US v Sam Bankman-Fried trial begins ... as imploded crypto-biz boss sues his insurer

After people's funds go up in smoke, ex-CEO seeks cash to foot legal bills

The first of two US government prosecutions of former FTX CEO Sam Bankman-Fried commenced in New York on Monday, only a day after the cryptocurrency tycoon sued his own insurance company for failing to cover his legal costs.

Jury selection commenced on Monday in the case concerning whether Bankman-Fried diverted billions of dollars of FTX customer funds for his own use. The crypto-exchange later imploded.

Ahead of that case commencing, the former CEO filed a complaint [PDF] on Monday against Continental Casualty Company (CNA) that accuses the Chicago-based insurance firm of failing to abide by the terms of his insurance policy with them.

The crypto big cheese alleges CNA has not observed the terms of its insurance contract, which Bankman-Fried asserts should cover his defense costs.

Bankman-Fried's company Paper Bird, which owned much of the collapsed FTX Trading Ltd, held a directors and officers insurance policy issued by QBE Insurance Company to cover executive legal expenses.

But that policy, and a second from Lloyd’s of London, have an aggregate liability limit of $10 million. That limit has been reached and Bankman-Fried needs CNA's second-layer excess policy to pay out.

CNA may believe that it isn't obligated to pay because of Bankman-Fried's alleged fraud and the associated collapse of FTX – the focus of the New York trial. But fraud remains unproven.

CNA declined to comment.

Bankman-Fried was charged by federal prosecutors last December in an eight-count indictment for fraud, money laundering, and campaign finance offenses. Five additional charges were added in the months that followed.

Then in June 2023, six of the thirteen counts were moved to a second criminal trial set to start in March 2024. The current New York proceeding before Judge Lewis Kaplan covers the other seven counts [PDF] related to wire fraud, securities fraud, and money laundering.

Bankman-Fried, who was jailed in August for witness intimidation, has pleaded not guilty on all charges.

Four others affiliated with FTX, however, have entered guilty pleas in prior legal proceedings: FTX co-founder Gary Wang, who was Bankman-Fried's roommate at MIT; former Alameda Research co-CEO Caroline Ellison, who had a romantic relationship with Bankman-Fried; Nishad Singh, an FTC co-founder and director of engineering; and Ryan Salame, who ran FTX's business in the Bahamas.

At least some of these former associates are expected to testify against Bankman-Fried as the trial progresses. ®

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