NEW YORK, Oct 2 (Reuters) – Sam Bankman-Fried will defend himself in his fraud trial, which is set to begin on Tuesday. Credibility of those who say otherwise.
The arguments, which defense attorneys indicated in court filings, could help the 31-year-old former billionaire try to defeat charges that he stole a fortune from FTX customers following the exchange’s November 2022 collapse.
But testimony from others who knew Bankman-Fried used his hedge fund, Alameda Research, invested FTX clients’ money to pay off its debts, loaned Bankman-Fried billions and lent it to other executives, could undermine the argument that he did well. Hope, experts said.
A spokeswoman for Bankman-Fried declined to comment. He is currently incarcerated in Brooklyn.
Bankman-Fried pleaded not guilty to seven counts of fraud and conspiracy. He has long admitted to failing to manage risk at FTX, but denied prosecutors’ claims that he stole billions of dollars in FTX customer deposits to cover Alameda’s losses.
“We are overconfident and reckless,” Bankman-Fried wrote on X, formerly known as Twitter, on Nov. 16, five days after FTX filed for bankruptcy. “And problems were brewing. Bigger than I realized.”
In an interview with the New York Times two weeks later, Alameda admitted to taking out loans from FTX, but said he had no idea how big those loans had grown.
In September court documents, Bankman-Fried’s attorneys said she had a “good faith belief” that FTX and Alameda’s handling of client funds was permissible. FTX’s terms of service do not prevent the use of customer deposits as long as it honors withdrawal requests.
FTX halted withdrawals in November as customers scrambled to withdraw their funds due to concerns about the pooling of funds between the exchange and the hedge fund. But Bankman-Fried could argue that it was because she failed to run the business that no funds were stolen, said former federal prosecutor Jordan Estes.
“Ultimately you have to set the stage that this happened completely unexpectedly at the bank,” said Estes, now a partner at the law firm Kramer Levin.
Prosecutors from the US Attorney’s Office in Manhattan pointed to a section of FTX’s terms of service that said users retain title to their digital assets at all times, and that Bankman-Fried falsely claimed the exchange in public statements — including FTX ads. Properly maintained customer assets.
U.S. District Judge Louis Kaplan barred Bankman-Fried from calling an expert witness and barred her from sharing her interpretation of the terms of service.
‘An Introspective View’
Testimony from former colleagues who were close to Bankman-Fried could challenge her claim of good faith. Three former members of his inner circle — former Alameda chief executive Carolyn Ellison and former FTX executives Gary Wang and Nishad Singh — have pleaded guilty and are set to testify against him at trial.
“Cooperating witnesses like Carolyn Ellison and Gary Wang … can provide insight into what goes on behind closed doors, which can be very powerful to show intent,” said Tim Howard, a former federal prosecutor in Manhattan. Partner at law firm Freshfield.
Prosecutors are seeking to play to jurors a recording of an Alameda meeting in which Ellison told colleagues that Banker-Fried approved the use of client funds. Prosecutors say Bankman-Fried told Wang to change FTX’s code to allow Alameda to receive a negative balance in the transaction, something other users could not do.
Bankman-Fried could argue that her former colleagues were motivated to falsely accuse her in hopes of winning a more lenient sentence, a common tactic in criminal cases involving cooperating witnesses, experts said.
His attorneys argued in court documents that others in the cryptocurrency industry had made similar use of client assets, contributing to his good faith belief that FTX was appropriate for handling client deposits.
On September 26, Kaplan denied a request by prosecutors to block Bankman-Fried from introducing evidence of how other cryptocurrency companies used customer funds.
Sep. 28 said in a court hearing that while the case involves some “arcane” subjects like cryptocurrency, “the issues in this case are very straightforward.”
“Has there been fraud, or not?” Kaplan said.
Reporting by Luke Cohen in New York; Editing by Amy Stevens and Daniel Wallis
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