“The case has turned out to be not only as strong as it was expected to be but, if anything, stronger,” said Samuel Buell, a former federal prosecutor and a law professor at Duke University. “Defense lawyers can’t make strong evidence go away. I don’t know where they go from here.”
The trial, expected to run for six weeks, is just entering its third week. Defense lawyers have yet to call their own witnesses, a roster that could include Bankman-Fried himself. The former executive has pleaded not guilty to seven counts, including wire fraud and conspiracy to commit money laundering.
Bankman-Fried’s defense team signaled in their opening statement they would seek to present him to jurors as a well-intentioned entrepreneur whose business grew more quickly than his ability to adequately guard against the risks to it.
But prosecutors may have already succeeded in convincing jurors Bankman-Fried was a manipulative swindler and bully who ordered his top deputies to carry out one of the biggest financial frauds in history, experts said.
Government lawyers are now questioning the last of the three key witnesses who once formed Bankman-Fried’s tightknit social and professional inner circle before pleading guilty to crimes they say he directed. Prosecutors’ case arguably culminated with testimony last week from Caroline Ellison, the defendant’s sometimes-girlfriend and the chief executive of his crypto hedge fund, Alameda Research.
Ellison spent hours on the witness stand walking the court through the rise and fall of FTX, Bankman-Fried’s crypto trading platform, as the hedge fund borrowed increasingly huge sums of FTX customer funds at his direction.
In at times emotional testimony, the Stanford-trained mathematician said Bankman-Fried gave her an ethical framework that justified lying to customers and investors, including by falsifying balance sheets. She described the “overwhelming feeling of relief” she felt when the fraud was exposed and the enterprise collapsed because she “didn’t have to lie anymore.”
Prosecutors backed up her account with documentary evidence, including a recording of her talk to Alameda employees last November as FTX became insolvent in which she tearfully admitted to tapping FTX customer funds at Bankman-Fried’s instruction.
For their part, Bankman-Fried’s team appeared to struggle to respond during their cross-examination, although lead defense attorney Mark Cohen, who also represented convicted sex trafficker Ghislaine Maxwell, did notch some minor victories: Ellison acknowledged at one point that Bankman-Fried was unaware that some legacy FTX customers continued wiring funds to Alameda-controlled bank accounts even after the exchange set up its own accounts to handle their money — suggesting Bankman-Fried was not calling all of the shots at Alameda.
But the defense did not discredit Ellison or the thrust of her testimony. “It’s very difficult for the defense when you have a witness in the inner circle who has completely embraced that they have been involved with wrongdoing,” said Jordan Estes, a former federal prosecutor for the U.S. attorney’s office for Southern District of New York, which is prosecuting the case.
Rebecca Mermelstein, another former prosecutor for the Southern District, said of the defense there is “no question they’re having a really hard time.”
In addition to the sheer weight of the evidence the prosecution has gathered, Bankman-Fried’s attorneys have also grappled with unfavorable rulings from Judge Lewis A. Kaplan, she added.
Before the trial began, Kaplan granted a request by prosecutors to block the seven witnesses that Bankman-Fried’s team wanted to call. They included a British barrister who was set to testify that FTX’s terms of service did not prohibit the company’s leadership from tapping customer funds.
Cohen wrote to Kaplan last week asking him to revisit that ruling, arguing the matter goes to the heart of Bankman-Fried’s defense. “A key element of the defense is that no theft occurred. Theft requires the wrongful taking of property,” he wrote.
Yet Kaplan already has signaled he is not inclined to allow the defense to push that argument. In the first week of the trial, he told lawyers to look into the “buried facts doctrine,” which holds that it can be misleading to bury important information in a lengthy disclosure. “I was very surprised by that,” Mermelstein said. “Judges don’t usually offer strategic suggestions to the parties.”
Kaplan has otherwise kept defense lawyers on a short leash, frequently remonstrating them for repetitive questioning. Daniel Silva, a former federal prosecutor focused on financial crimes, said the defense’s strategy in asking questions already covered by prosecutors was not clear.
The defense lawyers may be seeking to drag out the process to give Bankman-Fried, who has been imprisoned in a Brooklyn jail since Kaplan revoked his bail in August, more time to digest the prosecution’s evidence, Silva said. That could become consequential toward the end of the trial, when Bankman-Fried has to make the high-stakes decision whether to testify himself.
Indeed, the call on whether Bankman-Fried takes the stand could be an all-or-nothing gamble. “It’s very hard if the prosecution has a strong case to do nothing,” Estes said, adding the defendant may face a need to “shake it up to change the game.”
But taking the stand would also expose Bankman-Fried to cross-examination by prosecutors. “That will be really, really tough to get through unscathed, when he’s on the stand and contradicting a whole ton of evidence that the government has already presented,” said Buell, who served as the lead prosecutor for the Justice Department’s Enron Task Force. “It’s very rare that a defendant can turn a case around from the witness stand.”
Buell pointed out another factor that could favor the prosecution: The trial has turned out to be simple, despite the complexity of crypto. “It’s a straightforward fraud case: Did he take the money? Did he lie about it? Did he know he was lying about it?”
Eli Tan contributed to this report.
correction
An earlier version of this article incorrectly stated that Caroline Ellison got her degree from MIT. It was Stanford. The article has been corrected.
