Mr. Bankman-Fried, 31, has pleaded not guilty to charges he used FTX customer money from the exchange鈥檚 2019 launch until its November 2022 bankruptcy in order to prop up his hedge fund, Alameda Research, buy luxury real estate, and donate to US political campaigns and candidates.

The trial kicked off with jury selection on Tuesday, nearly a year after the collapse of FTX shocked financial markets and tarnished the budding entrepreneur and philanthropist鈥檚 reputation as an honest actor in a crypto sector prone to scams and purported get-rich-quick schemes.

In his opening statement on Wednesday, defense lawyer Mark Cohen portrayed the Massachusetts Institute of Technology physics graduate as a 鈥渕ath nerd鈥� who overlooked risk management in building FTX, but did not steal customer money.

Mr. Cohen acknowledged that FTX lent money to Alameda, but said Mr. Bankman-Fried 鈥渞easonably believed鈥� that those loans were permitted and backed up by collateral. He said some key aspects of FTX鈥檚 business, such as risk management, were 鈥渙verlooked鈥� as the startup grew rapidly.

鈥淪am and his colleagues were building the plane as they were flying it,鈥� Mr. Cohen said. 鈥淣o one person 鈥� no one CEO, certainly not Sam, could be everywhere and do everything.鈥�

But prosecutor Thane Rehn said Mr. Bankman-Fried took more than $10 billion from unsuspecting FTX customers, and that he 鈥渄oubled down鈥� when Alameda鈥檚 risky investments in cryptocurrency began to lose money in May and June of last year.

鈥淎ll of it was built on lies,鈥� Mr. Rehn said. 鈥淗e was using his company, FTX, to commit fraud on a massive scale, and the money he was spending to build his empire 鈥� it was money he was stealing from FTX customers.鈥�

Prosecutors are expected to call three former members of Mr. Bankman-Fried鈥檚 inner circle 鈥� former Alameda chief executive Caroline Ellison and former FTX executives Nishad Singh and Gary Wang 鈥� to testify against him. All three have pleaded guilty and agreed to cooperate with prosecutors.

鈥淭hey will give you an insider鈥檚 view of how the crimes occurred,鈥� Mr. Rehn said in his opening statement, without naming the witnesses.

Mr. Cohen suggested they may 鈥渟pin鈥� Mr. Bankman-Fried鈥檚 good-faith decisions that they agreed with at the time as deceitful in hindsight. He also said Mr. Bankman-Fried urged Ms. Ellison to hedge Alameda鈥檚 crypto bets, but that she did not.

鈥淗ere in the real world, cooperation means testifying against Sam in a way that will help the government鈥檚 case,鈥� Mr. Cohen said.

Jurors are expected to hear from Mr. Wang by the end of the week, another prosecutor, Danielle Sassoon, said in court.

Earlier on Wednesday, a jury of 12 primary members and six alternates was selected from a pool of residents of Manhattan, the Bronx, and New York City鈥檚 northern suburbs. The group includes a retired investment banker, a school librarian and a train conductor.

Mr. Bankman-Fried鈥檚 parents, Stanford Law School professors Joseph Bankman and Barbara Fried, were seen arriving at the federal courthouse in Lower Manhattan on Wednesday morning. They had not attended the trial鈥檚 first day.

Once known for his casual attire and mop of unkempt curls, Mr. Bankman-Fried sported a trim haircut and wore a suit and tie in court on both Tuesday and Wednesday.

He has been detained at the Metropolitan Detention Center in Brooklyn since Aug. 11, when US District Judge Lewis Kaplan jailed him for likely tampering with witnesses, including by sharing Ms. Ellison鈥檚 private writings with a reporter. Mr. Bankman-Fried and Ms. Ellison were at times romantic partners. 鈥� Reuters

The proposed class action in Miami alleges that FTX yield-bearing accounts were unregistered securities that were unlawfully sold in the United States, which required the promoters to disclose the compensation they received.

The lawsuit seeks damages from FTX founder Sam Bankman-Fried alongside several celebrities who promoted FTX including Mr. David, the creator of TV shows Seinfeld and Curb Your Enthusiasm. It also seeks damages from a National Basketball Association team that promoted FTX, the Golden State Warriors.

The celebrities and the Warriors said in court papers filed on Friday that they had never pitched the accounts at issue in the case and did not cause the investors鈥� losses.

They said that under the investors鈥� theory, 鈥渁ctors in any brokerage ad would be liable for selling any security that an individual user later purchased using the brokerage鈥檚 services.鈥�

鈥淭hat鈥檚 nonsense,鈥� the celebrities said.

A lawyer for the investors did not immediately reply to a request for comment.

Mr. David starred in a commercial for FTX that aired during the 2022 Super Bowl in which he portrayed fictional characters dismissing important innovations throughout history and ended with the message 鈥淒on鈥檛 Miss Out on Crypto.鈥�

Mr. Bankman-Fried argued in court papers that the case against him should be paused while he fights criminal charges in New York. The investors did not oppose the request, he said.

Prosecutors have charged Mr. Bankman-Fried, 31, with stealing billions of dollars in FTX customer funds to plug losses at Alameda Research, and making tens of millions of dollars in illegal political donations to buy influence in Washington, D.C. He has pleaded not guilty.

The case is Garrison v. Bankman-Fried et al., No. 22-23753, US District Court, Southern District Of Florida. 鈥� Reuters

FTX filed for bankruptcy protection in the United States on Friday in the highest-profile crypto blowup to date, after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal. After a flurry of tweets and interviews by Bankman-Fried, FTX said he 鈥渉as no ongoing role鈥� at the company and does not speak on its behalf.

The implosion of FTX has rippled across the industry, hobbling liquidity at firms with exposure to what was once one of the world鈥檚 biggest crypto exchanges, and prompting investigations by regulators in several countries.

Lawmakers from the US Congress said on Wednesday they were planning hearings on FTX before yearend, while the New York Department of Financial Services said it is monitoring the situation at Genesis.

While not naming FTX directly, Treasury Secretary Janet Yellen said on Wednesday that more effective oversight is needed over the crypto markets to address risks previously identified that were 鈥渁t the center of the crypto market stresses observed over the past week,鈥� and urged Congress to act quickly.

Venture capital firm Digital Currency Group, the ultimate parent of Genesis, as well as of crypto asset manager Grayscale, said on Twitter that Genesis鈥� decision to suspend redemptions 鈥渨as made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion.鈥�

Genesis, which also offers crypto trading and custody services through an affiliate that are not affected, had $2.8 billion in total active loans at the end of the third quarter, according to the company鈥檚 website. Last year, it extended $130.6 billion in crypto loans and traded $116.5 billion in assets, it said.

The suspension at Genesis 鈥渉as no impact on the business operations of DCG and our other wholly owned subsidiaries,鈥� the company said.

Still, Grayscale Bitcoin Trust GBTC.PK, the world鈥檚 largest bitcoin fund, plunged almost 7% on Wednesday, while the price of bitcoin fell 2.6% to $16,400 and is down around 20% this month.

Crypto exchange Gemini, which was founded by the Winklevoss twins, said its yield-generating 鈥淓arn鈥� program, which uses Genesis as its lending partner, will not be able to meet customer redemptions.

Several other crypto firms, including Crypto.com and stablecoin Tether, said on Wednesday they had no exposure to Genesis.

Genesis is not alone in facing fallout from FTX鈥檚 collapse.

Crypto lender BlockFi, which previously acknowledged it has significant exposure to FTX, plans to lay off workers while preparing to file for bankruptcy, the Wall Street Journal reported on Tuesday.

Within the industry, some executives considered possible further ripple effects.

鈥淚 do think there鈥檚 going to be another washout of crypto, but it鈥檚 going to be the less well-capitalized crypto players who got burned by not having diversification of their assets,鈥� said Jeff Howard, head of institutional sales at Hong Kong-based digital exchange OSL.

鈥淭he crypto ecosystem is intertwined in a way that will drive further contagion in the near term. Crypto contagion risk remains on the rise,鈥� added Joe Urban, managing director of electronic trading at prime brokerage firm Clear Street.

LEGAL ACTION
Meanwhile, US court filings showed Bankman-Fried is facing legal action in the United States from investors alleging the company鈥檚 yield-bearing crypto accounts violated Florida law.

The proposed class action filed late on Tuesday in Miami alleges that FTX yield-bearing accounts were unregistered securities that were unlawfully sold in the United States.

The lawsuit also seeks damages from several celebrities who helped promote FTX, including National Football League quarterback Tom Brady and tennis star Naomi Osaka.

Representatives for Bankman-Fried, Brady and Osaka did not immediately respond to requests for comment.

US and Bahamian authorities were discussing the possibility of bringing Bankman-Fried to the United States for questioning, Bloomberg reported on Tuesday.

But Clayton Fernander, the Commissioner of Police in the Bahamas, said on Wednesday on the sidelines of a police conclave in Nassau that police have not interviewed or met with Bankman-Fried and that Fernander has not been in communication with US authorities in relation to the matter.

LIQUIDATOR SPAT
FTX group鈥檚 liquidation is proving a subject of dispute, as the exchange鈥檚 Bahamas-based liquidators filed a Chapter 15 petition in a US bankruptcy court in New York late on Tuesday questioning the validity of the US bankruptcy proceedings.

The liquidators, appointed by a Bahamas judge on Nov. 10, said that because their filing came before FTX鈥檚 bankruptcy filing in the United States, they were the only ones authorized to begin bankruptcy proceedings for FTX and its affiliates.

The US bankruptcy proceedings involve multiple FTX group companies with more than 100,000, and possibly over 1 million, creditors. 鈥� Reuters

FTX鈥檚 late Monday filing to a US bankruptcy court said it was in contact with dozens of global regulators and had appointed five new independent directors at each of its main companies, including its sibling trading firm Alameda Research.

The exchange, which had been among the world鈥檚 largest, filed for bankruptcy protection on Friday in one of the highest-profile crypto blowups after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

鈥淔TX faced a severe liquidity crisis that necessitated the filing of these cases on an emergency basis last Friday,鈥� the court filing stated.

FTX鈥檚 bankruptcy case includes more than 100,000 creditors, and this number could surpass 1 million, the filings said. The numbers were disclosed as FTX requested that multiple FTX group companies file one consolidated list of major creditors, rather than separate ones.

The documents also confirmed that FTX had responded to a cyber-attack on Nov. 11, after saying on Saturday it had seen 鈥渦nauthorized transactions鈥� on its platform.

FTX engaged Alvarez & Marsal as financial adviser, and said it has been in contact with the U.S. Attorney鈥檚 Office, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and dozens of federal, state and international regulatory agencies over the past 72 hours.

The fallout has so far been limited to crypto exchanges and traders, but is featuring in mainstream policy discussions too.

Michael Barr, the Federal Reserve鈥檚 top Wall Street cop, on Tuesday said he is concerned about risks from the nonbank sector for which the US central bank and other regulators have poor visibility.

鈥淭hat includes obviously crypto activity, but more broadly risks in parts of the financial system where we don鈥檛 have good visibility, we don鈥檛 have good transparency, we don鈥檛 have good data. That can create risks that blow back to the financial system that we do regulate,鈥� he told the Senate Banking Committee.

Crypto industry peers and partners have been quick to distance themselves from FTX and tout their sound financials, though some, including US cryptocurrency broker Genesis Trading, have disclosed they are exposed to FTX, either having held tokens on the exchange or by owning FTX鈥檚 native token, FTT.

FTT plunged around 94% last week, while bitcoin BTC=BTSP lost 22%.

Crypto lender BlockFi, which previously acknowledged it has significant exposure to FTX, plans to lay off workers while preparing to file for bankruptcy, the Wall Street Journal reported. The newspaper reported that BlockFi was recently working with Kenric Kattner, a bankruptcy partner at Haynes & Boone, citing people familiar with the situation. BlockFi and Kattner did not immediately respond to a request for comment.

Separately, bankrupt crypto lender Voyager Digital no longer plans to sell itself to FTX, Bloomberg reported, while Canadian crypto exchange Bitvo said it terminated its deal to be bought by FTX.

FTX founder and former chief executive Sam Bankman-Fried said his main goal is 鈥渢o do right by customers,鈥� in a tweet on Tuesday.

鈥淚鈥檓 contributing what I can to doing so. I鈥檓 meeting in-person with regulators and working with the teams to do what we can for customers,鈥� he said on Twitter.

Bloomberg reported that American and Bahamian authorities had been talking about bringing Mr. Bankman-Fried to the United States for questioning.

Mr. Bankman-Fried tried to raise cash from investors over the weekend to repay FTX clients even after the company had sought bankruptcy protection and he had resigned as CEO, the Wall Street Journal reported.

Mr. Bankman-Fried said he expanded his business too fast and failed to notice red flags at the exchange, in an interview with the New York Times published late on Monday.

REGULATORY SCRUTINY
The sudden collapse of FTX, once a seen as a mainstay of the crypto industry with a $32 billion valuation as of January, has sparked investigations by financial regulators and other supervisory bodies around the world.

The Securities Commission of the Bahamas, in a statement dated Monday, said two PwC partners had been approved by the Supreme Court as joint provisional liquidators for FTX.

Several global regulators have removed licenses from local FTX units, and are looking into the company, and investigations by the U.S. Justice Department, the SEC and CFTC are also under way, a source with knowledge of the investigations told Reuters.

Some argued regulators should have taken action earlier.

Ken Griffin, founder and CEO of hedge fund Citadel, told the Bloomberg New Economy Forum in Singapore: 鈥淔TX is one of these absolute travesties in the history of financial markets. People will lose billions of dollars collectively and that undermines trust in all financial markets.鈥� 鈥� Reuters