Is Sam Bankman-Fried’s protection even making an attempt to win?

I’ve by no means seen Sam Bankman-Fried so nonetheless as he was in the course of the prosecution’s opening assertion. The attribute leg-jiggling was absent. He barely moved because the prosecutor listed the proof towards him: inner firm information, what clients had been informed, the testimony of his co-conspirators and his personal phrases.

His hair was shorn, the results of a haircut from a fellow prisoner, the Wall Road Journal reported. He wore a swimsuit purchased at a reduction at Macy’s, per the Journal; it held on him. He appeared to have misplaced some weight.

“All of that was constructed on lies.”

Bankman-Fried, presently final yr, had a luxurious life-style because the CEO of crypto change FTX, mentioned the assistant US lawyer, Thane Rehn, within the cadence of a excessive schooler delivering his strains in a pupil play. Bankman-Fried frolicked with Tom Brady. He was on journal covers, lived in a $30 million penthouse, and frolicked with world politicians. “All of that was constructed on lies,” Rehn mentioned.

In his opening assertion, Rehn dodged explaining cryptocurrency to the jury. As an alternative, he punched arduous on Bankman-Fried mendacity and stealing. 

Bankman-Fried sat virtually immobile, often glancing at Rehn, because the prosecutor informed the jury that Bankman-Fried bought inventory in FTX and borrowed thousands and thousands from lenders by mendacity. 

The story Rehn informed is acquainted to anybody following the information. In Could and June of 2022, Alameda Analysis — the crypto buying and selling firm ostensibly helmed by Caroline Ellison — didn’t have sufficient to pay its payments, so it pulled buyer cash to repay loans. By September, the outlet within the FTX steadiness sheet was so huge that clients may by no means be repaid.

FTX “didn’t have a chief danger officer, which grew to become a difficulty when the storm hit.”

When CoinDesk printed its article in November 2022, folks realized FTX was a home of playing cards, Rehn mentioned. In the meantime, Bankman-Fried tweeted. “FTX is ok. Property are effective” and “We don’t make investments buyer belongings even in treasuries.”

Pointing at Bankman-Fried, Rehn mentioned, “This man stole billions of {dollars} from hundreds of individuals.” 

So how was the protection going to comply with it up? I used to be very curious, having discovered yesterday that Bankman-Fried had by no means been supplied a plea deal since he and his attorneys had informed the federal government they wouldn’t negotiate. Absolutely there could be some method of proof, some one thing, that might have made him so assured.

There was, as a substitute, a metaphor.

Protection lawyer Mark Cohen, with the power of a affected person father telling his obnoxious youngsters a bedtime story, assured us that working at a startup was like constructing a aircraft whereas flying it, and that FTX the aircraft had flown proper into the right storm: the crypto crash. Besides, uh, he additionally mentioned this: FTX “didn’t have a chief danger officer, which grew to become a difficulty when the storm hit.”

I couldn’t cease fascinated with the lacking danger officer

The issue with this metaphor is that if FTX was a aircraft, it was a aircraft flying with a key part lacking — specifically, the danger officer, an government whose job it’s to, properly, handle danger. That is type of an vital factor, as dangers could be something from reputational to regulatory to monetary.

FTX was named such because it was as a result of it was a futures change, which, to borrow a phrase from Bloomberg’s Matt Levine, “sits between the winners and losers of bets.” Which means FTX can’t pay out what it owes the winners except the losers pay up. Danger administration is a vital a part of the enterprise; danger officers exist to determine enterprise’ potential dangers, monitor, and mitigate them. That is to say nothing of the regulatory dangers round crypto.

As Cohen droned on about airplanes, I couldn’t cease fascinated with the lacking danger officer. Bringing it up, I believed, was an incredible mistake. The prosecution hadn’t talked about it. Both Bankman-Fried is silly — unlikely — or he intentionally didn’t rent a danger officer. Was he apprehensive about what one would possibly discover? 

Positive, as Cohen put it, Bankman-Fried was a math nerd who didn’t celebration. That paints an image of somebody who’s fairly deliberate, notably since he instantly left MIT and went to work on Wall Road. If he had been a party-hardy trainwreck, I may see overlooking a danger officer with a purpose to do one other line, or a supermodel, or one thing else vital. Why was the protection bringing this up?

However as Cohen tried to inform me that FTX’s and Alameda’s enterprise relationships had been “affordable beneath the circumstances,” the dearth of danger officer saved elbowing me within the ribs. “Sam acted in good religion and took affordable enterprise measures” is a fairly arduous capsule to swallow with that in thoughts. 

Man, it’s no good when your protection lawyer has simply made you sound worse than the prosecution already did. And whereas Cohen tried to make the frequent white-collar protection argument that Bankman-Fried, as CEO, was just too busy to supervise what everybody did each day, he simply made me extra suspicious. That’s why you rent a danger officer and delegate! That’s the entire level! I may barely even hear Cohen blaming Caroline Ellison and Changpeng “CZ” Zhao for the debacle over the “no danger officer” ringing in my ears.

Following the protection’s opening statements, issues obtained nonetheless worse for Bankman-Fried. The prosecution referred to as its first witness, Marc-Antoine Julliard, whose cash obtained caught on FTX. Juilliard, who was born in Paris and lives in London, testified that he trusted FTX as a result of Bankman-Fried got here throughout as a number one determine of the trade. When he was evaluating the change, he thought the sheer quantity of customers was vital, too — on the time, FTX was among the many high three largest exchanges. Plus, main VC companies had invested, and “they don’t commit tons of of thousands and thousands with out doing due diligence, checking the books, the accountancy of the agency, going by a number of compliance course of[es], in order that was a vote of confidence for me,” Juilliard mentioned. (Evidently he had not paid consideration to the Elizabeth Holmes trial.)

He additionally famous FTX’s shiny advertisements — that includes Gisele Bündchen, for example —  advised a really excessive finances. It wouldn’t make sense to spend that a lot cash except FTX had very robust financials, Juilliard figured. He opened an account, transferred in each common cash and cryptocurrency, and used the change to execute his plan: shopping for Bitcoin to promote again in 5 to 10 years at larger costs.

It’s a thankless job to cross-examine a buyer whose cash is gone

In November 2022, issues went unhealthy for Julliard. He adopted Bankman-Fried on Twitter, and browse aloud the “FTX is ok. Property are effective” tweets, together with “FTX has sufficient to cowl all shopper holdings. We don’t make investments shopper belongings” and some others, which gave Julliard the impression that his cash was there — the issue might need been technical (anti-spam measures) or regulatory. When he tried to get his cash out on November eighth, it was too late. We noticed screenshots of his withdrawal makes an attempt: $20,000 USD and about 4 Bitcoin, which had been price about $20,000 on the time: about $100,000 cash, inaccessible.

It’s a thankless job to cross-examine a buyer whose cash is gone, however Cohen tried anyway. He famous that Julliard was a licensed commodities dealer, who was buying and selling in crypto as a result of he didn’t need to disclose it; that Julliard knew that crypto was new and dangerous, and that Julliard didn’t evaluation the phrases of service settlement he’d assented to when making his FTX account. 

Properly, positive, however so what? 

The subsequent witness referred to as was Bankman-Fried’s former school (and FTX) roommate, Adam Yedidia, about whom I anticipate I’ll have way more to say tomorrow. 

When the jury was dismissed, Bankman-Fried’s legal professionals informed the choose that he wasn’t getting his full Adderall doses in jail. The protection gave the impression to be organising the grounds for an attraction — it’s beforehand argued that the jail withholding Adderall made it troublesome for Bankman-Fried to arrange his protection. Given what I noticed in the present day, organising an attraction appears clever. It’s, at minimal, danger administration.