NEW YORK — Former FTX CEO Sam Bankman-Fried’s chances of getting a new trial appear to be dwindling, judging by the pointed questions from an appeals court during a hearing in Manhattan on Tuesday.
Bankman-Fried’s attorney 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 her side of the story or presenting the 17 jurors with “objective evidence” that FTX was in fact bankrupt after it was bankrupt. in November 2022.
Bankman-Fried’s push for a new trial hinges largely on his long-standing argument that because the majority of FTX’s creditors were made whole in the ongoing bankruptcy process — which has relied heavily on the sale of illiquid assets, including real estate and venture capital investments — that in reality there was no actual theft.
During Shapiro’s presentation, the appeals judges repeatedly cut in to question her arguments.
“There’s a right to present evidence of his intent, absolutely, but I don’t understand what you’re saying about that [being] objective confirmation when the objective confirmation appears to be that after the bankruptcy more money was made,” said Circuit Judge Eunice Lee.
When Shapiro responded, saying that it was clear at the time of the bankruptcy that there were “very valuable assets in the FTX estate that confirmed Mr. Bankman-Fried’s view that [FTX and Alameda Research] was solvent,” another judge, Circuit Judge Maria Araújo Kahn, pushed back, saying:
“But [Bankman-Fried’s] The misrepresentations were not to solvency, but to liquidity … part of the government’s theory of the case is that the defendant misrepresented to investors that their money was safe, was not being used in the way the government required, and the jury ruled that it was actually being used. So it wasn’t a question of solvency, right? It was a question of liquidity, whether they could get their money if they asked for it.”
Judge Kahn pointed out that a recent Supreme Court decision, Kousisis v. United States, held that fraud need not necessarily result in economic loss to be considered fraud.
Blame it on the lawyers
Shapiro also tried to argue that Bankman-Fried’s trial was unfair because he was not sufficiently allowed to argue his position that he was essentially misled by FTX’s lawyers. Although Shapiro said that Bankman-Fried did not technically rely on a defense counsel (where defendants argue that they cannot be held liable for fraud because they acted in good faith and relied on the advice of attorneys), he was legally entitled to “present a defense based on the involvement of attorneys, whether or not he relied on their advice.”
“It is a proof of good faith, and [Bankman-Fried] was entitled to submit that the judge denied his ability to present evidence about, for example, the formation of North Dimension entities,” Shapiro added. North Dimension, a wholly owned subsidiary of Alameda Research, was the entity that controlled the bank accounts where FTX customers were told to wire money to trade the exchange.
“How is that relevant to any of the charges 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’s evidence relevant to any of the charges?”
Shapiro urged the court to consider the “cumulative picture” of Bankman-Fried’s decision-making.
“The government argued that these entities were set up to take customer money so the defendant could spend it however he wanted,” Shapiro said. “So the fact that lawyers were involved in the creation of the entities, lawyers were involved in the drafting of the contract whereby the funds were deposited into these bank accounts for the benefit of FTX customers – of course it’s all relevant to the defendant’s good faith.”
While both Judges Lee and Parker acknowledged that there was “some relevance” to the involvement of FTX attorneys, they pointed out that Bankman-Fried specifically chose not to raise an advisory defense.
“If you had brought up the lawyer’s defense, a lot of these things, I agree, would have been a lot more probative, but you gave it up and you just have this vague, you know, ‘there were lawyers out there somewhere,’ defense,” Parker said, adding that he wasn’t clear how that was evidence that Bankman-Fried’s staff believed that “FTX had good faith.”
“Are you seriously suggesting to us if your client had been able to
witness the role that lawyers played in the creation of these various documents, would the “not guilty” have poured in?” Parker asked.
Shapiro said Bankman-Fried’s failure to tell the jury about his attorneys’ involvement, combined with what she described as Judge Kaplan’s “asymmetric rulings on damages,” had a cumulative effect on the trial’s outcome.
Parker pushed back, saying, “This was a high-profile trial, both sides represented by skilled lawyers. There was the usual back-and-forth and aggressive up-to-the-line advocacy. You won some things, you lost some things. And I mean, it almost seems like you’re spending more ink on Judge Kaplan at times than you are on it.
merits.”
“I don’t agree at all, Your Honor,” Shapiro said.
Prosecutors are pushing 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 had been presented with “overwhelming evidence” that the former FTX chief had committed a large-scale fraud against the exchange’s clients.
“None of the contentions raised by Bankman-Fried on appeal provide any basis for overturning the conviction in this case, particularly in light of the overwhelming evidence presented at trial,” he said.
Rehn argued that what Judge Kaplan prevented Bankman-Fried from testifying about at trial was the current value of certain investments that Bankman-Fried had directed to be made with client money.
“As this court has affirmed for decades, evidence of the potential ultimate recovery of the victims or the defendant’s belief in the potential ultimate recovery of the 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 were focused on the crisis that consumed FTX in 2022, when in fact the money had been misused as customers sought to make the withdrawals that they had been assured by FTX that they would be able to make and that would be available to them and they could do it.”
Judge Parker asked Rehn to comment on Shapiro’s claim that Judge Kaplan was biased in favor of the prosecution. Rehn denied the charges, saying many of the defense’s arguments at trial were “without merit, and therefore the court appropriately ruled against the defense on them.” “Even if there had been any error, and we contend there was not … this is a case if there ever was one where any error would be harmless beyond a reasonable doubt,” Rehn added. “There were four people who knew about the misappropriation of customer deposits. Three of them testified that they conspired with Sam Bankman-Fried to do it fraudulently. Everyone else testified that they had no idea because they had relied on Sam Bankman-Fried’s statements that that’s not what happened inside FTX, and there was an abundance of evidence that there was an abundance of documentation. The suggestion that, that any of these errors could have led to a different result at this trial simply cannot be sustained on this record.”
The panel did not issue a decision during Tuesday’s hearing. Court of Appeal decisions can sometimes be published months after the actual hearings.
Read more: Sam Bankman-Fried’s last chance? The Court of Appeal will hear arguments on the FTX founder’s renegotiation next week
