NEW YORK – Former FTX CEO Sam Bankman-Fried’s chances of getting a new trial appear to be diminishing, judging by pointed questioning 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 District Judge Lewis Kaplan prevented her client from telling the jury his side of the story or presenting the 17 jurors with “objective evidence” that FTX was, in fact, solvent at the time it filed for bankruptcy after its spectacular collapse in November 2022.
Bankman-Fried’s push for a new trial hinges largely on her long-standing argument that because most of FTX’s creditors were indemnified in the ongoing bankruptcy process, which has relied heavily on the sale of illiquid assets, including real estate and venture capital investments, there was actually no actual theft.
During Shapiro’s presentation, appellate judges repeatedly intervened to question his arguments.
“There is a right to present evidence about your intent, absolutely, but I don’t understand what you’re saying about that. [being] objective corroboration, when the objective corroboration appears to be that, well, more money was made after the bankruptcy,” Circuit Judge Eunice Lee said.
When Shapiro responded by saying that it was clear at the time of the bankruptcy that there were “very valuable assets in the FTX estate that corroborated Mr. Bankman-Fried’s opinion that the [FTX and Alameda Research] They were solvent,” responded another judge, Circuit Judge Maria Araújo Kahn, saying:
“But [Bankman-Fried’s] The misrepresentations were not about solvency, but about liquidity…part of the government’s theory of the case is that the defendant misrepresented to investors that their money was safe, that it was not being used the way the government claimed, and the jury found that it was, in fact, used. So it wasn’t a question of solvency, right? “It was a question of liquidity, of whether they could get their money if they asked for it.”
Judge Kahn noted that a recent Supreme Court decision, Kousisis v. United States, concluded that fraud does not necessarily have to result in economic loss to be considered fraud.
Blame the lawyers
Shapiro also attempted to argue that Bankman-Fried’s trial was unfair because he was not allowed to sufficiently argue his position that he was essentially led astray by FTX’s lawyers. Although Shapiro said Bankman-Fried was not technically relying on an advice-of-counsel defense (in which the defendant claims he cannot be held liable for fraud because he acted in good faith and relied on the advice of attorneys), he was legally entitled to “present a defense based on the participation of attorneys, whether or not he claims to have specifically relied on their advice.”
“It is proof of good faith and [Bankman-Fried] “He was entitled to submit that the judge rejected his ability to present evidence about, for example, the formation of the North Dimension entities,” Shapiro added. North Dimension, a wholly owned subsidiary of Alameda Research, was the entity that controlled the bank accounts where FTX clients were required to transfer money to trade on the exchange.
“What relevance does that have to any of the charges in the indictment?” Circuit Judge Barrington Parker interrupted. “Does the fact that an attorney drafted a certificate of incorporation or drafted an agreement between two of the subsidiaries… help me understand why that is relevant evidence to any of the charges?”
Shapiro urged the court to consider the “cumulative picture” of Bankman-Fried’s decision-making.
“The government claimed that these entities were created to receive money from clients so the defendant could use it however he wanted,” Shapiro said. “So the fact that the attorneys were involved in creating the entities, the attorneys were involved in drafting the contract by which the funds were deposited into those bank accounts for the benefit of FTX clients – of course, all of that is 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 noted that Bankman-Fried specifically chose not to present a defense with legal advice.
“If you had moved forward with the defense with legal advice, I agree that a lot of this stuff would have been much more probative, but you gave up on that and you just have this vague defense, you know, ‘there were lawyers somewhere,'” Parker said, adding that it was unclear how it was evidence of Bankman-Fried’s alleged “good faith” that FTX had lawyers on staff.
“Are you seriously suggesting to us that if your client could have
If he had testified about the role the lawyers played in creating these various documents, would the ‘not guilty’ have appeared? —Parker asked.
Shapiro said Bankman-Fried’s failure to inform the jury of her attorneys’ involvement, combined with what she described as Judge Kaplan’s “asymmetric rulings on losses,” had a cumulative effect on the outcome of the trial.
Parker responded by saying, “This was a high-profile trial, both sides represented by capable attorneys. There was the usual back-and-forth and aggressive, in-your-face defense. You won some things, you lost some things. And, I mean, at times it almost seems like you’re spending more ink on Judge Kaplan than on the case.
merits.”
“I don’t agree at all, your honor,” Shapiro said.
Prosecutors reject
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 CEO had committed large-scale fraud against the exchange’s customers.
“None of the claims Bankman-Fried raises in the appeal provide any basis for overturning the conviction in this case, especially in light of the overwhelming evidence presented at trial,” he said.
Rehn argued that what Judge Kaplan prevented Bankman-Fried from testifying at trial was the current value of certain investments that Bankman-Fried had ordered to be made with clients’ money.
“As this court has affirmed for decades, evidence of possible ultimate recovery for victims or a defendant’s belief in possible ultimate recovery for victims is simply not a defense to fraud,” Rehn said. “The government did not argue that the money was gone forever. The government’s arguments focused on the crisis that consumed FTX in 2022 when, in fact, the 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 were unable to do so.”
Judge Parker asked Rehn to comment on Shapiro’s claim that Judge Kaplan was biased in favor of the prosecution. Rehn denied the allegations and said many of the defense’s arguments at trial were “baseless, so the court appropriately ruled against the defense.” “Even if there had been some error, and we claim there was none… this is a case, if ever there was one, in which 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 that fraudulently. All the others testified that they had no idea because they had relied on Sam Bankman-Fried’s statements that that was not what was happening within FTX, and there was abundant documentary evidence to support that, in addition to that overwhelming witness testimony. So the suggestion that any of these errors could have led to a different result in this “The trial simply cannot be supported by this record.”
The panel did not rule during Tuesday’s hearing. Appellate court rulings can sometimes be published months after the hearings themselves.
Read more: Sam Bankman-Fried’s last chance? Appeals court to hear arguments on FTX founder’s new trial motion next week
