreign bribery conspiracy charges – these have now been split into separate trials scheduled for March 2024.
Not Guilty Claims and The Defence
For this coming trial, the prosecution expects that SBF will argue that FTX’s terms and conditions allow customer funds to be rehypothecated if it allows users to withdraw their funds. This is the grounds behind his statement of denying stealing user funds.
The Jury is likely to be tested, as the anticipated defence claims are complex. A recent opinion piece from Bloomberg, suggests SBF’s defence could take the angle of positioning FTX as a futures exchange. This suggests that the exchange of crypto sits directly between traders on the exchange who are betting on the price of cryptocurrency to go up or down. In betting there are typically winners and losers, and if the loser of a bet doesn’t pay for their losses, then the exchange is unable to pay what the winners deserve.
However, even if SBF decides to go with this defence, it is unlikely to cover all 13 charges.
How This Trial May Affect Crypto Markets
FTX’s downfall and the charges against Bankman-Fried have been pivotal in shaping the narrative around the crypto industry, possibly reinforcing negative stereotypes, including crypto being perceived as a sector riddled with scams.
The aftermath of FTX’s collapse continues to influence the crypto market, with global liquidity sitting around ~50% of its previous levels before the collapse. The trial’s revelations could further delay the industry’s recovery, especially considering its recent challenges, such as declining venture funding and dropping asset prices.