This week, the Second Court of Appeal heard arguments in Sam Bankman-Fried’s appeal of his criminal conviction. The three-judge panel appeared highly skeptical of his lawyer’s arguments.
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The narrative
FTX founder Sam Bankman-Fried’s appeal was always going to be an uphill journey. Senior Judge Lewis Kaplan, the lawyer for the Southern District of New York who oversaw the trial, is generally well-respected, and the bar for securing a new trial is high.
Why it matters
Short of a presidential pardon (which still seems unlikely), this hearing may have been Bankman-Fried’s last chance to secure an early release from prison. While he has been posting on the site formerly known as Twitter through a friend, the legal case has wound its way through the appeals process to the Nov. 4 hearing.
To break it down
Circuit Judges Eunice Lee, Maria Araújo Kahn and Barrington Parker all appeared 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 boss receive a new trial with a new judge because Judge Kaplan, in the opinion of Bankman-Fried and the team, was biased against him. Bankman-Fried was not allowed to argue that he was listening to lawyers or that FTX’s creditors would be made whole, the appeal filing states.
“The defense was cut off at the knees [Judge Kaplan’s] rulings,” Shapiro said midway through the hearing.
The judges didn’t seem to buy those arguments. Judge Kahn questioned whether FTX’s issue was not liquidity, rather than solvency, and that recent Supreme Court precedent held that simply taking the funds was sufficient to convict of fraud.
“How do you compare that to, say, 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 not intended to be defrauded is not a proper defense?” she asked.
Martin Auerbach, counsel at Withers, told CoinDesk last week that if the panel asked certain questions about that dry run, it could suggest that the judges were legitimately concerned about this procedure.
“If you hear that kind of question, it might lead you to conclude that the court has some concern about the complete impartiality to which any accused person is entitled,” he said.
Shapiro brought it up at the hearing: “The preview hearing itself was completely unprecedented and would set a terrible precedent if it were allowed that there was ample disclosure that is not required by the rules in the first place.”
Not to overuse the word, but the judges seemed quite skeptical. Judge Barrington Parker asked, “are you seriously suggesting to us that if your client had been able to testify about the role that lawyers played in the creation of these various documents, they would have rolled ‘not guilty’ on this record?”
Shapiro even tried to point to news reports (including by yours truly) to support her argument that Judge Kaplan may have tipped the scales against Bankman-Fried during the trial.
“I think any objective observer who reads this record can see that the rulings are incredibly one-sided,” she said. “I think you’d be hard-pressed to point to one significant ruling that the defense won, quite frankly. But the larger point is that in 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 was acting in good faith, that this was a margin swap, that everyone would have understood that, and couldn’t have understood that he didn’t want a loan. steal somebody’s loan money.”
Assistant US Attorney Thane Rehn, one of the lead prosecutors in the case against Bankman-Fried, argued that at no point did his team try to point out how FTX’s bankruptcy could end up prosecuting the FTX founder.
“The government’s arguments were focused on the crisis that consumed FTX in 2022 where the money had in fact 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 were unable to do so,” he said.
Rehn said he didn’t believe Judge Kaplan was biased against his team (obviously), but also argued that while the defense had met more objections than his team had, none were egregious enough to change the outcome of the trial.
And unlike the various questions the justices had for Shapiro, the justices spent most of their time with Rehn asking specifically about the forfeiture amount ($11 billion) and what purpose it actually served.
“If one of the factors we’re considering is harm to the victims, and if it’s going to be possible in this case that all the victims are going to be made whole, how are you still going to justify that $11 billion figure?” Judge Lee asked.
Rehn said the amount represented the total value lost by FTX’s victims, and the funds were intended to support FTX’s bankruptcy estate’s efforts to repay its creditors.
“I want to highlight one important aspect of this, which is the customer bankruptcy claims are tied to the dollar value of their crypto balances on FTX at the time of the 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 what the value of those three Bitcoins were in November 2022, so these victims are not close to being made whole in the bankruptcy, and in that kind of realistic financial sense, they’re being made whole as a percentage of their Bitcoin’s 2022 value of Bitcoin.”
The panel did not explicitly state one way or the other how they might rule on the appeal proposal itself, and it may take some time before they publish an opinion.
In other legal proceedings:
- Samourai Wallet developer Keonne Rodriguez was sentenced to 60 months (five years) in prison after pleading guilty to one count of conspiracy to operate an unlicensed money transmitter, the statutory maximum sentence for that charge and the one sought by prosecutors. Rodriguez’s lawyers had asked for a year and a day in prison followed by probation, but Judge Denise Cote of the Southern District of New York said she did not believe Rodriguez had “come to terms” with the fact that over a number of years he had “engaged in very serious, antisocial criminal behavior,” based on a letter he had written in support of his client. Co-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 late Friday after the jury hearing 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), a piece of software that lets Ethereum operators preview upcoming transactions. The trial began in mid-October.
This week
- There are no hearings or regulator-hosted events scheduled this week. The House of Representatives will be out of session for another week while the Senate resumes session Monday afternoon.
If you have thoughts or questions about what I’ll be discussing next week or any feedback you’d like to share, feel free to email me at [email protected] or find me on Bluesky @nikhileshde.bsky.social.
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See you next week!
