SBF returns to court seeking new trial over FTX collapse

Two years after Sam Bankman-Fried was found guilty of committing one of the greatest frauds in US financial history, the former crypto billionaire will return to court in a desperate bid for a new trial.

On Tuesday, a three-judge panel will hear oral arguments in Bankman-Fried’s appeal. Those arguments, as well as duelling legal briefs, will inform the judges’ decision, which is expected sometime in the next several months.

Bankman-Fried, once the face of the nascent crypto industry, is currently serving a 25-year prison sentence.

In November 2023, jurors found him guilty of stealing billions of dollars from the customers of his bankrupt crypto exchange, FTX, and using that money to buy luxury property, finance risky investments, and fund pet projects, such as pandemic preparedness.

His five-week criminal trial was a closely-watched spectacle. It featured damning testimony from his closest friends and his former girlfriend and co-worker, Caroline Ellison.

In a shocking turn, Bankman-Fried took the stand himself, only to wither under cross-examination. It only took four hours for jurors to deliver a verdict.

“When he wasn’t outright lying, he was often evasive, hairsplitting, dodging questions,” US District Court Judge Lewis Kaplan said at Bankman-Fried’s sentencing hearing, recalling the testimony. “I’ve been doing this job for 30 years. I’ve never seen a performance quite like that.”

And yet Bankman-Fried has maintained his innocence, arguing that FTX was not, in fact, bankrupt, and that he was framed by rapacious bankruptcy lawyers who took control of the company after its collapse in November 2022.

Bankman-Fried’s campaign to reframe the debate has ratcheted up in the weeks leading up to his hearing.

Seemingly angling for a presidential pardon, he said last month he was a victim of former President Joe Biden’s “anti-crypto SEC/DOJ.” Over the past two weeks, Bankman-Fried and his mother, Barbara Fried, have both published lengthy analyses arguing his innocence.

Presumed guilty?

In his appeal, Bankman-Fried’s attorney argued he never received a fair trial, and requested a new trial before a different judge.

“Sam Bankman-Fried was never presumed innocent. He was presumed guilty — before he was even charged,” his attorney, Alexandra Shapiro, wrote.

“He was presumed guilty by the judge who presided over his trial.”

That narrative was “initially spun” by the lawyers who took over FTX after it filed for bankruptcy in November 2022, she continued.

“Now, nearly two years later, a very different picture is emerging — one confirming FTX was never insolvent, and in fact had assets worth billions to repay its customers. But the jury at Bankman-Fried’s trial never got to see that picture.”

Kaplan, the district court judge, issued several rulings that tied the hands of Bankman-Fried’s defence team, Shapiro argued.

The judge said it was immaterial whether Bankman-Fried meant to steal customer money, even though intent is a required element of any fraud conviction, she said. Kaplan prevented Bankman-Fried from presenting evidence FTX was indeed solvent, and prevented Bankman-Fried from telling jurors he had relied on his lawyers’ advice when he led FTX.

“In addition to eviscerating Bankman-Fried’s defenses, the judge repeatedly made biting comments undermining the defense and defense counsel, even deriding the defendant’s own testimony during the preview hearing and in front of the jury,” Shapiro wrote.

Powerball tickets

Last December, prosecutors responded to Bankman-Fried’s appeal, detailing the evidence presented at trial and rebutting Shapiro’s claim the trial was rigged.

“Bankman-Fried was convicted of orchestrating one of the largest frauds in history, stealing more than $8 billion from the customers of his cryptocurrency exchange,” they wrote.

“Bankman-Fried testified before Congress that FTX had a robust risk management system and protected customer deposits by ‘maintaining adequate liquid resources to ensure the platform can return the customer’s assets upon request,’ ensuring ‘customer assets are custodied,’ and protecting ‘against misuse or misallocation of customer assets.’”

In reality, customer money flowed to Alameda Research, Bankman-Fried’s hedge fund run by Ellison.

Customers deposited funds directly into bank accounts controlled by Alameda, according to evidence presented at trial. Moreover, Alameda was given special privilege on FTX, allowing it to borrow enormous sums of money and crypto without facing liquidation like other traders.

FTX engineers built this special privilege into the exchange’s software at Bankman-Fried’s request, they testified at his trial.

Among other things, Alameda used that money to repay its loans and to invest in companies including AI firm Anthropic and trading firm Robinhood. At the same time, Alameda sought out new loans, and duped risk-averse lenders by creating fraudulent balance sheets that omitted the fact it had borrowed billions from FTX.

Prosecutors rejected the notion the trial was a sham.

Contrary to what Shapiro said in the appeal, Bankman-Fried did, in fact, attempt to demonstrate FTX was solvent, according to prosecutors. Jurors were told to consider Bankman-Fried’s intent. And the judge had correctly ruled that Bankman-Fried could not say that his lawyers were present when he made certain decisions as FTX’s CEO, as it would imply they had blessed those decisions with full knowledge of his criminal conduct.

“Bankman-Fried had admitted that he did not discuss with lawyers the use of customer funds and ‘whether or not it was proper,’” prosecutors wrote.

Bankman-Fried’s attempt to portray FTX as solvent comes down to one word, according to prosecutors: liquidity. Bankman-Fried has repeatedly argued FTX had assets it could use to make customers whole — it just couldn’t sell those assets quickly enough to meet customer withdrawals as the exchange collapsed.

Kaplan rejected that argument.

“The crime charged is that he took the money,” the judge said. “And what he did with it afterward doesn’t matter. This is like saying that if I break into the Federal Reserve Bank, make off with a million bucks, spend it all on Powerball tickets and happen to win, it was okay.”

Liquidity crisis

Bankman-Fried has continued to advance that argument in recent weeks.

“The crisis FTX faced in November 2022 was a liquidity crisis, i.e., a sudden shortage of cash,” he wrote in a 15-page document shared on X.

“It was on track to be resolved by the end of the month — that is, until FTX’s external counsel seized control.”

He has pointed to the fact that, years later, customers will be repaid at 119% to 143% of the value of their FTX assets at the time of its bankruptcy.

But that doesn’t account for the windfall customers would have seen had they been repaid in crypto, which has rallied enormously since its nadir at the time of FTX’s bankruptcy.

Bankman-Fried said that wouldn’t matter had he maintained control of the company and repaid customers with cash in 2022.

“Without the two-year wait, in-kind vs. dollarised wouldn’t matter much; if a customer got $17,000, they could just buy back the Bitcoin they had in the first place,” he wrote.

His mother, a law professor at Stanford University, advanced a similar argument in her own, much longer, analysis, in which she too called FTX’s collapse a “liquidity crisis.”

She acknowledged that most criminal appeals fail, because they hinge on the way a trial was run, rather than any evidence of guilt or innocence.

“Sam has a much better chance than most, because the judicial errors and bias in his trial were so extreme,” she wrote.

Those arguments have done little to change Bankman-Fried’s image in the crypto community.

“You lucked out on investments that you sprayed out like confetti from a cannon with money that wasn’t yours to spend on venture,” Indexed Finance co-founder Laurence Day wrote on X. “This rewriting of history is maddening.”

Next steps

Bankman-Fried’s three-judge panel has an informal six-month deadline to issue their ruling after Tuesday’s oral arguments.

His odds of success are low: between 2011 and 2015, about 6% of federal criminal appeals succeeded, according to data from the US court system.

Aleks Gilbert is DL News’ New York-based DeFi Correspondent. Reach out to him with tips at aleks@dlnews.com.