This week, the Second Circuit Court of Appeals heard arguments in Sam Bankman-Fried’s appeal against his criminal conviction. The three-judge panel was 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. Chief Judge Lewis Kaplan, the 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 is it important
Absent 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 moved forward in the appeals process until a Nov. 4 hearing.
breaking it
Circuit Judges Eunice Lee, Maria Araújo Kahn and Barrington Parker were skeptical of appeals attorney Alexandra Shapiro’s arguments that Bankman-Fried did not receive a fair trial.
To quickly summarize: 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 her team, Judge Kaplan was biased against him. Bankman-Fried was not allowed to argue that she was listening to lawyers or that FTX creditors were going to be compensated, according to the appeals filing.
“The defense was cut off at the knees [Judge Kaplan’s] rulings,” Shapiro said midway through the hearing.
The judges did not seem to accept these arguments. Judge Kahn asked whether FTX’s problems were ones of liquidity, rather than solvency, and that recent Supreme Court precedent held that simply taking the funds was enough to be found guilty of fraud.
“How does that square, for example, with the recent Supreme Court decision and other decisions cited in the recent Supreme Court decision that the fact that victims may be whole or were not intended to be defrauded is not an adequate defense?” she asked.
Martin Auerbach, Withers’ attorney, told CoinDesk last week that if the panel asked certain questions about that trial, it could imply that the judges were legitimately concerned about that procedure.
“If you hear those kinds of questions, then you might conclude that the court has some concern about the complete impartiality that every defendant is entitled to,” he said.
Shapiro mentioned it during the hearing: “the preliminary hearing itself was unprecedented and would set a terrible precedent if there was allowed to be broad disclosure that is not required by the rules in the first place.”
I don’t want to abuse 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 attorneys played in creating these various documents, ‘not guilty’ would have appeared in this record?”
Shapiro even attempted to point to news reports (including yours truly) to support his argument that Judge Kaplan may have put his finger on Bankman-Fried during the trial.
“I think any objective observer who reads this record can see that the rulings are incredibly one-sided,” he said. “I think it would be difficult to point to any significant ruling that the defense won, frankly. But the most important point is that on these two evidentiary issues, they created a very severe asymmetry that prevented Mr. Bankman-Fried from effectively presenting his defense to the jury, that he acted in good faith, that this was a margin trade, that everyone would have understood that the assets could be lent out and that he had no intention of stealing anyone’s money.”
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 point out how FTX’s bankruptcy could result in the prosecution of FTX’s founder.
“The government’s arguments focused on the crisis that consumed FTX in 2022 when, in fact, money had been misappropriated when customers sought to make withdrawals that FTX had assured them they could 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 he also argued that even if the defense had faced more objections than his team, none were so egregious as to change the outcome of the trial.
And in contrast to the various lines of questioning the judges had for Shapiro, the judges spent most of their time with Rehn asking him specifically about the amount of the forfeiture ($11 billion) and what it actually served.
“If one of the factors we consider is the harm to the victims, and if it is possible that in this case all the victims will be recovered, how can this figure of 11 billion dollars be justified?” Judge Lee asked.
Rehn said the amount represented the value FTX victims lost overall, and that the funds were intended to support the FTX bankruptcy estate’s efforts to pay its creditors.
“I want to highlight an important aspect of this, which is that customers’ bankruptcy claims 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 those victims are nowhere near being compensated in bankruptcy, and in a realistic economic sense, they are being compensated as a percentage of the dollar value of their Bitcoin balances as of November 2022.”
The panel did not explicitly state one way or another how they might rule on the appeal motion itself, and it may take some time for them to release an opinion.
In other court cases:
- 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 maximum legal sentence for that charge and the one prosecutors requested. 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 “accepted” the fact that he had “engaged over a period of years in very serious antisocial criminal behavior,” based on a letter he had written to support his sentencing memorandum. 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 night after the jury trying 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 cryptocurrency by exploiting MEV-boost (maximum extractable value), software that allows Ethereum traders to preview upcoming transactions. The trial began in mid-October.
This week
- There are no hearings or events organized by regulators scheduled for this week. The House of Representatives will remain out of session for another week, while the Senate will resume sessions on 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!
