As first appeared in Newsweek
By Aron Solomon
The trial of Sam Bankman-Fried, the founder of the disgraced crypto exchange FTX, began on Tuesday in Manhattan.
Bankman-Fried, known colloquially as SBF, is accused of orchestrating an elaborate fraud that lasted years and took billions of dollars from customers to finance political contributions, venture capital investments, and luxury real estate purchases. SBF faces seven criminal counts and could receive a life sentence if convicted.
The trial is expected to offer a window into the often bizarre financial engineering that fueled cryptocurrency’s growth and lured millions of inexperienced investors. SBF’s methods included bizarre celebrity endorsements, including one that allegedly paid Tom Brady $55 million for 20 hours of his time.
The jury will be tasked with deciding whether SBF is guilty of the charges against him. Finding a neutral jury in a case that rightfully had so many people fired up is going to be an interesting challenge. The number of prospective jurors who will be able to listen to this case dispassionately and not enter their role as jurors having prejudged SBF is going to be somewhat limited, creating a highly challenging but not impossible jury selection.
Evidence
Prosecutors have amassed millions of pages of evidence against SBF, including spreadsheets that allegedly “kept track of illicit money flows.”
The trial is expected to feature testimony from SBF’s former associates and collaborators, who have pleaded guilty and are cooperating with prosecutors. The temptation to provide evidence against SBF in exchange for a better deal is something understandably difficult to turn down.
The Potential Defense
SBF has pleaded not guilty to the charges against him. His defense team is expected to argue that he did not intend to defraud customers and that he believed he was acting in their best interests. SBF’s writings during his eight months of home detention shed light on how he may defend himself at trial.
Any potential line of defense here is going to come face-to-face with a formidable foe in a criminal trial—a concept known as “reality.” No matter the defense strategy here, it’s going to be an immensely tough defense because of how egregious SBF’s acts and omissions were while running FTX.
In court filings, SBF’s lawyers have asserted that others in the cryptocurrency sector used customer assets in a similar way, and this contributed to SBF’s “good faith belief” that the way FTX treated customer deposits was appropriate.
Proving this good faith defense in court is going to require unbelievably good lawyering and perhaps a suspension of disbelief in the jury box.
Testimony
Most legal observers are unsure whether SBF will testify at trial. As New Jersey criminal defense lawyer David Gelman observed, “Many lawyers discourage their criminal defendants from testifying, as it can be a high-risk move. When you have a high-profile case and a clearly polarizing client, the stakes are even higher.”
Yet a key question here will be whether SBF can resist the temptation to testify.
This is where things can get very interesting. SBF has proven to be someone who simply feels and thinks that he knows best. What the exact psychological construct is remains to be diagnosed but there is little doubt that SBF will, at some point, seek to educate the jury about how he sees the world and what motivated his actions.
How relatable SBF will be to a jury if he decides to testify also remains to be seen. But I can’t even remotely imagine that SBF will come off in a positive way to the average juror. He is a deeply abrasive character, one who will ultimately do himself far more harm than good should he decide to testify.
Outcome
It would be a massive understatement to say that SBF faces an immensely challenging legal battle over the upcoming weeks. If there is a viable path to victory for SBF in the Manhattan courtroom, it simply eludes me and many other legal experts.
Again, the stakes are enormously high here as SBF faces a potential life sentence if convicted.
As someone who has written and commented exhaustively on Elizabeth Holmes and l’affaire Theranos, the stakes are just as high today because they mirror the startup’s intersection with key societal issues. While Holmes’ Theranos would revolutionize healthcare through the vehicle of reimagining blood work, SBF’s FTX would revolutionize wealth through the vehicle of crypto.
Because both concepts hit so closely to important parts of our lives, we as a society feel particularly violated when startup founders find ways to prey upon us on such a grand scale. Add to this that both of these founders are very easy for huge numbers of people to intensely dislike, and it creates a Zeitgeist driven at our wanting to see the founder pay for their set of misdeeds.
In other words, from where I and many others sit, SBF appears to be doomed. That’s an awfully difficult reality upon which to begin a trial, but that’s the harsh reality today for someone who actively seemed at times to be seeking to redefine startup founder fraud.
Under SBF’s stewardship, FTX lost $8.7 billion of its customers’ money. Even in an era where gazillionaires spend tens of billions to own a website where people yell at each other electronically, losing close to 10 billion dollars entrusted to you on deposit remains unfathomable.
Yet the main reason why SBF will be found guilty, probably in around a month or so, is the same reason why Elizabeth Holmes was—there ultimately has to be someone at the wheel, and in these two startups, the law and logic points to them. To borrow a term from a different area of law, Holmes and SBF both possessed the instrumentalities of control. The fraud and frauds their companies successfully endeavored to do are things that speak for themselves.
About Aron Solomon
A Pulitzer Prize-nominated writer, Aron Solomon, JD, is the Chief Legal Analyst for Esquire Digital and the Editor-in-Chief for Today’s Esquire. He has taught entrepreneurship at McGill University and the University of Pennsylvania, and was elected to Fastcase 50, recognizing the top 50 legal innovators in the world. Aron has been featured in Forbes, CBS News, CNBC, USA Today, ESPN, TechCrunch, The Hill, BuzzFeed, Fortune, Venture Beat, The Independent, Fortune China, Yahoo!, ABA Journal, Law.com, The Boston Globe, YouTube, NewsBreak, and many other leading publications.
