1. Skip to content
  2. Skip to main menu
  3. Skip to more DW sites

Cryptocurrency fraud: FTX founder Sam Bankman-Fried on trial

Kristie Pladson
October 4, 2023

Sam Bankman-Fried, the former cryptocurrency billionaire, faces charges of fraud and conspiracy tied to the bankruptcy of his crypto exchange FTX.

 Sam Bankman-Fried leaves Manhattan federal court in January 2023
Cryptocurrency entrepreneur Sam Bankman-Fried faces a maximum sentence of 110 years in prisonImage: Seth Wenig/AP Photo/picture alliance

Once the poster child for responsibility in the crypto sector, Sam Bankman-Fried faces seven counts of fraud and conspiracy and is accused of embezzling funds and contributing to the downfall of the prominent cryptocurrency exchange FTX.

Sam Bankman-Fried, known in the crypto community as "S.B.F.," founded the collapsed cryptocurrency exchange FTX in 2019, after launching the crypto hedge fund Alameda Research in 2017. Prior to his involvement in the cryptocurrency sector, he worked as a trader on Wall Street. At his peak, Bankman-Fried held a fortune of $26 billion (€24 billion).

FTX CEO Sam Bankman-Fried attends a press conference at the FTX Arena in downtown Miami on June 4, 2021
At his peak, Bankman-Fried was able to acquire major branding deals and celebrity endorsements for his crypto exchangeImage: Matias J. Ocner/Zuma/IMAGO

Bitcoin and digital assets saw a meteoric rise in 2020 and 2021. During that time, Bankman-Fried — who is known for his curly hair and disheveled appearance — became a symbol of responsibility in the cryptocurrency sector. This reputation played a key role in the success and survival of FTX when market conditions eventually took a downturn.

Under Bankman-Fried, prominent branding efforts, endorsements by celebrities and generous acts of philanthropy helped FTX, and cryptocurrencies in general, gain an image of reputability with much of the public prior to the collapse of his exchange in 2022.

What charges does Sam Bankman-Fried face?

The 31-year-old American faces seven counts of fraud and conspiracy, including accusations that he embezzled money from FTX depositors. The trial in New York began on October 3 with the process of selecting the jury and is expected to last six weeks.

Prosecutors claim actions taken by Bankman-Fried and his close colleagues endangered the availability of the funds to its users, leading to the collapse of FTX as cryptocurrency prices declined.

What is cryptocurrency?


When a yearslong rally in the cryptocurrency market came to an end in 2022, Bankman-Fried claimed that his business was still healthy. In reality, his enterprise had also been hit hard by the fall in the value of cryptocurrency. In an effort to support the struggling industry, Alameda borrowed money to invest in failing digital asset firms before reportedly skimming from FTX customers' deposits to meet its own immediate financial obligations.

Bankman-Fried is said to have directed former FTX technology chief Gary Wang to make changes to the exchange's computer code to allow Alameda to borrow unlimited sums of money, a privilege not granted to other users on the exchange. This allowed Alameda to borrow significant funds from FTX. Prosecutors argue Bankman-Fried used FTX deposits to plug losses at Alameda, engage in personal real estate transactions and contribute to political campaigns.

What caused the FTX collapse?

Starting in 2021, growing regulatory scrutiny and rising interest rates pushed many traders away from riskier assets like cryptocurrencies and toward more traditional investments.

This illustration photo shows a smart phone screen displaying the logo of FTX, the crypto exchange platform, with a screen showing the FTX website in the background in Arlington, Virginia on February 10, 2022.
The now-defunct FTX had been one of the world's largest crypto exchangesImage: OLIVIER DOULIERY/AFP/Getty Images

In November 2022, the cryptocurrency news website CoinDesk published an exposé stating that Alameda had substantial exposure to FTT, a crypto token issued by FTX itself. This revelation led to a further loss of customer confidence, causing a significant outflow of funds from the exchange from which FTX could not recover.

That vast majority of Bankman-Fried's wealth evaporated practically overnight. Today, the defunct exchange is bankrupt. 

Bankman-Fried was arrested in the Bahamas in December 2022 and was extradited to the United States

What can we expect from the trial?

Bankman-Fried has pleaded not guilty. He has acknowledged inadequate risk management, but denied stealing funds. His defense has argued that Bankman-Fried believed his treatment of customer funds was in line with FTX's terms of service and the law, emphasizing a "good faith" belief.

The prosecution plans to call former members of Bankman-Fried's inner circle who have pleaded guilty and agreed to cooperate. Bankman-Fried's defense aims to demonstrate that the FTX collapse resulted from business mistakes rather than a deliberate fraud scheme. Key to the trial will be establishing when exactly Bankman-Fried knew about the financial difficulties his companies faced and whether he intended to commit a crime.

In a courtroom sketch, defense attorney Mark Cohen, pleads "not guilty" for his client Sam Bankman-Fried, founder and former CEO of cryptocurrency exchange FTX, at his plea hearing in Manhattan federal court in New York City, US, January 3, 2023
Bankman-Fried pleaded 'not guilty' to charges of fraud and conspiracy in JanuaryImage: Jane Rosenberg/REUTERS

Overseeing the case is US District Judge Lewis A. Kaplan. He has previously handled defamation lawsuits against former US President Donald Trump and a sexual abuse lawsuit against Britain's Prince Andrew.

Kaplan has said Bankman-Fried may face a "very long sentence" if convicted. He faces a statutory maximum of 110 years in prison, though Kaplan would ultimately determine a final sentence based on a range of factors. It is likely he will get far less.

What does this all mean for the cryptocurrency market?

The legal troubles surrounding Bankman-Fried and the collapse of FTX, once a leading crypto exchange, have contributed to existing uncertainties in the industry.

"The fall of FTX could be the moment that really kicks off the broader decline — maybe even demise — of cryptocurrency," James Royal, principal reporter at Bankrate, told CNBC at the time of the collapse. 

Peaking near $70,000 in November 2021, by early 2023 the value of prominent cryptocurrency Bitcoin fell to below $17,000. In recent months, Bitcoin has hovered just under $30,000. 

Investments in cryptocurrency, which is generally considered a highly speculative asset, continue to be hit by high interest rates around the globe.

Editor's note: The article was updated on October 4 to reflect the start of the trial in New York.

Edited by: Uwe Hessler