NEW YORK — Former FTX CEO Sam Bankman-Fried’s chances of getting a new trial appear to be dwindling, judging by the pointed questions asked by an appeals court during a hearing in Manhattan on Tuesday.
Bankman-Fried’s lawyer, Alexandra Shapiro, told the trio of Second Circuit judges that the high-profile trial was “fundamentally unfair” because her client was prevented by District Judge Lewis Kaplan from telling the jury his side of the story, or from presenting the 17 jurors with “objective evidence” that FTX was, in fact, solvent at the time it filed for bankruptcy following its spectacular collapse in November 2022.
Bankman-Fried’s push for a new trial rests largely on her long-standing argument that because the majority of FTX’s creditors have been discharged in the ongoing bankruptcy process — which relied largely on the sale of illiquid assets, including real estate and venture capital investments — there was in fact no actual theft.
During Shapiro’s presentation, appeals judges intervened several times to question his arguments.
“There is a right to present evidence as to his intent, absolutely, but I don’t understand what you’re saying about that. [being] objective corroboration, whereas the objective corroboration appears to be that after the bankruptcy, more money was made,” Circuit Judge Eunice Lee said.
When Shapiro responded by saying that it was clear at the time of the bankruptcy that there were “very valuable assets in the FTX estate that corroborated Mr. Bankman-Fried’s view that the [FTX and Alameda Research] were solvent,” pushed back another judge, Circuit Judge Maria Araújo Kahn, saying:
“But [Bankman-Fried’s] the misrepresentations were not about solvency, but about liquidity… part of the government’s theory of the case is that the defendant made false representations to investors that their money was safe, that it was not being used in the way the government claimed it was, and as the jury agreed, it was in fact used. So it wasn’t a question of solvency, was it? It was a question of liquidity, whether they could get their money if they asked for it.
Justice Kahn noted that a recent Supreme Court decision, Kousisis v. United States, concluded that fraud does not necessarily have to result in economic loss to be considered fraud.
The fault of the lawyers
Shapiro also tried to argue that Bankman-Fried’s trial was unfair because he was not allowed to sufficiently argue his position that he was essentially misled by FTX’s lawyers. Although Shapiro said Bankman-Fried did not technically rely on an attorney’s opinion (in which the defendant claims he cannot be held liable for fraud because he acted in good faith and relied on the advice of attorneys), he was legally permitted to “present a defense based on the involvement of attorneys, whether or not he claims to have specifically relied on their advice.”
“It is a proof of good faith, and [Bankman-Fried] was entitled to present that the judge rejected his ability to present evidence about, for example, the formation of the North Dimension entities,” Shapiro added. North Dimension, a wholly owned subsidiary of Alameda Research, was the entity that controlled the bank accounts into which FTX customers were asked to wire money in order to trade on the exchange.
“How is this relevant to the counts in the indictment?” » interrupted Circuit Judge Barrington Parker. “The fact that a lawyer drafted a certificate of incorporation or drafted an agreement between two of the subsidiaries – helps me understand how that constitutes relevant evidence for any of the counts?”
Shapiro urged the court to consider the “cumulative picture” of Bankman-Fried’s decision-making.
“The government claimed that these entities were created to take customers’ money so that the defendant could use it as he pleased,” Shapiro said. “So the fact that lawyers were involved in the creation of the entities, lawyers were involved in drafting the contract by which the funds were deposited into these bank accounts for the benefit of the FTX clients – of course, all of that is relevant to the good faith of the defendant.”
Although Justices Lee and Parker acknowledged that the involvement of FTX’s attorneys was “somewhat relevant,” they noted that Bankman-Fried specifically chose not to present a defense based on counsel’s advice.
“If you had put forward the opinion of a defense attorney, a lot of these things, I agree, would have been much more probative, but you abandoned that, and you just have this vague, you know, ‘there were lawyers somewhere,’ defense,” Parker said, adding that it was unclear to him how it was evidence of Bankman-Fried’s supposed “good faith” that FTX had lawyers on staff.
“Are you seriously suggesting to us that if your client had been able to
testify to the role played by the lawyers in the creation of these different documents, the “not guilty” would have arrived? » Parker asked.
Shapiro said Bankman-Fried’s failure to inform the jury of her lawyers’ involvement, combined with what she described as Judge Kaplan’s “asymmetrical rulings on loss,” had a cumulative effect on the outcome of the trial.
Parker countered by saying, “This was a high-profile trial, with both sides represented by competent attorneys. There was the usual back-and-forth and aggressive, direct advocacy. You won some things, you lost others. And, I mean, it almost seems sometimes that you spend more ink on Justice Kaplan than you do on Justice Kaplan.”
merits. »
“I completely disagree, Your Honor,” Shapiro said.
Prosecutors push back
Assistant U.S. Attorney Nathan Rehn, one of the lead prosecutors in Bankman-Fried’s original trial, told the appeals court that the jury was presented with “overwhelming evidence” that the former FTX CEO committed large-scale fraud on the exchange’s customers.
“None of the allegations raised by Bankman-Fried on appeal support overturning the conviction in this case, particularly in light of the overwhelming evidence presented at trial,” he said.
Rehn argued that what Judge Kaplan blocked Bankman-Fried from testifying about at trial was the current value of certain investments that Bankman-Fried had ordered to be made with clients’ money.
“As this court has held for decades, evidence regarding the potential for ultimate recovery for victims or the defendant’s belief in the potential for ultimate recovery for victims is simply not a defense to fraud,” Rehn said. “The government did not make the argument that the money was gone forever. The government’s arguments centered on the crisis that consumed FTX in 2022 when in fact the money was siphoned off when customers sought to make the withdrawals that FTX assured them they would be able to make and would be available to them, and they were unable to do so.”
Judge Parker asked Rehn to comment on Shapiro’s assertion that Judge Kaplan was biased in favor of the prosecution. Rehn denied the allegations, saying many of the defense’s arguments at trial were “without merit and the court therefore rightly ruled against the defense on them.” “Four people knew about the misappropriation of customer deposits. Three of them testified that they conspired with Sam Bankman-Fried to do it fraudulently. All the others testified that they had no idea because they relied on Sam Bankman-Fried’s statements that this was not what was happening within FTX, and there was ample documentary evidence to support this, in addition to the overwhelming testimony. So the Suggestion that any of these errors could have led to a different outcome at this trial simply cannot be sustained on this record.
The panel did not make a decision during Tuesday’s hearing. Decisions from appeals courts can sometimes be released months after the hearings themselves.
Read more: Sam Bankman-Fried’s last chance? Court of Appeals to Hear Arguments on FTX Founder’s Request for Review Next Week
