This analysis was first published in SvD Näringsliv, in Swedish, on November 3rd, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
The guilty verdict against Sam Bankman-Fried came after just a few hours. A historic fraud has been exposed — but it is not over yet.
An entire room of interns stood watching an odd man flipping a coin in the office, over and over again.
It was to settle a bet with a colleague. You might think flipping a coin would be a simple way to decide such a thing. Not in this case. There was a mathematical model underpinning the whole thing.
That is the perspective Sam Bankman-Fried — or SBF, as he is usually known — has on the world at large.
The scene comes from Michael Lewis’s book “Going Infinite.” At that point, Bankman-Fried was trading funds at Jane Street Capital in New York.
Most recently, he was CEO of the cryptocurrency exchange FTX — the company that imploded almost exactly a year ago.
On Thursday, the verdict came after an 18-day trial. The jury needed just a few hours to reach a conclusion.
Guilty on all seven counts — primarily various forms of fraud.
When Theranos CEO Elizabeth Holmes was convicted in another high-profile case, the jury took a full eight days to decide. The contrast says something about the weight of the evidence against Bankman-Fried.
Five additional counts remain and will be addressed in March 2024, which is also when Bankman-Fried will receive his sentence from the judge.
It will likely be long. Several of the counts individually carry up to 20 years in prison, and in total the sentence could reach 115 years — before the remaining counts are factored in.
The verdict was expected. Testimony from close colleagues at FTX and the connected hedge fund Alameda Research has been devastating. Most damaging of all was the testimony of his closest colleague and former girlfriend, Caroline Ellison.
Ellison was CEO of Alameda Research, and described how the fund had used FTX customers’ money as a kind of bank. The fact is that customer funds always sat at Alameda, because FTX — hard as it is to believe — had no proper bank account. This was due to restrictions from ordinary banks and their scepticism towards crypto trading.
When customers deposited money into FTX, it ended up in Alameda’s bank account instead. That was a problem in itself. But the bigger problem came when Alameda made a long series of bad trades, having borrowed from unknowing FTX customers. When the crypto market crashed, it was impossible for Alameda to repay the loans. When FTX customers subsequently tried to withdraw their money, it was no longer there. FTX filed for bankruptcy protection.
89 billion kronor had vanished.
According to Caroline Ellison, there were many signs of irregularities before everything collapsed. Bankman-Fried — founder and largest shareholder of both FTX and Alameda — knew that seven different balance sheets existed for Alameda, and asked her to send versions to partners that did not show the loans from FTX.
This was done to make the internal finances look better to worried lenders. Ellison admitted in court that these different balance sheets were “dishonest.” Examples like these were stacked up throughout the testimony, supported by audio recordings, documents, and saved chat logs.
After the verdict, prosecutor Damian Williams said that “Sam Bankman-Fried has perpetrated one of the largest financial frauds in American history.”
That prosecutors had strong evidence was apparent from the outset. It is very unusual for cases like these to go to trial unless the prosecution is confident of winning. Research institute Pew showed that fewer than one percent of all cases that reached court in 2022 ended with the accused being acquitted. Bankman-Fried now contributes to the prosecutors’ strong statistics.
But it is not quite over. There is a strong case that the verdict will be appealed. When I was at the courthouse in New York earlier this week, observers and press had a theory that an appeal — perhaps on legal technicalities — was the primary defence strategy for Bankman-Fried. As the trial developed, the defence may have shifted focus towards finding grounds for appeal rather than winning outright.
Bankman-Fried’s parents — Barbara and Joseph, both law professors at the prestigious Stanford University — participated actively throughout the trial, in continuous discussion with the defence team.
Several counts remain outstanding, and a successful appeal is far from certain.
What we do know is that Sam Bankman-Fried likes to think mathematically about himself and the world around him. The odds of him succeeding are bad — but they are not zero.
