Former FTX billionaire and founder of Alameda Research, Sam Bankman-Fried, is set to defend himself at his upcoming fraud trial by arguing that he did not believe the use of customer funds by his cryptocurrency exchange, FTX, was improper. Bankman-Fried is facing charges of stealing billions of dollars from FTX customers, allegedly using the funds to cover Alameda’s losses.
Bankman-Fried’s defense lawyers have hinted at their strategy in court filings, suggesting they will challenge the credibility of witnesses who claim that Bankman-Fried knew about the improper use of customer funds. Experts believe that if others testify that Bankman-Fried was aware of the misconduct, it could weaken his argument that he acted in good faith.
Bankman-Fried has pleaded not guilty to seven counts of fraud and conspiracy. While he acknowledged in a public statement his failure to manage risk at FTX, he denies the accusations of stealing customer deposits. In court papers filed in September, his lawyers maintain that Bankman-Fried had a “good faith belief” that FTX’s handling of customer funds was permissible based on the terms of service.
Prosecutors have pointed to a section of the FTX terms of service that states users retain ownership of their digital assets and have accused Bankman-Fried of falsely claiming that the exchange properly maintained customer assets. The court barred Bankman-Fried from calling an expert witness to interpret the terms of service but did not rule out allowing him to cross-examine witnesses on the matter.
Former colleagues of Bankman-Fried who were close to him, including former Alameda Chief Executive Caroline Ellison and former FTX executives Gary Wang and Nishad Singh, have pleaded guilty and are expected to testify against him. Their testimonies could provide an “insider’s perspective” on Bankman-Fried’s actions and intentions, posing a challenge to his claim of good faith.
Bankman-Fried’s defense is likely to argue that his former colleagues are motivated to falsely implicate him in order to secure more lenient sentences for themselves. They may also present evidence that other cryptocurrency companies used customer funds in a similar manner, suggesting that FTX’s practices were not outside the industry norm.
The trial, set to begin on Tuesday, will determine whether Bankman-Fried committed fraud or not. Despite the complexity of the subject matter, U.S. District Judge Lewis Kaplan considers the issues in the case to be relatively straightforward.