By Kimberly Lo[1]

 

 

 

While the trial of Sam Bankman-Fried officially kicked off last week in the Daniel Patrick Moynihan U.S. Courthouse in Manhattan, the unofficial trial over the current and future state of crypto was already well underway.[2] The overwhelming consensus is that there is more at stake than whether or not Bankman-Fried will be found guilty on the seven criminal charges he faces.[3] Rather, many view it as the entire cryptocurrency industry on trial. [4]

As University of Vanderbilt Law Professor, Yesha Yadav bluntly puts it: “How much damage can this trial do to the already beaten-down reputation of the industry at this point?” [5] Yadav has a point: Even before the downfall of Bankman-Fried and FTX, crypto had its fair share of critics and image issues. [6] For those that need a brief recap, it was not that long ago-less than one year in fact[7]– that Bankman-Fried, founder of the crypto trading exchange FTX and the crypto trading firm Alameda Research, was the Golden Boy of the Crypto World[8].

 

Never one to shy away from publicity, Bankman-Fried appeared on Time magazine’s list of The World’s 100 Most Influential People, hung out with celebs like Tom Brady and the Kardashians, and even held court via Zoom with legendary Vogue editor Anna Wintour who tried (unsuccessfully) to sign up FTX as a sponsor for the Met Ball extravaganza[9]. In addition, he was a major political donor who, according to former Alameda CEO and Bankman-Fried’s sometime-girlfriend Caroline Ellison, even claimed that there was a “5% chance of [him] becoming President” one day.[10] Perhaps most importantly, Bankman-Fried “[presented] himself as an industry leader, particularly when it came to regulatory and policy issues.” [11] In a world full of frauds, Bankman-Fried was supposedly one of the good guys.[12] FTX was supposed to asway fears-especially the fear that that crypto was risky-by repeatedly emphasizing that it was safe[13]. Therefore, along with Bankman-Fried’s fall came a sort of grim satisfaction by many that this spectacular downfall was all the proof one ever needed that all crypto was ultimately a scam. [14]

 

Given this in mind, it may not be a big surprise to learn that some of the people who are most actively rooting for a guilty verdict are those in the crypto industry. [15] In a NYT article on the subject, several crypto insiders express frustration over “how Mr. Bankman-Fried’s actions destroyed trust in the entire industry.”[16]  Sheila Warren, the chief executive of the lobbying group Crypto Council for Innovation, is even more blunt saying, “Sam should get convicted because he’s a criminal.”

 

Interestingly, all the talk about and speculation about the current and future state of crypto draws attention away from the fact that the actual case the government has against Bankman-Fried is pretty unexciting[17]. To quote John J. Ray III, the man who is currently tasked with cleaning up what is left of FTX, “[The case is] really just old fashion embezzlement.”[18]In layman terms, the government claims that Bankman-Friend took FTX customer & investor funds and funneled them into Alameda which he then used to finance a luxurious lifestyle that included lavish real estate properties and large political donations to candidates of both parties.[19]

Regardless of the outcome of this trial or the one that Bankman-Fried may face in March 2024 for additional charges, the current and future state of crypto remains uncertain. [20] Given how much money was lost in a so-called safe exchange, customers may be less likely to invest their money in crypto. While there is never a good time for any company to go bankrupt, FTX’s collapse in November in 2022 came at an especially bad time since it occurred right at the same time that crypto was going mainstream. [21] Furthermore, it is not just customers who may be turned off crypto for good: “Venture capital investments in crypto start-ups have steadily declined for five quarters in a row” and in the three months ending in July, crypto companies raised 71 percent less than did a year ago. [22] Therefore, regardless of whether or not Bankman-Fried throws the cryptocurrency business under a bus like some fear [23], the damage has already been done. What remains to be seen is whether that damage is reversable or not regardless of his trial outcome.

 

 

 

 

 

 

 

 

[1] Kimberly Lo is a 2L at University of Richmond Law School. She is interest in all things tech related and hopes to pursue a career in criminal defense and family law after law school.

[2] Matthew Goldstein and David Yaffe-Bellany, Don’t Do That Again’: Sam Bankman-Fried’s Lawyers Under Fire From Judge, N.Y. TIMES, Oct. 11, 2023, at Section B, 6.

[3] Elizabeth Lopatto, The FTX trial is bigger than Sam Bankman-Fried And potentially very embarrassing for all of crypto, The Verge (Sep 28, 2023, 8:00 AM EDT), https://www.theverge.com/2023/9/28/23893269/ftx-sam-bankman-fried-trial-evidence-crypto.

[4] Id.

[5] Id.

[6] Erin Griffith, Who’s Rooting Hardest for a Sam Bankman-Fried Conviction? The Crypto Industry., N.Y. TIMES, Oct. 03, 2023, at Section B, 1.

[7]Darreonna Davis, What Happened to FTX? The Crypto Exchange Funds Collapse Explained, Forbes (Jun 2, 2023,10:35am EDT),  https://www.forbes.com/sites/darreonnadavis/2023/06/02/what-happened-to-ftx-the-crypto-exchange-funds-collapse-explained/?sh=156282523cb7.

[8] The Daily: Sam Bankman-Fried Goes on Trial, NYT AUDIO (Oct. 3, 2023) (downloaded using iTunes).

[9] Michael Lewis, Play it again, Sam Inside Bankman-Fried’s last year in the crypto game, The Washington Post (Oct. 1, 2023, 8:00 p.m.), https://www.washingtonpost.com/opinions/interactive/2023/michael-lewis-sam-bankman-fried-ftx crypto/?utm_campaign=wp_week_in_ideas&utm_ medium=email&utm_source=newsletter &wpisrc =nl_ ideas.

[10]Aaron Katersky, Sam Bankman-Fried thought he had 5% chance of becoming president, ex-girlfriend says, ABC News (Oct. 10, 2023 at 3:23 p.m.), https://abcnews.go.com/US/sam-bankman-fried-thought-5-chance-becoming-president/story?id=103870644#:~:text=Interest%20Successfully%20Added-,Sam%20Bankman%2DFried%20thought%20he%20had%205%25%20chance%20of%20becoming,Fried%20was%20responsible%20for%20fraud.&text=he%20would…-,Disgraced%20crypto%20executive%20Sam%20Bankman%2DFried%20thought%20there%20was%20a,at%20his%20federal%20criminal%20trial.

[11] Erin Griffith, Who’s Rooting Hardest for a Sam Bankman-Fried Conviction? The Crypto Industry., N.Y. TIMES, Oct. 03, 2023, at Section B, 1.

[12] Molly White, Why did one of the world’s biggest cryptocurrency exchanges just collapse?, The Guardian (Nov. 14, 2022, 8:47 EST), https://www.theguardian.com/commentisfree/2022/nov/14/why-did-one-of-the-worlds-biggest-cryptocurrency-exchanges-just-collapse.

[13] Id.

[14] Erin Griffith, Who’s Rooting Hardest for a Sam Bankman-Fried Conviction? The Crypto Industry., N.Y. TIMES, Oct. 03, 2023, at Section B, 1.

[15] Id.

[16] Id.

[17] Elizabeth Lopatto, The FTX trial is bigger than Sam Bankman-Fried And potentially very embarrassing for all of crypto, The Verge (Sep 28, 2023, 8:00 AM EDT), https://www.theverge.com/2023/9/28/23893269/ftx-sam-bankman-fried-trial-evidence-crypto.

[18] Id.

[19] Erin Griffith, Who’s Rooting Hardest for a Sam Bankman-Fried Conviction? The Crypto Industry., N.Y. TIMES, Oct. 03, 2023, at Section B, 1.

[20] David Yaffe-Bellany, What to Know About Sam Bankman-Fried’s Fraud Trial, N.Y. Times (Oct. 3, 2023, updated Oct. 4, 2023), https://www.nytimes.com/2023/10/03/business/sam-bankman-fried-trial-ftx.html?action=click&module=RelatedLinks&pgtype=Article.

[21] Erin Griffith, Who’s Rooting Hardest for a Sam Bankman-Fried Conviction? The Crypto Industry., N.Y. TIMES, Oct. 03, 2023, at Section B, 1.

[22] Id.

[23] Elizabeth Lopatto, The FTX trial is bigger than Sam Bankman-Fried And potentially very embarrassing for all of crypto, The Verge (Sep 28, 2023, 8:00 AM EDT), https://www.theverge.com/2023/9/28/23893269/ftx-sam-bankman-fried-trial-evidence-crypto.

 

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