Written by Luc Cohen
NEW YORK (Reuters) – Several years after graduating from college, Sam Bankman Freed began to worry that he wasn't taking enough risks.
So the son of two Stanford Law School professors quit their jobs on Wall Street and started a cryptocurrency hedge fund in 2017, setting off a chain of events that led federal prosecutors on Thursday to commit the largest financial fraud in history. It will culminate in a verdict on the case called One. History of the United States.
Prosecutors are seeking a sentence of 40 to 50 years for 32-year-old Bankman Freed, but his defense team argues he should be sentenced to less than 5 1/2 years.
Two years after launching hedge fund Alameda Research, Bankman Fried founded FTX in 2019, an exchange where users can buy and sell digital assets such as Bitcoin. As crypto valuations skyrocket, Bankman Fried will reach $26 billion in net worth before he turns 30 by October 2021, making him the 25th richest person in the U.S., according to Forbes magazine. It became.
He has channeled his wealth into political influence, becoming one of the biggest donors to Democratic candidates and causes ahead of the 2022 US midterm elections. Bankman Freed, who is based in a luxury resort in the Bahamas, is known for slicking back his unkempt curls and wearing rumpled shorts, even when entertaining dignitaries such as Bill Clinton. It became so.
In a cryptocurrency sector plagued by hacking and money laundering, Bankman Freed has used celebrities such as NFL quarterback Tom Brady and comedian Larry David in ads touting FTX as safe. . He publicly supported efforts to regulate cryptocurrencies.
But prosecutors say his calm demeanor and responsible image concealed years of embezzlement of client funds. They claim the thefts peaked in 2022, when cryptocurrency prices plummeted, and they used FTX funds to cover losses in Alameda.
After a month-long trial in Manhattan federal court, a jury convicted him on Nov. 2 on seven counts of fraud and conspiracy.
Three former members of his inner circle, who have pleaded guilty and agreed to cooperate with prosecutors, testified against him and painted an unflattering portrait of his character, citing instances in which he lost his temper and quarreled with colleagues. and suggested that his eccentric personality was mostly an act.
“He understood the rules but determined they did not apply to him,” prosecutors wrote in a March 15 sentencing memorandum. “He knew what society deemed illegal and unethical, but he ignored it based on the defendant's own values and harmful delusions of grandeur, guided by his own sense of superiority.”
Mr. Bankman Freed maintains his innocence and has vowed to appeal the conviction and sentence. In his defense testimony at trial, the Massachusetts Institute of Technology graduate admitted that risk management was inadequate, but denied stealing the funds.
He said he made mistakes that harmed FTX's customers and employees, including not implementing a risk management team. But he said he never intended to deceive anyone or steal customers' money.
“We thought we might have the best product on the market, but it turned out that basically the opposite was true,” Bankman Fried testified on Oct. 27.
Try to avoid the “comfortable” path
Bankman Fried had little experience with cryptocurrencies before founding Alameda, and initially made money by exploiting the price difference between digital tokens in the US and Asia. The MIT physics major told the FTX podcast that he didn't actively participate in his classes and spent most of his college career not knowing what to do with his life.
But during that time, he became interested in a movement known as “effective altruism,” which encourages talented young people looking to make their mark on the world to focus on making money and donating it to worthy causes. I started having it. That led to him taking a job as a quantitative trader at Jane Street, but he began to question whether he was making the most money.
“If you really think you should try to maximize expected value, then you're probably implying a much riskier strategy than what seems intuitively correct,” he said on June 4, 2020. Said on the day's podcast. “We have to be careful not to fall prey to trying to take the easy way out.”
He picked up Gary Wang, an old friend from math camp, and then Caroline Ellison, a talented altruist from Jane Street and Bankman Freed's ex-girlfriend. They will join him in the Bahamas, where they will share a $30 million penthouse with other Alameda and FTX executives, including Nishad Singh.
Wang, Ellison, and Singh each pleaded guilty and testified against Bankman Freed at trial. They have not yet been sentenced.
U.S. District Judge Lewis Kaplan revoked Bankman Fried's bail, saying he likely attempted to tamper with witnesses on at least two occasions, including sharing private notes from Ellison with a New York Times reporter. As a result, he was imprisoned in mid-August.
Bankman Freed psychiatrist George Lerner wrote in a letter to Kaplan that his patient was on the autism spectrum. Bankman-Fried's father, law professor Joseph Bankman, said his son had long struggled to make eye contact and respond to social cues, but FTX is thriving. Media outlets wrote that they didn't care.
“Once the company went bankrupt and his fortune disappeared, people became less tolerant and began to interpret the same characteristics as signs of contempt, evasion, and lying,” Bankman wrote.
(Reporting by Luc Cohen in New York; Editing by Noelene Walder and Daniel Wallis)