Sam Bankman-Fried's fraud trial: How will he defend himself?

By Luc Cohen

NEW YORK (Reuters) – Sam Bankman-Fried will possible defend himself at his fraud trial, on account of start on Tuesday, by arguing he didn’t assume the use by his FTX cryptocurrency alternate of buyer funds was improper and by difficult the credibility of those that say in any other case.

The arguments, which protection legal professionals have hinted at in courtroom filings, may assist the 31-year-old former billionaire attempt to defeat expenses he stole a fortune from FTX prospects by arguing he lacked prison intent regardless of making errors that led to the now-bankrupt alternate’s November 2022 collapse.

However any testimony from others suggesting Bankman-Fried knew his hedge fund, Alameda Analysis, improperly borrowed FTX prospects’ cash to pay its money owed, make investments, and lend billions to Bankman-Fried and different executives may undermine the argument that he acted in good religion, specialists mentioned.

A spokesperson for Bankman-Fried declined to remark. He’s at present jailed in Brooklyn.

Bankman-Fried has pleaded not responsible to seven counts of fraud and conspiracy. He has lengthy acknowledged failing to handle threat at FTX, however denied prosecutors’ claims he stole billions of {dollars} in FTX buyer deposits to plug Alameda’s losses.

“We obtained overconfident and careless,” Bankman-Fried wrote on X, previously often known as Twitter, on Nov. 16, 5 days after FTX filed for chapter. “And issues have been brewing. Bigger than I noticed.”

In an interview with the New York Instances two weeks later, he acknowledged Alameda had borrowed cash from FTX, however mentioned he was not conscious of how massive these money owed had grown.

In September courtroom papers, Bankman-Fried’s legal professionals mentioned he had a “good religion perception” that the way during which FTX and Alameda dealt with buyer funds was permissible. They mentioned FTX’s phrases of service didn’t restrain its use of buyer deposits, so long as it honored withdrawal requests.

FTX finally halted withdrawals in November as prospects raced to drag out their cash on account of issues over commingling of funds between the alternate and hedge fund. However Bankman-Fried is prone to argue that was on account of his failures operating the enterprise, not any theft of funds, mentioned Jordan Estes, a former federal prosecutor.

“You need to set the stage that this was finally a run on the financial institution that was fully sudden,” mentioned Estes, now a associate at regulation agency Kramer Levin.

Prosecutors with the U.S. Legal professional’s Workplace in Manhattan have pointed to a bit of the FTX phrases of service stating customers retain the title to their digital belongings always, and argued Bankman-Fried falsely mentioned in public statements – together with FTX commercials – that the alternate correctly maintained buyer belongings.

U.S. District Decide Lewis Kaplan barred Bankman-Fried from calling an knowledgeable witness to share his interpretation of the phrases of service, however didn’t rule out letting the defendant cross-examine witnesses in regards to the phrases.

‘AN INSIDER’S PERSPECTIVE’

Testimony from former colleagues who have been near Bankman-Fried may problem his declare of fine religion. Three former members of his interior circle – former Alameda Chief Government Caroline Ellison and former FTX executives Gary Wang and Nishad Singh – have pleaded responsible and are set to testify in opposition to him at trial.

“Cooperating witnesses like Caroline Ellison and Gary Wang … are capable of present an insider’s perspective on what was occurring behind closed doorways, which could be very highly effective to indicate intent,” mentioned Tim Howard, a former federal prosecutor in Manhattan and now a associate at regulation agency Freshfields.

Prosecutors are in search of to play jurors a recording of an Alameda assembly during which Ellison instructed colleagues that Bankman-Fried permitted the usage of buyer funds. Prosecutors say Bankman-Fried instructed Wang to change FTX’s code to let Alameda accrue a detrimental stability on the alternate, which different customers couldn’t do.

Bankman-Fried is prone to argue that his former colleagues are motivated to falsely implicate him within the hope of successful a extra lenient sentence, a typical tactic in prison instances involving cooperating witnesses, specialists mentioned.

His legal professionals have additionally argued in courtroom papers that others within the cryptocurrency sector used buyer belongings in the same approach, contributing to his good religion perception that FTX’s remedy of consumers’ deposits was acceptable.

Kaplan on Sept. 26 declined to rule on a request by prosecutors to bar Bankman-Fried from introducing proof of how different cryptocurrency firms used buyer funds.

In a Sept. 28 courtroom listening to, he mentioned that though the case includes some “arcane” topics resembling cryptocurrency, “the problems on this case are fairly easy.”

“Was there fraud,” Kaplan mentioned, “or wasn’t there?”