On the second day of Sam Bankman-Fried’s fraud trial this month, one of the cryptocurrency mogul’s lawyers delivered an emphatic message to the jury. Mr. Bankman-Fried is not a criminal, the lawyer stated, and every decision that led to the collapse of his FTX crypto exchange was made in “good faith.”
That message has since been clouded by more than two weeks of testimony from 15 government witnesses, most of whom have blamed Bankman-Fried for FTX’s spectacular implosion last year. He lied repeatedly, they said, trampling on his top lieutenants and ordering them to treat customer deposits as if FTX were a piggy bank.
The testimony has dealt a blow to Mr. Bankman-Fried’s “good faith” defense, which will be tested this week. Federal prosecutors are scheduled to rest their case Thursday morning, and lawyers for the FTX founder will call four witnesses in Manhattan federal court, including Mr. Bankman-Fried, who has pleaded not guilty to seven counts of fraud. , conspiracy and money laundering.
At a hearing Wednesday, Mark Cohen, a defense attorney, confirmed that Bankman-Fried, 31, would take the stand. This is a risky move for any defendant. But given the prosecution’s success in building his case, legal experts said, it was almost inevitable that Bankman-Fried would want to tell the jury her side of the story.
“There’s nothing revealing about saying this is an uphill battle,” said Caroline Polisi, a criminal defense attorney. “The prosecution has done a good job.”
Mark Botnick, a spokesman for Bankman-Fried, declined to comment.
From the beginning of Mr. Bankman-Fried’s case, he was expected to face major obstacles in court. He was the face of FTX and also founded a cryptocurrency trading company, Alameda Research, where deposits from FTX clients were redirected. Prosecutors have accused him of orchestrating a vast scheme to use those deposits to finance risky investments, real estate purchases and other expenses.
But so far, her trial appears to have been even worse for Bankman-Fried than anticipated, legal experts said. In recent weeks, prosecutors have presented the case as a run-of-the-mill fraud investigation. They have stuck to relatively simple concepts and used only a handful of complicated financial flow charts that can be difficult for jurors to decipher.
Prosecutors have also called fewer witnesses than expected, and many of them received only a minimal response from Bankman-Fried’s attorneys. A trial that was expected to last six weeks could now conclude in a month.
Mr. Bankman-Fried’s testimony could create new risks for the defense. In criminal cases, lawyers often advise their clients not to testify because of the possibility that prosecutors will trip them up in cross-examination.
“Any progress the defense made in the case evaporates,” said Michael Bachner, a criminal defense attorney and former deputy district attorney in Manhattan. “But if the case doesn’t go well, there’s not much to lose.”
With Bankman-Fried’s propensity to talk and her past ability to charm major investors, she may have simply concluded that she is the best person to sell her story to the jury, legal experts said.
“So far the case has been exclusively about the cooperators” who agreed to testify against Bankman-Fried, said Daniel Richman, a former federal prosecutor who now teaches at Columbia University. “When he testifies, it’s all about him.”
Even before the trial, obstacles had been mounting for Mr. Bankman-Fried’s lawyers.
In a pretrial ruling in September, Lewis A. Kaplan, the federal judge overseeing the case, sharply limited the number of experts the defense could call, saying the proposed testimony was irrelevant or could confuse the jury. He also scaled back some legal arguments Bankman-Fried’s lawyers wanted to make, including the claim that prosecutors were too reliant on one of FTX’s outside law firms to build their case.
After the trial began, Judge Kaplan kept close control over Mr. Bankman-Fried’s lawyers, interrupting the questioning of prosecution witnesses and often overriding their objections.
“Counsel, when I rule, that will be the end of the discussion,” Judge Kaplan told Mr. Cohen at one point. “Could we agree on that?”
But nothing has been as damaging as the testimony of about a half-dozen of Bankman-Fried’s closest advisers and friends, three of whom have pleaded guilty in the case and agreed to cooperate with prosecutors. Jurors were told that Bankman-Fried had known for at least six months that FTX would not be able to return $8 billion in customer money that Alameda had borrowed.
Caroline Ellison, who ran Alameda and pleaded guilty to helping steal money from FTX clients, testified that Bankman-Fried did not believe the normal rules of running a company applied to him. Nishad Singh, an FTX executive who also pleaded guilty, said his former boss had spent extravagantly even as the exchange was hurtling toward collapse. And Gary Wang, FTX co-founder and third cooperator, said Bankman-Fried had ordered him to write computer code that would allow customer deposits to be stolen.
When they questioned Ms. Ellison, Mr. Singh and Mr. Wang, they focused on the witnesses’ motivation for pleading guilty. Lawyers tried to suggest that the three were telling damaging stories about Bankman-Fried to avoid prison time. They noted that each cooperator had met with the government dozens of times and that, in some cases, their testimony at trial differed from notes taken months earlier by FBI agents.
But time and time again, prosecutors interrupted the flow of questions with objections, forcing Cohen to move back and forth in the timeline of FTX’s rise and fall as he tried to weave a narrative. Prosecutors also prevented the defense from presenting the jury with a document intended to attack Ms. Ellison’s credibility during cross-examination of her.
When Singh was on the stand, Cohen made him admit that he used a company loan to buy a house last October, a month after he became distraught, he said, over the apparent theft of money from FTX customers.
But questioning the motivation of cooperating witnesses tends to lose its impact when prosecutors have more than one offering similar testimony, said John P. Fishwick Jr., former federal prosecutor for the Western District of Virginia.
“When you have three company employees who are cooperative, that puts a lot of effort on cross-examination,” he said.
Elizabeth Holmes, founder of the failed blood-testing company Theranos, used a similar “good faith” defense in her criminal fraud trial in 2021. She was accused of defrauding investors and patients by lying that her blood-testing device Theranos worked. (It wasn’t.) Her lawyers argued that any bad business decisions had been driven by the desire to build a viable device and were not intended to deceive her wealthy investors.
“It sounds a little like Elizabeth Holmes’ defense,” Polisi said of Bankman-Fried’s lawyers’ claim that her business decisions were reasonable. “They’re trying to portray him as a somewhat unfortunate young man who got into trouble and didn’t have the bad intentions that prosecutors are assigning to him.”
Ms. Holmes testified at her trial that she was manipulated by her much older business partner, who was also her ex-boyfriend. But the testimony fell apart, giving prosecutors an opportunity to question Ms. Holmes about her attempts to gag Theranos employees who turned whistleblowers, showing that she wanted to prevent bad news from getting out.
Ms. Holmes was convicted of securities fraud in January 2022 and sentenced to more than 11 years in federal prison.
