Biggest scammer in the space or just largely misunderstood? Once hailed as the “Golden Boy” of crypto, Sam “SBF” Bankman-Fried fell from grace when his company went under. As the former CEO of the collapsed cryptocurrency exchange FTX, SBF was convicted on multiple counts of fraud and conspiracy related to the downfall of his company. However, after spending five months in prison, SBF has filed an appeal requesting a retrial on the grounds of judicial bias.  

His legal team now argues that the conviction should be overturned, claiming the trial was tainted, and that crucial defense evidence was excluded.

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The Rise and Fall of FTX

FTX was founded in 2019 by Sam Bankman-Fried, who quickly became one of the most influential figures in the cryptocurrency world. The platform grew rapidly, known for its wide range of crypto products and high-profile sponsorships (such as by Tom Brady, Shaquille O'Neal, and Stephen Curry). By 2021, FTX had attracted millions of users with a valuation of $32 billion, making SBF one of the youngest billionaires just overnight. It was essentially one of the largest crypto exchanges at the time, second only to Binance. 

However, in November 2022, the company faced a series of challenges that led to its catastrophic collapse. Reports had surfaced online that FTX had been misusing customer funds. The exchange was said to be funneling money to its sister company, Alameda Research, also run by SBF. Alameda Research would then use FTX customer assets to engage in highly leveraged and risky investment strategies. FTX was also reported to have an $8 billion hole in its balance sheet.

Naturally, this news caused panic and a bank run, with the majority of users rushing to withdraw their funds. This led to a liquidity crisis, and FTX had to suspend customer withdrawals. Eventually, SBF resigned as CEO, and FTX filed for bankruptcy. This collapse resulted in billions of dollars in losses for investors, with many unable to recover their funds. Following the bankruptcy, SBF was arrested and charged with multiple fraud-related crimes. 

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The Conviction

Last March 2023, Sam Bankman-Fried was sentenced to 25 years in prison after being convicted of fraud, conspiracy, and money laundering. The prosecution successfully argued that SBF had misled investors and used customer deposits to prop up Alameda Research. Key testimony from former FTX executives such as Caroline Ellison, the CEO of Alameda Research, and Gary Wang, FTX's co-founder, helped seal the deal. Both Ellison and Wang pleaded guilty and cooperated with authorities, providing detailed accounts of how FTX and Alameda misused funds.

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Current Appeal 

Although SBF had already spent 5 months in prison, SBF’s new legal team has recently filed an appeal. They had requested a retrial and a new judge to handle the case.  

Led by defense attorney Alexandra Shapiro, the appeal claims that the original trial was compromised by the actions of the U.S. District Judge Lewis Kaplan. The defense argues that Kaplan made prejudicial remarks before the jury, creating the perception that SBF was guilty before all evidence was considered. Kaplan comments apparently biased the jury against SBF and influenced the trial's outcome. 

They also claimed the FTX didn’t collapse due to fraud but only because of external market pressures such as huge customer withdrawals. The defense maintains that FTX’s financial issues were not as severe as portrayed during the trial and that many customers could recover their funds through bankruptcy proceedings. They argue that the court's refusal to allow this defense created an incomplete narrative that unfairly painted SBF as intentionally deceptive.

Additionally, SBF’s legal team contends that key defense arguments were improperly restricted. They claim that evidence related to SBF’s attempts to stabilize FTX by investing his own money was excluded and that he was also denied access to exculpatory evidence (evidence favorable to the defendant). Prosecutors in the case also happened to work too closely with the bankruptcy estate overseeing FTX’s dissolution. The defense argued that this limited their ability to present all the facts in their case. 

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Broader Impact

FTX’s collapse led to increased scrutiny of crypto exchanges and calls for more stringent regulation of the industry. For instance, key regulators like the U.S. Securities and Exchange Commission (SEC) have been clamping down on crypto even more after the FTX case, which many see as a threat to innovation. In the world of Web3, many look for decentralization and a move away from centralized regulators. Potential bad actors like SBF harm this philosophy. Should SBF be declared a lighter sentence or even not guilty, it may change the way regulators view the crypto space. 

Regardless of the outcome, it is important to remember that a “FTX collapse” can happen at any time. Storing crypto assets on centralized exchanges means that one doesn’t really own them. For long-term holdings, storing them on hot wallets like OKX Web3 Wallet and Trust Wallet or cold wallets like Ledger and Trezor is better. “Not your keys, not your crypto”. 

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