Sam Bankman-Fried, founder of bankrupt cryptocurrency exchange FTX and corporate firm Alameda Research, is on trial in New York. Bankman-Fried faces seven counts of fraud and embezzlement. A conviction carries a life sentence.
Prosecutors are trying to build a case that Bankman-Fried misused money in client accounts — up to $10 billion — to grow its business. Jurors heard this week from the government's star witness, Alameda CEO Carolyn Ellison.
New York Times technology and cryptocurrency industry reporter David Yaffe Bellani was in the courtroom and joined Marketplace Morning Report host David Brancaccio to discuss the latest case.
DAVID BRANCASIO: Two days of testimony. I have to mention what I learned from Caroline Allison, Bankman Freed's on-off girlfriend. What did this company learn from how Almeyda worked with FTX?
David Yaffe-Bellany : It's the most anticipated testimony in court for all the reasons you've given. He was the leader and former lover in her orbit. We learned a lot about the relationship between Alameda and FTX. Yesterday, Sam basically told him how he made a fake ledger and then distributed it to Alameda's loan companies, which hid Alameda's struggles and borrowing money. FTX exchange to expand business at the expense of customers.
Brancaccio: He lied to the creditors. Is there a dispute over the use of customer funds for expansion of unbanked projects?
Yaffe Bellani: He clearly claimed that it was a huge accounting problem and that he didn't know how much currency was borrowed, which was reasonable because the way FTX was run, at least some money was borrowed, but it was necessary. Get out of control in the chaos at the top of the campaign. I mean, is that a reasonable explanation? You know, a lot of people said that's not the case, but as the trial goes on, we're probably going to hear more of that.
Brancaccio: Look, the experiment is still ongoing, but you've come far enough to answer this question: Do you see new lessons here for financial regulators and investors about other crypto exchanges and their businesses?
Yaffi Belani: I mean, FTX had red flags. He didn't have a risk management team. It had no board. You know, Sam was on a conference call with investors, you know, putting them on FTX and playing video games at the same time. You know, when FTX grew up, it was painted as a sign that it was smarter than everyone else and brave enough to do things differently and not waste money on useless protocols. But I think we've learned that the lessons from traditional finance still apply in a world as cutthroat as cryptocurrency. You know, there has to be someone in charge, and you know, it doesn't make sense to trust a charismatic person with everyone's money.
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