Sam Bankman-Fried, the former CEO of the failed cryptocurrency exchange FTX, will go on trial next week in the Southern District of New York, facing seven charges of fraud and conspiracy.

How Did Bankman-Fried Get Here?

Less than a year ago, Bankman-Fried was the darling of the crypto industry.

While Bankman-Fried was at the helm of FTX, the company allegedly cut marketing deals with the likes of football legend Tom Brady and comedian Larry David. Additionally, regulators said Bankman-Fried and a number of other FTX executives were generous political donors.

Cracks in FTX began to appear in early November 2022, when CoinDesk published a report regarding the balance sheet of Alameda Research, which was a trading firm closely associated with FTX and co-founded by Bankman-Fried. The report revealed extremely heavy exposure to FTT, which was the proprietary token of FTX.

After the CoinDesk report was released, some FTT holders became spooked, specifically FTX competitor and Binance CEO Changpeng Zhao.

Eventually, many FTT holders dumped their holdings and the price of the token fell sharply by more than 80%. The concerns over Alameda Research's books eventually also bled over to FTX, and many customers began making large withdrawals. Not long after, FTX was forced to pause withdrawals and file for bankruptcy, as they were effectively insolvent.

According to the U.S. Department of Justice, FTX was unable to process withdrawals due to mismanagement, including a commingling of funds between the crypto exchange and Alameda Research.

As a result, Bankman-Fried was placed under house arrest in December 2022. However, the former FTX CEO was eventually sent to jail in August 2023 on additional allegations of tampering with witnesses.

What to Expect from the Bankman-Fried Trial

Next week's trial is one of the two that Bankman-Fried faces. The former crypto executive is also facing regulatory proceedings in the Bahamas and to respect that, a federal judge ordered two trials in the U.S. for him in June this year.

While the charges he faces next week are mostly related to defrauding FTX customers and lenders, in addition to charges of conspiracy around the fraudulent activities, Bankman-Fried will face the second trial for five other charges in March 2024.

Some of the former CEO's inner circle will also be part of next week's trial as witnesses. Most notably, former Alameda Research CEO Caroline Ellison, who was also romantically involved with Bankman-Fried, has pled guilty to charges related to the rampant fraud at FTX and is expected to testify against the defendant.

In terms of his defense, it is expected that Bankman-Fried's lawyers will rely on a "blame-the-lawyers" argument, Reuters reported. In other words, it will be argued that Bankman-Fried relied on the advice of FTX's lawyers and did not know he was breaking the law with his actions at FTX.

The former FTX CEO faces up to a maximum of 110 years in prison related to the criminal charges, and the judge overseeing the case has said Bankman-Fried could face a "very long sentence" if convicted.

Of course, there is also still a chance that Bankman-Fried will plead guilty as part of a plea deal before the Oct. 3 court date.

For many, the most important aspect of the trial will be the impact it could potentially have on the greater crypto industry.

For example, private messages or witness testimony revealed during the trial could paint the industry in a negative light if the evidence suggests what was happening at FTX was not an exception to normal practices amongst crypto exchanges.

This would be a difficult blow for the crypto industry to take in the depths of a bear market while other major exchanges, such as Binance and Coinbase, are already facing lawsuits from the U.S. Securities and Exchange Commission.