The 3 Key Battle Lines in Sam Bankman-Fried’s Trial

On Oct. 4, the long-awaited criminal trial of FTX founder Sam Bankman-Fried finally began in earnest after 12 jurors were sworn in at a Manhattan courthouse. While prosecutors characterized Bankman-Fried as a serial liar in their opening argument, his defense team painted him as a well-intentioned but flawed start-up founder.

FTX was a crypto exchange that allowed its users to buy, sell and hold cryptocurrencies, and use financial mechanisms to bet on those tokens’ price movements. Prosecutors allege that instead of keeping customer funds siloed, FTX executives loaned those deposits to Alameda Research, Bankman-Fried’s hedge fund, at his direction. Bankman-Fried’s lawyers say he had a “good faith” belief that the way FTX and Alameda handled customer funds was permitted, and that the relationship between the two companies was “reasonable under the circumstances.”

The opening statements, which presiding Judge Lewis Kaplan told jurors were like “trailers at the movies,” outlined what issues are the most important to each set of lawyers and where their battle lines might be drawn.

Here are three areas of contention that will be central to the trial as it plays out over the next month.

The moral character of Sam Bankman-Fried

Both prosecutor Thane Rehn and defense attorney Mark Cohen attempted to draw their own rich character portrait of Sam Bankman-Fried, who sat mostly motionless in the courthouse, rarely looking at either attorney. (Cohen, at the end of the day, complained to Judge Kaplan that Bankman-Fried was not getting his proper dosage of Adderall, which made it “very hard for him to focus.”

Read More: What to Expect in the Trial of Sam Bankman-Fried

Rehn painted a portrait of a con man who misled investors on Twitter, back-dated contracts to mislead investors, and operated in stealth to hide his many secrets. “This man stole billions from thousands of people,” he repeated several times, jabbing his finger in Bankman-Fried’s direction. Cohen, meanwhile, described the FTX founder as a “math nerd who didn’t drink or party.” In Cohen’s telling, Bankman-Fried was a hard-working entrepreneur who got in over his head and was ill-equipped to handle a bad situation “when the storm hit.” (The “storm” metaphor was Cohen’s rhetorical device of choice: he used it several times.)

Caroline Ellison’s role in Alameda

Caroline Ellison, the CEO of Alameda Research and Bankman-Fried’s on-and-off girlfriend, will play a major role in the trial. She has pleaded guilty and agreed to cooperate with prosecutors in the case against Bankman-Fried. Rehn, for the government, attempted to dismiss her importance in the organization’s crimes: “He was using her as a front. In reality, he was calling the shots,” he declared.

Unsurprisingly, Cohen insinuated that it was squarely Ellison, not Bankman-Fried, who was running Alameda, and thus the root of its problems. “He relied on her, and he trusted her to act as the CEO and manage the day-to-day of trading management, preparing financial documents, handling lender relationships,” he said. Cohen also alleged that at one point, Bankman-Fried confronted Ellison about scaling back her risky trading strategies, but that she refused to heed his advice.

Ellison’s upcoming testimony, and any evidence that is presented of her exchanges with Bankman-Fried, will be essential to assigning responsibility.

What the terms of service permit

The prosecution hopes to use Bankman-Fried’s own words from the past against him: to show that he and his company made promises to customers that they actively knew to be false. One of these key promises can be found in FTX’s terms of service. "You control the Digital Assets held in your Account," read Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading."

The prosecutors brought up the terms of service several times on Wednesday: in Rehn’s opening arguments, and then in the cross-examination of their first two witnesses, FTX investor Marc-Antoine Julliard and FTX employee Adam Yedidia. Juilliard, who claims to have lost around $100,000 when FTX crashed, said he signed up for the platform with the understanding that his assets would not be loaned out. Yedidia said he resigned from FTX in November 2022, upon learning that Alameda Research had used customer deposits to pay back lenders.

Cohen, conversely, attempted to draw the jury’s attention to a different part of the terms of service that concerned margin trading, which involves borrowing cryptocurrency in order to trade more than the holder actually has. Cohen argued that this part of the terms of service allowed traders, including Alameda Research, to borrow money from FTX’s pool of assets to trade with. "The evidence will show that Sam reasonably believed that there were no laws or provisions in the terms of service that prohibited FTX from loaning out these deposits, whether loans went to Alameda or to other customers,” he said.

The trial continues on Oct. 5, with the prosecutors saying before the end of the week, they expect to call to the witness stand Gary Wang, who co-founded FTX and has pleaded guilty to federal criminal fraud charges.