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Flashy ads in focus as fraud trial for FTX founder opens

Splashy advertisements featuring football star Tom Brady and comedian Larry David were among the first evidence seen by jurors on Wednesday as prosecutors launched a historic fraud case against cryptocurrency maven Sam Bankman-Fried, depicting him as a villain who portrayed himself as the Robin Hood of the crypto world.

Assistant US Attorney Nathan Rehn said in his opening statement in Manhattan federal court that it was only a year ago that Bankman-Fried seemed to be “on top of the world”, operating the multibillion-dollar company he founded, FTX, a seemingly pioneering cryptocurrency trading platform.

Rehn said the 31-year-old lived in a US$30-million apartment in The Bahamas, jetted around the world on private planes, socialised with celebrities, and spent billions of dollars as he flaunted power and made big political donations to gain influence in Washington over cryptocurrency regulation.

The prosecutor, though, said that the son of two Stanford law professors was not as he seemed.

“Sam Bankman-Fried was committing a massive fraud by taking billions of dollars from thousands of victims,” Rehn said. When his businesses were collapsing, he backdated documents and tried to cover up his crimes by deleting messages and ordering employees to automatically delete all messages every month, the prosecutor said.

Adam Yedidia, one of the trial’s first witnesses, supported the government’s claims when he testified that he met Bankman-Fried and became “long-time friends” when they were both students at the Massachusetts Institute of Technology before they worked and lived together in The Bahamas.

Yedidia said he quit FTX and stopped talking to Bankman-Fried when he learned in early November of last year that Bankman-Fried had used FTX customer deposits to pay back creditors of Alameda Research, Bankman-Fried’s crypto hedge fund.

On the stand, Yedidia confirmed he was testifying under an immunity order that will prevent him from being prosecuted as long as he testifies truthfully. He said the protection seemed necessary because, as an FTX developer, he might have unwittingly written code that contributed to a crime. His testimony was to continue on Thursday.

Bankman-Fried became a target of investigators when FTX collapsed last November amid a rush of customers seeking to recover their deposits, less than a year after Bankman-Fried spent millions of dollars on the 2022 Super Bowl with celebrity advertisements promoting FTX as the “safest and easiest way to buy and sell crypto”.

David, along with other celebrities, including Brady and basketball star Stephen Curry, have been named in a lawsuit that argued their celebrity status made them culpable for promoting the firm’s failed business model.

Bankman-Fried was extradited to the United States from The Bahamas after his arrest last December. He was first ordered to remain at home with his parents in Palo Alto, California, as part of a US$250-million bail package, but his bond was revoked and he was jailed in August after Judge Lewis A. Kaplan concluded he’d tried to influence trial witnesses.

The casting of Bankman-Fried as the bad boy of crypto was contested by defence lawyer Mark Cohen, who told jurors in his opening statement that his client had “a very different story” to tell than prosecutors about what happened as he built his cryptocurrency empire between 2017 and 2022.

“Sam didn’t defraud anyone, didn’t intend to defraud anyone,” he told jurors.

He called Bankman-Fried a “math nerd who didn’t drink or party”, someone who launched his businesses after being educated at MIT and working on Wall Street for several years.

Cohen said Bankman-Fried’s actions in the final days as head of his companies prove that he believed he was managing a liquidity crisis caused by cryptocurrency values that collapsed by over 70 per cent, and criticism from one of his biggest competitors that caused a run on his companies by customers seeking to recover their deposits.

Cohen said Bankman-Fried’s lieutenants failed to do their jobs, including setting up appropriate financial hedges that would have protected FTX from last year’s crash in crypto prices.

He said the employees also failed to close software loopholes, among multiple reasons why FTX failed that were not Bankman-Fried’s fault.

“Sam acted in good faith and made, at the time, what were considered sound businesses decisions,” he said.

“It is not a crime to be a CEO of a company that filed for bankruptcy,” Cohen said. “It’s not a crime to try to get Tom Brady to go on ads for your company.”

Bankman-Fried faces seven charges, including wire fraud and conspiracy. In court on Wednesday, he sat with a water bottle and a laptop computer in front of him.

Assistant US Attorney Rehn said three former executives at Bankman-Fried’s companies will testify during the trial, including Caroline Ellison, his sometimes girlfriend who has pleaded guilty to charges in the case, along with two other former executives, who also have pleaded guilty.

Seated in the first row at the trial was US Attorney Damian Williams, who said months ago that the fraud surrounding FTX was one of the biggest in United States history. Also in the courtroom were Bankman-Fried’s parents, who arrived at the court holding hands.


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