The Journal. - The Trial of Crypto’s Golden Boy: What Happens Next?

Episode Date: November 10, 2023

The trial of Sam Bankman-Fried is over. Rachel Humphreys and Caitlin Ostroff reflect on their month at court and answer outstanding questions about what happened at FTX, the trial and what comes next. Plus they reveal the final court cafeteria coffee tally. Further Reading: - Smoked Fish, Shaggy Hair and Tears: 8 Unforgettable Moments From Sam Bankman-Fried’s Trial  Further Listening: - The Trial of Crypto’s Golden Boy  Learn more about your ad choices. Visit megaphone.fm/adchoices

Caitlin, it's been a week since the verdict in the Sandbank Winfried trial, and I don't know about you, but I'm still recovering. Yeah, starting to catch up on sleep, but it's been slow going. Yeah, my body is still thinking at 5 a.m. that it's time to go and line up outside the Southern District of New York courthouse. What else do do you do at 5am? What else do you do? But before that verdict came in last week, we asked you, our listeners, to send in questions that you have about the trial. And a lot of you did, which was great. Thank you. So many questions. So many great questions. Yeah, a lot of great questions on a range of topics.

So today we're going to spend some time answering them. From the Journal, this is the trial of crypto's golden boy. I'm Caitlin Ostroff. And I'm Rachel Humphries. Coming up, your questions answered. Make your nights unforgettable with American Express. Unmissable show coming up? Good news. We've got

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backing of American Express. Visit amex.ca slash yamx. Benefits vary by card. Other conditions apply. We've had so many questions about different aspects of this trial, and I thought we should start with one about the man at the center of it. This came from Cindy Richardson. Cindy wants to know, Caitlin, what was Bankman-Fried's demeanor during the trial? How would you describe it? Yeah, it was a bit difficult to gauge because if you're in the courtroom, you're sitting behind Bankman-Fried. So you're staring at the back of his head.

And if you're in one of the overflow rooms where they kind of show you what's happening in the courtroom, you see his face a bit on the screen, but you have kind of this bird's eye view almost. And so you don't have a great look at what his facial expressions are. And I can say as someone who tried, it doesn't matter how close you get your face to the screen, you can't make out an expression very clearly. Some of the reporters, like we started hanging around the courtroom during breaks to try and observe Bankman Freed, but he was always still a little bit hard to read. But generally, he was pretty composed, and he only spoke in whispers to his lawyers. Sometimes, ironically, we found the most detail from transcripts that were released

after court each day. And so that detailed these conversations that Bankman-Fried's lawyers, the prosecutors, and the judge would have at some of the sidebars we've talked about before. And in one conversation, a prosecutor complained that Bankman-Fried laughed, scoffed, and shook his head while Caroline Ellison testified. So, Don Reed has a question, Rachel, about Bankman-Fried's parents. And he writes that he wants to know if they will be brought up on charges for ill-gotten gains or a receipt of stolen property. Like, how were they mentioned in this trial? of stolen property.

Like, how were they mentioned in this trial? So, yeah, Bankman Freed's parents, Joe Bankman and Barbara Freed, were ever-present at this trial. They were there every day to see their son in court. Now, they have not been criminally charged. They were there to support him. But prosecutors made sure they came up pretty regularly during the trial.

We saw more than a dozen chat groups in evidence that included Joe Bankman as a member. And we were also told about a $16 million property bought for his parents in the Bahamas using customer money. And we saw an email from Barbara Freed coordinating a political donation that the prosecution said was made with customer funds. There is also a civil lawsuit against Bankman Freed's parents from the team organising FTX's bankruptcy. And that lawsuit alleges that Joe Bankman received a $10 million gift from his son in early 2022. So just to be clear, there's no criminal charges against them, but they were very present figures both in the courtroom and also in evidence throughout the trial. Yeah.

And there's a question that we got from quite a few people, and I thought this was a really good one. How did Bankman-Fried pay for his legal fees? He's a good question. Now, lawyers running the, what is left of FTX, the bankrupt shell of FTX, say that Bankman-Fried's attorneys were paid using that $10 million gift we just mentioned that he gave to his father. We don't know how much exactly Bankman-Fried's criminal defense has cost or if there is another place the money could be coming from. A spokesman for Bankman Freed and a spokeswoman for his parents declined to comment. And Kathy Babb was curious about plea deals and how they work. So as we've talked about before, three of Bankman Freed's former colleagues, Caroline Ellison, Nishant Singh

and Gary Wong, took plea deals from the government. And she wants to know how do those work and what happens to the three of them now that this trial is over? Okay, so we actually spoke to our colleague Corinne Ramey, who covers courts for the Wall Street Journal to get some more information on this. And she told us that Ellison, Singh and Wong will be sentenced after the trial. And if prosecutors determine they offered substantial assistance and were truthful, they will write something for them called a 5k letter, which was mentioned in court a lot. And in that letter, they'll ask the judge to hand down a lenient sentence. And in the Southern District of New York, white collar cooperators who get 5k letters typically serve little to no jail time.

Okay, let's move on to more of the details that came out during the trial itself. Sarah Wright got in touch and she wants to know if the trial described the specifics of how cash moved, Caitlin. She wants to know who had access to the bank accounts and who initiated and who authorized the payments from FTX to Alameda. Yeah, all of these questions were part of the prosecution's argument. So we talked in a previous episode about how prosecutors sought to show how cash moved around bank rent-free companies with flowcharts presented by an expert witness. Who, Rachel, you called the Father Christmas lookalike, Australian Father Christmas. Yes. Peter Easton is his actual name.

Yeah. And the flowcharts showed basically how customer money was used in different ways, how it went through lots of different accounts and would be spent on things like real estate, donations to charities and also to politicians. Right. And in terms of who had access to the bank accounts, it was shown that Bankman Freed helped set up a bank account that held FTX customer money at Alameda. This was the company that held money deposited on FTX by customers. And that money was then used by Alameda. Bankman Freed testified that people at Alameda had access

to this account, but we don't know who authorized payments day to day. Right. We've also had a question from Robin Tobe, who says she's an accountant by training. More than us. More than us. And she asks, why do you think sophisticated investors in Alameda or FTX didn't do any due diligence on these companies when they invested? Yeah. So we learned in the trial that at least some of the information provided to investors was not correct. The government introduced emails into evidence where investors did ask Bankman-Fried about the relationship between FTX and Alameda. And Bankman-Fried told them the same thing that he told us and everyone

else who asked the question. You know that the entities were separate and that Alameda had no special privileges on FTX. And so the investors testified that had they known Alameda had the ability to borrow from FTX, that there was a special privilege that would have impacted their decision. Michael Kollitz and Chris Marrow have also asked us similar questions about the FTX terms of service and what role these played in the defense and prosecution's arguments during this trial. They came up quite a few times, didn't they, Caitlin? They came up so much. And I think anyone among the press corps who did not previously read terms of service for everything will now particularly do so. You're a terms of service person. I don't know. I mean it

for everything. I don't understand people who don't. Anyway, but the terms of service came up a lot. One of the defenses that Bankman Fates attorneys have hinted at before the trial was that the terms of service allowed the use of customer funds. But portions of the terms of service that the government put into evidence didn't say that. But portions of the terms of service that the government put into evidence didn't say that. And one of the FTX lawyers even testified that he told Bankman-Fried on the eve of the company's collapse that the terms of service would not justify the use of customer funds. And so even though Bankman-Fried's attorneys were kind of arguing that, the actual documents didn't really uphold that

yeah it felt like a few times during this trial one of the questions that kept coming up was who actually read the ftx terms of service bankman freed's lawyers were keen to point out that the ftx customers who testified said they hadn't read them but then on the stand bankman freed himself admitted that he had only skimmed them. Ultimately, though, the terms of service were not that key in this trial, because they didn't specify that customer funds could be moved. They weren't a defense for that, were they? Let's take a step back to talk about something we touched on briefly in one of our trial episodes, which was the day Bankman-Fried testified without the jury present.

Let's talk about why Judge Kaplan allowed this. Basically, the defense wanted the jury to hear about legal advice that Bankman-Fried got from his attorneys while he was the CEO of FTX. And this included interactions with FTX counsel signing off on things like new bank accounts. And basically, they were arguing that Bankman-Fried wasn't the only one involved in making a lot of the key business decisions that were at the center of the trial in the laws called Advice of Counsel Defense. The prosecution, however, were saying that this evidence didn't actually tell the whole truth.

They said that Bankman-Fried's lawyers weren't aware of the actual fraud at the heart of FTX and Alameda. And so they were only acting on what they knew. I've spoken to lawyers before, and the bar for the advice of counsel defense is really high. You know, the lawyers needed to be informed of pretty much everything that was happening. And the government was arguing that they were not. And so Judge Kaplan decided to let both sides fight it out without the risk of prejudicing the jury. And so he sent the jury home with a warning to really, really not look at any news about the case that had been the rule throughout the trial. But particularly on that day, he was like, do not look at anything, because I think he knew it was going to be a pretty big day.

Yeah, that dress rehearsal, as we talked about on a previous episode, Danielle Sassoon went in very hard on Bankman-Fried, who really struggled with some of the questions. But I think it was really a chance for both of them to size each other up. And Bangman Free didn't do well at that first meeting. But when he was actually cross-examined in front of the jury, he seemed better prepared. And he answered questions with straightforward answers, although a lot of them were, I don't recall. Right. And at the end of that kind of dress rehearsal, you know, as we mentioned, Judge Kaplan decided most of the topics the jury could not hear and basically sided with the government on most issues, saying that, you know, nothing he heard in court goes to the level of the lawyers having such explicit knowledge that it could be entered in front of the jury. OK, so we've talked a lot about what happened during the trial, but now we want to talk about what's going to happen next. And I think a lot of people want to know, will customers get their money back?

We're going to try and answer that after the break. We'll be right back. Inc. Waterloo, Ontario. With Uber Reserve, good things come to those who plan ahead. Family vacay? Reserve your ride as soon as you book your flights. To all the planners, now you can reserve your Uber ride up to 90 days in advance. See Uber app for details. I don't need to tell you, Caitlin, that in the wake of FTX's collapse last year, a lot has happened. Too much. Too much. Some might argue. And in this series, we've obviously been focusing on Sam Bankman Freed and his trial. But actually, there's this whole other process going on in parallel, which is FTX's bankruptcy proceedings.

Yeah, FTX declared bankruptcy in November 2022. And the company is being run by a team of people whose job it is to sift through the wreckage and figure out where FTX's money is and to whom it belongs. And it's a long list that includes investors, contractors, and critically FTX customers. And it's been a mess to sort through. But so far, they've found about $7 billion worth of assets. The trouble is, though, that there's $16 billion that creditors and customers are saying is owed to them. And so there's this $9 billion gap that still exists. God, a $9 billion headache. That sounds incredibly stressful. But this is something that

people wrote to us about, you know, asked us about. And when it comes to the bankruptcy, it's not exactly something that's in our wheelhouse. No, I'm not a bankruptcy expert, which is actually a bit amazing considering the last year in crypto. And so I called up my colleague, Alex Seidy, who's been following bankruptcy over the past year and answering my many, many questions. Hey, Alex. Yes. How's it going? It's good. So we've gotten a ton of questions about the bankruptcy. But the biggest question

in everyone's minds is about the FTX customer money. And will customers be able to recover all of their money? The company has certainly guided that customers are not likely to recover all of their money, which is unfortunate. However, things can change and things are changing fastly. It may not get to 100%, but when the company filed, people weren't even sure if they were going to get 10 cents on the dollar back. Now, I think it's pretty safe to say people are going to get more than 50 cents on the dollar back based on all the assets they're finding and the ongoing plans to restart FTX and monetize some of the assets that belong to the

company. So I think things are looking better now than they have in quite some time for customers. And on people getting funds back, I mean, a lot of funds were deposited or kept in crypto. Are people getting their Bitcoin back, their Ether back, or are they getting dollars back? So that's a great question.

That's a question that is still not formally settled in the bankruptcy process because you wander into this interesting question of whose crypto is it anyways did all of the crypto kept on ftx fundamentally belong to ftx or was ftx just a custodian so right now the company the bankrupt company wants to actually dollarize all of the crypto claims and pay back people just in dollars and essentially monetize all of the crypto they have into fiat currency. And how long is it going to take for the bankruptcy to actually complain for people to get whatever form of money back that they're entitled to? So right now they're saying that, you know, they're running this auction process. They want to pick a potential new owner by December. And this new owner would, you know,

potentially infuse hundreds of millions of dollars into the company to help it restart. The new owner would potentially offer shares in the company to creditors who are taking losses. And right now, FTX says they want to exit bankruptcy by mid next summer. Wow. Yeah, which is ambitious, just because there's all of these issues like we've described that haven't been answered. So we'll see. We'll see if that actually happens. But that's what they're saying for now. Well, Alex, I will let you go. We really appreciate it. Thank you so much. And yeah, I will be bothering you again now that I'm back out of trial. So my apologies. Great. Thank you. Talk to you later.

So my apologies. Great. Thank you. Talk to you later. So Caitlin, the next chapter in this story is sentencing Bankman Freed, which doesn't happen until March, in part because he could face another trial. You're closing your eyes and putting your head down at that. I'm not ready to think of that yet. No, not ready to think about that yet. One thing I want to know is obviously how long might he spend behind bars? Yeah, so I spoke to her colleague Corinne Ramey again, and she said that she would expect Bankman

Freed to be sentenced to decades in prison, not the equivalent of life, but probably for quite some time. Often federal judges order sentences to be served concurrently as opposed to consecutively. And this means that if Judge Kaplan sentenced Bankman Freed to 15 years on one fraud account and 15 years on another, the total sentence would still be 15 years. Bankman Freed is in jail now, which could count as time served, but we don't really know yet. But he's expected to remain in jail until he's sentenced. And after he's sentenced, he'll be moved to probably a different facility where he'll spend the remainder of his time. But then the appeal process starts after sentencing, and that could take, you know, a while as well.

Yeah, so a lot of different things at play there. And as I said earlier, there is potentially one more trial to go for Bankman-Fried as he faces more charges. Yeah, this is the song that doesn't end. So these were charges that were added by the government after Bankman-Fried was extradited from the Bahamas. And so it's not clear yet whether the government is going to go ahead with that case. It's possible that they, you know, drop it. It's possible that they, you know, decide to go ahead with that trial. That's currently scheduled for mid-March. And Judge Kaplan told the prosecutors that, you know, by early February,

they need to inform him if that is still happening. So we're in wait-and-see mode for now. But for the moment, that's it, Caitlin. Our early mornings and hours spent lining up at the courthouse are over. Although we do have some unfinished business over at the Southern District of New York courthouse. We have two remaining free coffees to claim. We really timed this so poorly. Yeah, so in total, we bought 24 cups of coffee, which meant that we got six free. The last two wound up being eligible on the last day of trial. And so when we get to sentencing,

that means we have free coffee. And so when we get to sentencing, that means we have free coffee. You mentioned sentencing, Caitlin, and it really makes me think about where this story began. You know, way back in our first episode of this series, you talked about what Sam Bankman Freed sat out to do when he started Alameda and then FTX. His stated aim was to make the world a better place and to amass a fortune that he could give away to help others. But now he faces likely decades in jail. It seems that he didn't just fall short of his goal of helping the world. I mean, he did the opposite. Yeah, Bankman Freed's impact on the world was not at all what he set out for it to be. And in fact, he hurt a lot of people. Bankman Freed himself has said that. He hurt investors in FTX, customers, and the people who worked for him. And I don't think we've talked about this enough, the people in the Bahamas who built companies and services for FTX.

And within the story of Bankman Freed and behind this trial, there's a sense of loss for this brighter future that he promised to all of those people. And we've heard a lot from customers and former employees who attended the trial and they told us that the whole ordeal was really painful for them and so the story feels like it was about Sam Bankman Freed but actually it was about all of these other people. Yeah and some of those people may get money back but some may never recoup what was lost. And the other thing that has struck me about this trial, though,

has also been the level of interest in it. Like most of all from all of you listening to this podcast. Yeah, thank you to all of you who sent in questions. And we're really sorry that we didn't get to answer them all. But we really appreciate you listening and sticking with us through weeks of evidence. I've honestly been so surprised at the level of your interest. We really appreciate it. That's all for today, Friday, November 10th. The Trial of Crypto's Golden Boy is part of The Journal,

which is a co-production of Spotify and The Wall Street Journal. I'm Caitlin Ostroff. And I'm Rachel Humphries. This episode was produced by Enrique Perez de la Rosa, and it was edited by Catherine Whalen. Additional reporting from James Finelli, Corinne Ramey, Vicky Guhuang, and Alexander Osipovich. Our fact-checkers are Sophie Hurwitz, Najwa Jamal, Nicole Pasolka, and Adam Shabu. Special thanks to Brent Kendall, Kate Leinbaugh, Sarah Platt, and Jenna Teleska, and the entire Journal podcast team. Our engineer is Peter Leonard.

Our theme music is by So Wiley and remixed by Peter Leonard. Additional music in this episode by Peter Leonard. Peter Leonard. Additional music in this episode by Peter Leonard. If you like this show, subscribe to The Journal podcast, which is out every weekday afternoon. Thanks for listening.