This week, the Second Circuit Court of Appeals heard arguments in Sam Bankman-Fried’s appeal of his criminal conviction. The panel of three judges was very skeptical of his lawyer’s arguments.
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The story
FTX founder Sam Bankman-Fried’s calling was always going to be a difficult journey. Senior Judge Lewis Kaplan, a Southern District of New York jurist who oversaw the trial, is generally well respected and the bar for getting a new trial is high.
Why it matters
Barring a presidential pardon (which still seems unlikely), this hearing could have been Bankman-Fried’s last chance to obtain an early release from prison. While he posted messages on the old Twitter site through a friend, the legal matter progressed to the November 4 hearing.
Break it down
Circuit Judges Eunice Lee, Maria Araújo Kahn and Barrington Parker all seemed skeptical of appeals attorney Alexandra Shapiro’s arguments that Bankman-Fried did not receive a fair trial.
To quickly recap: The appeal centered on the request that the former FTX CEO receive a new trial with a new judge because, in the opinion of Bankman-Fried and his team, Judge Kaplan was biased against him. Bankman-Fried was not allowed to argue that he was listening to lawyers or that FTX’s creditors were going to be released, according to the appeal filing.
“The defense was cut at the knees by [Judge Kaplan’s] decisions,” Shapiro said midway through the hearing.
The judges do not appear to have accepted these arguments. Judge Kahn asked whether FTX’s problems were related to liquidity rather than solvency, and also asked whether recent Supreme Court precedent held that simply taking the funds was enough to convict for fraud.
“How do you reconcile that with, for example, the recent Supreme Court decision and other decisions cited in the recent Supreme Court decision that the fact that the victims may be whole or that they were not intended to be defrauded is not an appropriate defense?” she asked.
Martin Auerbach, a lawyer at Withers, told CoinDesk last week that if the panel asked certain questions about this test, it could suggest that the judges were legitimately concerned about this procedure.
“If you hear those kinds of questions, it might lead you to conclude that the court is concerned about the complete impartiality to which each defendant is entitled,” he said.
Shapiro brought it up during the hearing: “The preliminary hearing itself was completely unprecedented and would set a terrible precedent if allowed because there was copious disclosure that is not required by the rules in the first place.”
This is not to overuse the word, but the judges seemed rather skeptical. Judge Barrington Parker asked: “Are you seriously suggesting to us that if your client could have testified to the role played by the lawyers in the creation of these various documents, the ‘not guilty’ would have been added to this file?” »
Shapiro even tried to cite news reports (including those of yours truly) to support his argument that Judge Kaplan could have put his finger on the scales against Bankman-Fried during the trial.
“I think any objective observer reading this account can see that the decisions are incredibly one-sided,” she said. “I think it would be difficult to cite a significant decision that the defense won, frankly. But the most important thing is that on these two evidentiary issues, they created a very serious asymmetry that prevented Mr. Bankman-Fried from effectively presenting his defense to the jury, that he acted in good faith, that it was a margin exchange, that anyone would have understood that the assets could be loaned and that he did not intend to steal anyone’s money so be it.”
Assistant U.S. Attorney Thane Rehn, one of the lead prosecutors in the case against Bankman-Fried, argued that at no point did his team attempt to indicate how FTX’s bankruptcy could result in charges against the FTX founder.
“The government’s arguments focused on the crisis that hit FTX in 2022 when, in fact, money had been siphoned off when customers sought to make the withdrawals that FTX had assured them would be able to make and would be available to them, and they were unable to do so,” he said.
Rehn said he didn’t think Judge Kaplan was biased toward his team (naturally), but also argued that while the defense faced more objections than his team, none were egregious enough to change the outcome of the trial.
And unlike the various lines of questioning the justices asked Shapiro, the justices spent most of their time with Rehn asking him specifically about the amount of forfeiture ($11 billion) and what it was actually for.
“If one of the factors we take into account is the harm caused to the victims, and if it is possible in this case that all the victims are cured, how can you still justify this figure of $11 billion?” » asked Judge Lee.
Rehn said the amount represented the overall value lost by FTX victims, and that the funds were intended to support the FTX bankruptcy estate’s efforts to repay its creditors.
“I want to highlight an important aspect of this, which is that clients’ bankruptcy filings are tied to the dollar value of their crypto balances on FTX at the time of bankruptcy,” Rehn said. “So when we talk about 100% customer recovery, it’s tied to that amount. … Three Bitcoins are now worth about eight times the value of those three Bitcoins in November 2022, so these victims are not about to be cured in bankruptcy, and in a realistic economic sense, they are cured as a percentage of the dollar value of their Bitcoin balances in November 2022.”
The panel has not explicitly stated one way or another how it might rule on the appeal itself, and issuing an opinion could take some time.
In other court cases:
- Keonne Rodriguez, developer of Samourai Wallet, was sentenced to 60 months (five years) in prison after pleading guilty to a charge of conspiracy to operate an unlicensed money transmitter, the maximum legal sentence for that charge and the one sought by prosecutors. Rodriguez’s lawyers had asked for a year and a day in jail followed by probation, but Judge Denise Cote of the Southern District of New York said she did not believe Rodriguez had “accepted” the fact that he had “engaged for several years in very serious antisocial criminal behavior,” based on a letter he wrote to support his sentencing memo. Fellow developer William Lonergan Hill, who pleaded guilty to the same charge, will be sentenced on November 19.
- The judge overseeing the U.S. Justice Department’s prosecution of Anton Peraire-Bueno and James Peraire-Bueno declared a mistrial Friday evening after the jury in the case said its members could not reach a unanimous decision on the charges. The two brothers were charged last year with wire fraud, conspiracy to commit wire fraud, and conspiracy to commit money laundering after allegedly stealing $25 million in crypto by exploiting MEV-boost (maximum extractable value), software that allows Ethereum operators to preview upcoming transactions. The trial began in mid-October.
This week
- No hearings or events organized by the regulator are planned this week. The House of Representatives will be out of session for another week, while the Senate will resume session Monday afternoon.
If you have any ideas or questions about what I should discuss next week or any other comments you would like to share, please feel free to email me at [email protected] or find me on Bluesky @nikhileshde.bsky.social.
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See you next week!
