Challenges facing Sam Bankman-Fried’s lawyers

Challenges facing Sam Bankman-Fried's lawyers

On the second day of Sam Bankman-Fried’s fraud trial this month, one of the cryptocurrency mogul’s lawyers delivered a powerful message to the jury. Mr. Bankman-Fried is not a criminal, the lawyer declared, and every decision that led to the collapse of his FTX crypto exchange was made in “good faith.”

That message has since been blurred by more than two weeks of testimony from 15 government witnesses, most of whom have blamed Mr. Bankman-Fried for FTX’s spectacular implosion last year. He repeatedly lied, they said, mistreated his top lieutenants and instructed them to treat customer deposits as if FTX were a piggy bank.

The testimony dealt a blow to Mr Bankman-Freed’s “good faith” defence, which will be put to trial this week. Federal prosecutors are scheduled to rest their case on Thursday morning, and lawyers for the FTX founder are set to call four witnesses in federal court in Manhattan — including Mr. Bankman-Fried, who pleaded guilty to seven counts of fraud, conspiracy and Has requested not to be. Money laundering.

At a hearing on Wednesday, defense lawyer Mark Cohen confirmed that Mr Bankman-Fried, 31, would take the stand. This is a risky move for any defendant. But given the prosecution’s success in making its case, legal experts said, it was absolutely inevitable that Mr. Bankman-Fried would want to tell the jury his side of the story.

“There’s no secret in saying this is an uphill battle,” said criminal defense attorney Caroline Polisi. “The prosecution did a good job.”

Mark Botnick, a spokesman for Mr. Bankman-Fried, declined to comment.

From the beginning of Mr. Bankman-Freed’s case, he was expected to face major obstacles in court. He was the face of FTX and also founded Alameda Research, a crypto trading firm where FTX customer deposits were redirected. Prosecutors have accused him of orchestrating a vast scheme to use those deposits to finance venture investments, real estate purchases and other expenses.

But so far, it appears that for Mr. Bankman-Freed, his trial has gone worse than anticipated, legal experts said. Over the past few weeks, prosecutors have portrayed the case as a garden-variety fraud investigation. They stick to relatively simple concepts and use only a few complex financial flow charts that may be difficult for a jury to understand.

Prosecutors have also called fewer witnesses than expected, and many of them have received only a minimal response from Mr. Bankman-Fried’s lawyers. The trial, which was expected to last six weeks, may now be completed within a month.

Mr. Bankman-Fried’s testimony could create new risks for the defense. In criminal cases, lawyers usually advise their clients not to testify because of the possibility that the prosecutor may cross-examine them.

“Any progress the defense has made in the case has evaporated,” said Michael Bachner, a criminal defense lawyer and former assistant district attorney in Manhattan. “But if things aren’t going well, there’s not much to lose.”

Legal experts said that with Mr. Bankman-Fried’s tendency to talk and his previous ability to attract major investors, they would have easily concluded that he was the best person to sell his story to the jury.

“So far, the case has been exclusively about associates,” said Daniel Richman, a former federal prosecutor who now teaches at Columbia University who agreed to testify against Mr. Bankman-Fried. “When he testifies, it becomes about him.”

Even before the trial, obstacles were piling up for Mr. Bankman-Freed’s lawyers.

In a pre-trial ruling in September, Lewis A. Kaplan, the federal judge overseeing the case, sharply limited the number of expert witnesses the defense could call, saying the proposed testimony was irrelevant or confusing to the jury. Could do it. He also downplayed some of the legal arguments that Mr. Bankman-Fried’s lawyers wanted to raise, including a claim that prosecutors had relied too heavily on one of FTX’s outside law firms in building their case.

After the trial began, Judge Kaplan closely monitored Mr. Bankman-Freed’s lawyers, obstructing their questioning of prosecution witnesses and frequently overruling their objections.

“Counsel, when I rule, that’s the end of the discussion,” Judge Kaplan said to Mr. Cohen at one point. “Can we agree on this?”

But nothing is more damaging than the testimony of about a half-dozen of Mr. Bankman-Fried’s closest advisers and friends, three of whom pleaded guilty in the case and agreed to cooperate with prosecutors. He told the jury that Mr. Bankman-Fried had known for at least six months that FTX would not be able to repay the $8 billion of customer money that Alameda had borrowed.

Caroline Ellison, who ran Alameda and who pleaded guilty to helping steal money from FTX customers, testified that Mr. Bankman-Fried did not believe the normal rules of running a business applied to him. Nishad Singh, an FTX executive who has also pleaded guilty, said his former boss had spent excessively while the exchange was headed for collapse. And Gary Wang, an FTX co-founder and third cooperator, said that Mr. Bankman-Fried had instructed him to write computer code that would make it possible to steal customer deposits.

When he interrogated Ms Ellison, Mr Singh and Mr Wang, he focused on the witnesses’ motivations for pleading guilty. Lawyers tried to suggest that the three were telling damaging stories about Mr Bankman-Fried to avoid jail. He reported that each co-op leader had met with the government dozens of times and that, in some cases, their trial testimony differed from notes taken months earlier by FBI agents.

But repeatedly, prosecutors interrupted the flow of questions with objections, forcing Mr. Cohen to go back and forth in the chronology of FTX’s rise and fall as he tried to weave a narrative. Prosecutors also prevented the defense from presenting to the jury a document intended to attack Ms. Ellison’s credibility during cross-examination.

When Mr. Singh was on the stand, Mr. Cohen asked him to admit that he had used a company loan to buy a house last October — a month, he said, of the apparent theft of FTX clients’ money. After that he became worried.

But questioning the motivations of cooperating witnesses loses its effectiveness when prosecutors have more than one person testifying identically, said John P. Fishwick Jr., the former U.S. attorney for the Western District of Virginia.

“When you have three company insiders who are accomplices, it takes a heavy toll on cross-examination,” he said.

Elizabeth Holmes, founder of the failed blood-testing company Theranos, used a similar “good faith” defense in her criminal fraud trial in 2021. He was accused of defrauding investors and patients by lying that Theranos’ blood testing device worked. (It didn’t happen.) His lawyers argued that any bad business decisions were motivated by a desire to create a practical device and were not intended to defraud his wealthy investors.

“It sounds a bit like a defense of Elizabeth Holmes,” Ms. Polisi said of Mr. Bankman-Fried’s lawyers’ claim that his business decisions were reasonable. “They’re trying to portray him as a helpless young man who got in over his head and had no bad intentions despite what prosecutors are assigning to him.”

Ms. Holmes testified at her trial that her much older business partner, who was also her former lover, had molested her. But the testimony backfired, giving prosecutors the chance to question Ms. Holmes about her efforts to suppress Theranos employees who turned whistle-blowers, suggesting she wanted to keep bad news from getting out. .

Ms. Holmes was convicted of securities fraud in January 2022 and sentenced to more than 11 years in federal prison.

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