FTX trial fuels frustration and anger for traders who lost money
For crypto traders who had money on FTX when the platform collapsed last year, Sam Bankman-Fried’s trial has been morass of anger and disbelief.
The disgraced co-founder’s turn on the witness stand was particularly infuriating. In response to questions from Assistant US Attorney Danielle Sassoon, Bankman-Fried, 31, often said he couldn’t recall details about how the business he ran operated. The former CEO’s use of the phrase “not sure” resulted in at least half a dozen admonitions from the judge.
That was frustrating for Ryan Goodwin, a crypto trader in Leicester, England, who said the trial was a painful reminder of how he fell for the company’s false promises. The 22-year-old once had as much as $160,000 worth of crypto on FTX before removing most of it as the platform ran into trouble last year. He still has about $5,000 of his money stuck.
“It seems like Sam’s defense was that he didn’t know what was going on in the company,” Goodwin said. “I’m not a legal expert, but that seems like a poor argument.”
Bankman-Fried was found guilty of seven counts of fraud and conspiracy after jurors in Manhattan deliberated for less than five hours Thursday. He faces as much as 20 years in prison on each of the most serious charges. Judge Lewis Kaplan set a sentencing date in March.
YEARS IN PRISON
Many of the retail crypto traders who had money on the platform are now creditors trying to recoup some of their funds in a separate bankruptcy proceeding, where FTX is facing $16 billion in customer claims. And for some of them, the defendant facing tough questioning from prosecutors drove both schadenfreude and disillusionment.
Pat Rabbitte, a 50-year-old crypto trader based in Panama, had about 10% of his crypto holdings on FTX when it fell apart. He declined to disclose the total sum but said it was a “substantial amount of money” to him.
“He seemed to be getting killed on the stand from what I saw,” he said. “I’d be highly surprised if he isn’t going to be spending many years in a US prison.”
Others like Ole Lehmann tried to avoid news of the trial because thinking about the case is so upsetting. Lehmann, a 32-year-old trader based in Cyprus, said he had “six figures” worth of crypto on FTX and only managed to get about $10,000 out before it cut off withdrawals.
“It was one of the worst days of my life,” he said. “I followed the parts concerning the legal things with the bankruptcy and the customer claims, but I've ignored some of the SBF parts — he makes me so angry.”
ROAD TO RECOVERY
Bankman-Fried’s trial has no direct impact on the bankruptcy process, which will determine how much money creditors can recover. Since filing for Chapter 11 protection last year, FTX’s administrators have recovered about $7 billion in assets, including $3.4 billion in crypto. However, the company doesn’t currently know what customers will get back, according to attorney Andrew Dietderich.
The recovery percentage will be determined in part by how much FTX can get from a potential sale or reboot of the exchange. As of last month, FTX was considering proposals from three bidders to restart trading.
Other bankruptcy procedures in the crypto world are moving along as well. The New York judge overseeing the bankruptcy of Celsius Network is considering whether to allow the company’s plan to partially refund customers. Voyager Digital Holdings reopened its platform in recent months for customers to recover least some of their money. And in September, crypto lender BlockFi won approval for its liquidation plan, with some creditors expected to receive partial repayment in Bitcoin or Ethereum.
Mark Pappadakis is one of the few who has gotten some of his crypto back. The 37-year-old doctor in Philadelphia had about $35,000 worth of assets on Voyager when it collapsed last year. He was able to remove about $9,000 in crypto this summer, and he now stores it outside of exchanges in a digital wallet. He’s not planning to sell his crypto holdings, but he isn’t buying any more.
“My trust is basically at zero,” he said. “The damage has been done at this point.”
This story has been updated to reflect Bankman-Fried's guilty verdict.