Sam Bankman-Fried’s lawyers reveal his planned testimony in FTX fraud trial

Lawyers for Sam Bankman-Fried late Wednesday revealed details of his planned testimony if he takes the witness stand at his FTX fraud trial.

Bankman-Fried’s legal team told Judge Lewis Kaplan in a six-page letter that he would address three key areas in such testimony, including suggesting that he relied on FTX’s former legal team in allowing some actions that later led to the implosion and bankruptcy of the cryptocurrency exchange.

Lawyers for the disgraced FTX chief also said he would cite his understanding of common industry practices, as well as his intention to comply with Bahamian authorities.

Bankman-Fried faces seven criminal counts, including wire fraud, securities fraud and money laundering, that could land him in prison for more than 100 years if he is convicted at his trial in Manhattan federal court.

Bankman-Fried, the son of two Stanford legal scholars, has pleaded not guilty in the case.

Will he or won’t he?

The letter to Kaplan appears to cast doubt on whether the disgraced crypto billionaire will take the witness stand.

Earlier Wednesday, one of Bankman-Fried’s two chief trial attorneys, Mark Cohen, said in a conference call that his client would testify as would three other people.

But in his letter Wednesday evening, Cohen wrote, “Accordingly, should Mr. Bankman-Fried decide to testify in his defense, he should be permitted to testify as to his understanding of industry practices regarding use of omnibus wallets to show his good faith and lack of criminal intent.”

The statement suggests Bankman-Fried might stand down on testifying, should the defense’s requests be rejected.

Blaming ex-FTX lawyers

Kaplan previously ruled that Bankman-Fried’s lawyers could not make a so-called advice of counsel argument in their opening remarks since it might risk prejudicing the jury.

But Cohen in the new letter told Kaplan that although prosecutors “previously moved to preclude Mr. Bankman-Fried from offering evidence or argument regarding the involvement of attorneys,” Bankman-Fried’s “knowledge of the involvement of counsel in these matters” is “directly relevant” to “his state of mind and good faith at the time.”

Cohen cited specific examples where, at the guidance of FTX lawyers, Bankman-Fried adopted a policy which prosecutors argued shows his criminality.

One example was company-wide policy on the encrypted messaging app Signal.

Caroline Ellison, Bankman-Fried’s ex-girlfriend who also ran crypto hedge fund Alameda Research, testified SBF directed FTX and Alameda employees to use the disappearing message setting on Signal. She said he told them to be very careful about what they put in writing because of potential legal exposure. 

Lesser-known FTX co-founder and ex-chief technology officer Gary Wang, as well as senior FTX developer Adam Yedidia, also testified to the directive that Signal communications be set to auto-delete.

The government similarly asserted in its opening argument before the jury that the 30-day auto-deletion policy on Signal was because Bankman-Fried “didn’t want a paper trail for his crimes.”

But Cohen wrote that Bankman-Fried’s understanding was that these auto-deletion policies were “instituted under the guidances of lawyers.”

In another example, Cohen pointed to the billions of dollars worth of FTX customer deposits that went directly into a bank account controlled by Alameda.

Prosecutors say customer cash was shuttled to Alameda via two channels: users depositing cash directly into accounts held by Alameda and through a secret backdoor that was baked into FTX’s code.

But attorneys for Bankman-Fried allege that SBF’s “understanding as to the involvement of counsel in the formation” of these accounts and in the payment arrangement established between FTX and Alameda would be “directly relevant” to the defendant’s “good faith belief that there was nothing improper about using Alameda-controlled entities to accept FTX customer deposits.”

In these and other examples involving the guidance of former FTX counsel, defense attorneys for Bankman-Fried return to the same rationale that the ex-FTX chief was acting in good faith and not with the criminal intent alleged by the government.

Blaming the Bahamian authorities

Wang has testified that last Nov. 12, after FTX declared bankruptcy, Bankman-Fried asked that Wang drive with him to the Bahamas Securities Commission for a meeting.

On the drive, Bankman-Fried told Wang to transfer assets to Bahamian liquidators because he believed they would allow him to maintain control of the company. Wang said he was not in the meeting with the securities authority, though Bankman-Fried’s dad was present. Wang said he returned to the U.S. and met with American prosecutors the next day.

He faces up to 50 years in prison when he faces a judge for sentencing following this trial. He told jurors he signed a six-page cooperation agreement that requires him to meet with prosecutors, answer their questions truthfully and turn over evidence.

Feds further allege that SBF prioritized paying certain creditors, including Bahamian authorities. In its pretrial motion, the government pointed to Bankman-Fried’s “criminal intent,” as well as the “false nature of his representations” that he wanted to “do right by customers.”

Cohen writes, “We anticipate eliciting testimony from Mr. Bankman-Fried regarding his good faith intentions on November 12, 2022 with respect to compliance with orders by Bahamian authorities to transfer assets from FTX to the Securities Commission of The Bahamas over the objections of FTX’s in-house counsel and U.S. bankruptcy counsel.”

“Such testimony would require Mr. Bankman-Fried to discuss his belief that the Bahamian authorities were acting in the best interests of FTX customers, whereas FTX’s in-house counsel and outside bankruptcy counsel in the United States had conflicts of interest,” the letter continues.

Blaming the status quo in crypto

Bankman-Fried’s understanding of commonly accepted industry practices may also figure prominently in his testimony.

In the crypto vernacular, an omnibus account is where the digital assets of multiple users are held collectively in a single account. Cryptocurrency exchanges and others in the industry typically use this type of collective storage strategy into order to slash costs and streamline the workflow.

In the case of FTX, the commingling of customer and company assets has become a major point of contention between the government and the defense.

Prosecutors argued that FTX’s “use of omnibus wallets is relevant to this case,” the letter said.

“For example, the Government elicited testimony from Mr. Sun that he did not believe that FTX customer deposits could permissibly be commingled with other funds of the business … and that FTX utilized an omnibus wallet for all customer digital assets,” the document continues, referring to FTX’s former general counsel, Can Sun.

“We respectfully submit that Mr. Bankman-Fried’s knowledge of industry practices regarding the use of omnibus wallets is relevant to his good faith belief that his conduct was permissible,” the letter added.

“Mr. Bankman-Fried’s understanding of whether FTX’s actions were consistent with the crypto industry practices with regard to use of omnibus wallets is probative of his good faith belief that FTX’s (and his own) actions were proper.”

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