Over the past three weeks, the prosecution in Sam Bankman-Fried’s trial has called a series of witnesses and displayed dozens of pieces of evidence to make the case that the founder of the failed cryptocurrency exchange FTX knowingly took customer money and lied about it publicly. Bankman-Fried has been charged with seven counts, including wire fraud and conspiracy to commit money laundering. During the trial, three of his closest colleagues delivered stinging testimonies against him, attacking his character and accusing him of directing them to commit crimes.
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The trial is approaching halftime and the court will break for a full six days, at which point Bankman-Fried’s defense team is expected to present their case starting Oct. 26. Many media outlets have criticized their strategy so far, and legal experts told TIME that Bankman-Fried’s team faces a formidable uphill battle. Here were the most damning pieces of evidence presented by the prosecution, and how Bankman-Fried’s lawyers might approach their defense going forward.
The credibility of Caroline Ellison
The first major obstacle that the defense will have to surmount is the testimony of Caroline Ellison, the former CEO of Alameda Research. The crypto trading firm was mostly owned by Bankman-Fried and placed bets worth billions of dollars on various parts of the crypto ecosystem using FTX customer money. Ellison was also Bankman-Fried’s on-and-off girlfriend, and her proximity to him has made her a crucial part of both the defense and the prosecution’s narratives.
Bankman-Fried’s lawyers, in their opening statements, attempted to blame Ellison for the company’s collapse, arguing that Bankman-Fried relied on her, and that she made poor financial decisions. The prosecution, on the other hand, portrayed her as a willing and knowing accomplice who committed financial crimes at the direction of Bankman-Fried.
On Oct. 10, Ellison took the stand as a cooperating witness. (She has pleaded guilty to fraud and conspiracy.) Over three days on the stand, she unequivocally blamed Bankman-Fried for Alamada’s borrowing of billions in FTX customer funds, and walked the jury through evidence that appeared to show that both she and Bankman-Fried knew about the situation and were concerned about it for months before the collapse.
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“[Bankman-Fried] said that FTX would be a good source of capital, and he set up the system that allowed Alameda to borrow from FTX,” Ellison said on the stand.
Read More: Caroline Ellison Blames Sam Bankman-Fried for Crimes
To demonstrate Bankman-Fried’s knowledge of the borrowing of customer funds and its potential risks, Ellison presented several spreadsheets that she had created over the course of 2021 and 2022, which showed Alameda’s massive debt to FTX customers. Ellison wrote in one of the spreadsheets that a crypto crash would cripple Alameda, given their already shaky financial situation. Bankman-Fried replied in a comment: “yup & could also get worse.”
In their opening statement, Bankman-Fried’s defense attorneys contended that he was largely disconnected from Ellison’s actions. But Ellison was able to show through text threads that she sought Bankman-Fried’s approval and guidance on major decisions.
The defense lawyers also suggested in their cross-examination of Ellison that she had been coached by prosecutors, and that her story had inconsistencies. But the version of events that Ellison told on the stand largely lined up with the narrative she told Alameda employees in the midst of the collapse last November, which was before prosecutors had gotten involved. (Clips of that meeting were published as part of the prosecution’s trove of evidence.)
“She came across as a credible witness,” says Ari Redbord, the head of legal and government affairs at TRM Labs, a cryptocurrency regulatory startup and a former prosecutor, who has followed the case closely. “I thought there was good corroborating evidence: The spreadsheets were very powerful.”
Redbord also believes that jurors likely noticed the contrast between the defense’s aggressive opening language towards Ellison and their muted cross-examination of her. “You had the defense counsel promise that you’re going to hear how Caroline Ellison, the CEO of Alameda, essentially was responsible for much of what went on here. And then not to at all put that into evidence is a huge fail,” says Redbord. “One of the sort of cardinal sins of trial work is you never want to promise something in your opening statement that you don’t deliver on in the course of the trial.”
Contradictory statements
Bankman-Fried’s lawyers also have said they will prove that he was acting in good faith, and “reasonably” believed that he was acting in the best interests of his customers and investors. The prosecution attempted to undermine this by showing how Bankman-Fried appeared to have engaged in deceptive business practices and made public statements that diverged from his private actions.
For instance, Ellison said that Bankman-Fried directed her to produce phony balance sheets for lenders that hid Alameda’s debts. Nishad Singh, FTX’s head of engineering, said that Bankman-Fried told him to backdate transactions in order to make FTX’s revenue look bigger.
Bankman-Fried tweeted on July 31, 2019 that Alameda’s crypto account on FTX was “just like everyone else’s.” But FTX co-founder Gary Wang testified that on that very day, Bankman-Fried had directed him to make Alameda the only account on FTX that could have a negative balance, i.e., to borrow from other customers.
And on Nov. 7, 2022, as FTX was collapsing, Bankman-Fried tweeted “FTX has enough to cover all client holdings.” But that day, he sent a text to Ellison and others which acknowledged an $8.1 billion shortfall in customer funds.
Discrediting the witnesses
But this case is far from over. Bankman-Fried is innocent until proven guilty, and the jury would have to unanimously choose to convict him. The defense’s approach to cross-examination offered clues about some of the strategies they might take next week, suggesting they will likely attempt to discredit the three key witnesses, and insinuate that they were coached by the government.
During their cross-examinations of Wang and Singh, for example, Bankman-Fried’s attorneys attempted to show how the two FTX executive’s stories had shifted over the course of months of meeting with prosecutors. Any inconsistencies they elicited could be used as a springboard to cast doubt upon the pair’s entire narratives, says Tim Howard, a partner at the law firm Freshfields and a former federal prosecutor. “As long as they’re laying the foundation on the bias questions, they can later turn back and hit them hard for closing arguments,” he says. “They just want to make sure the record is there.”
In fact, Howard says that there might have been strategic reasons the defense attorneys chose not to take an overly aggressive approach while questioning witnesses during cross examinations. “Sometimes there’s a risk that if you go too hard, especially against, let’s say, Caroline Ellison, it might invoke some juror sympathy,” he says.
While Bankman-Fried’s attorneys mostly refrained from attacking Ellison, they went hard after Singh, in an attempt to cloud the image he painted of himself as a kind of moral compass of the company. Singh testified that upon learning that Alameda was taking customer funds, he “felt really betrayed, that five years of blood, sweat, and tears from me and so many employees, driving towards something that I thought was a beautiful force for good, had turned out to be so evil.”
But in his cross-examination, defense attorney Mark Cohen pointed out that after Singh had professed to have that realization, he took out a loan that likely consisted of FTX customer funds to buy a $3.7 million house in Orcas Island, Washington, for himself and his friends. A chastened Singh responded that his spending on the house was “egregious, unnecessary and selfish.”
‘Hail Mary time’
The biggest question of the trial that remains: Will Sam Bankman-Fried testify voluntarily? Bankman-Fried has been about as active as possible in the courtroom without uttering a word: He’s jumped up to whisper in his lawyer’s ear during cross-examinations, passed them notes, and was even accused by prosecutors of scoffing, laughing and shaking his head at Ellison during her testimony.
Redbord and Howard say that the question of whether Bankman-Fried should testify raises potential risks and rewards. “Typically speaking, if you’re a defense lawyer and the case is not coming in well, you’re almost always better off relying on the ‘government hasn’t met their burden’ defense,” Howard says. “But when you’ve got intent as an element of the offense, he can get up there and look them in the eyes and say, ‘I did not intend to commit fraud.’”
“In the vast majority of cases, your defense attorney will counsel you against testifying,” says Redbord. “Normally, the adage is that there’s very little good that could come from testifying, and there’s a lot of bad. But this is Hail Mary time.”