Crypto Collapse: Sam Bankman-Fried Found Guilty of Defrauding FTX Customers

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At the core of the charges against Bankman-Fried were allegations that he and FTX falsely represented that customer deposits were secure within the exchange’s custody.

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 Prosecutors argued that this misrepresentation occurred through public Tweets, on FTX’s website, and in private communications with customers, lenders, and investors. Bankman-Fried, on the other hand, contended that FTX’s terms of service allowed for customers to borrow from FTX deposits, provided that the funds were held in accounts that opted into FTX’s margin-trading program.

Bankman-Fried’s attorney, Mark Cohen, argued, “At FTX, the way it was set up, margin customers could use the funds they borrowed from the exchange for any purpose.” 

According to Cohen, at the time, this practice was not seen as problematic because borrowers had to post collateral to support their borrowing, reducing the risk of losses.

FTX computer code

Prosecutors, however, maintained that Bankman-Fried and his deputies surreptitiously altered FTX’s computer code to permit Alameda to access billions in customer funds classified as “borrows” or loans from FTX.