FTX founder continues to talk, ignoring typical legal strategy

NEW YORK — For federal prosecutors, Sam Bankman-Fried may be the gift that keeps on giving.

After the November collapse of FTX, the cryptocurrency exchange he founded in 2019, Bankman-Fried unexpectedly gave a series of interviews intended to present his version of events. He was indicted in December on charges of perpetrating one of the biggest frauds in US history – and he’s still speaking out, either in person or on the internet.

The atypical chattiness of a criminal defendant probably has Bankman-Fried’s lawyers scratching their heads, or worse. Prosecutors can use any statements, tweets or other communications against him during his trial, which is scheduled for October.

“Prosecutors love when defendants shoot their mouths off,” said Daniel R. Alonso, a former federal prosecutor who is now a white-collar defense attorney. If Bankman-Fried’s pretrial public comments can be proven false at trial, it could undermine his credibility with a jury, he said.

Bankman-Fried’s most immediate concern, however, is a recent private communication. Prosecutors say he sent an encrypted message over the Signal texting app on Jan. 15 to the general counsel of FTX US, a likely government witness. Bankman-Fried will be back in court in New York on Thursday, where a judge could impose new bail restrictions because of what could be seen as an attempt to influence a witness.

Before its collapse, FTX was the world’s second-largest crypto exchange, and Bankman-Fried, 30, was CEO and billionaire several times over, at least on paper. Celebrities and politicians alike vouched for FTX and its founder, and Bankman-Fried was considered a leading figure in the crypto world.

However, the broad collapse of cryptocurrencies last year caused severe financial stress for a number of companies in the crypto universe, from lenders to exchanges to firms focused on investing in digital assets. FTX filed for bankruptcy protection in November after customers withdrew their money in the crypto equivalent of a bank run.

Federal prosecutors have said Bankman-Fried developed “a scheme and artifice to defraud” FTX’s customers and investors from FTX’s inception. They say he illegally diverted their money to cover expenses, debt and risky trades at Alameda Research, the crypto hedge fund he started in 2017, and to make lavish real estate purchases and large political donations.

In interviews and Twitter posts, Bankman-Fried has said he never intended to defraud anyone. He has claimed that it took all his time to run FTX and that he was not aware of the financial problems in the hedge fund until it was too late.

These claims are likely to be refuted by one of the government’s key witnesses. Caroline Ellison, the former CEO of Alameda, has agreed to plead guilty to her role in FTX’s collapse and to testify against Bankman-Fried. In a plea hearing in December, Ellison said she knew FTX had used billions in customer funds to make loans to Alameda and agreed with Bankman-Fried and others to take steps to conceal the nature of the loans.

Gary Wang, who co-founded FTX with Bankman-Fried, also entered into a partnership agreement. During his own proceedings, Wang said he made changes to the computer code to enable the transfer of FTX customer funds to Alameda.

Another allegation often made by Bankman-Fried is that he is trying to help recover money for FTX customers, but that FTX’s new management has cut him off and taken steps, including filing for bankruptcy protection, that could hinder customers in getting the money back.

For example, Bankman-Fried says that when FTX collapsed, outside parties had made financing offers totaling billions of dollars, and if given a few weeks the company could have raised enough money “to make the customers essentially whole.” Instead, it was “strong-armed” into filing for bankruptcy protection with lead law firm Sullivan & Cromwell, a claim the firm rejects.

Bankman-Fried has also often taken issue with decisions made by FTX’s new CEO, John Ray. Bankman-Fried has often argued that FTX’s US operations, which were significantly smaller than its international operations, were solvent at the time of the bankruptcy filing, a claim Ray disputes.

“I’m still waiting for him to finally admit that FTX US is solvent and give customers their money back,” Bankman-Fried tweeted on January 19.

Bankman-Fried was scheduled to testify under oath before Congress in December with Ray, but that appearance was canceled due to his arrest in the Bahamas, where FTX is based.

“The real risk Bankman-Fried runs by making public comments ‘explaining’ what happened is that they could be seen as continued efforts to mislead investors by regulators and prosecutors,” said Jeff Linehan, a former prosecutor in Treasury Department in New York. The State Attorney’s Office. Linehan is now a defense lawyer.

Bankman-Fried’s comments at the time of FTX’s collapse may also come back to haunt him. On November 7, as customers furiously demanded their money back, he tweeted “FTX is fine. Assets are fine.” He deleted the tweet the next day. On November 11, FTX filed for Chapter 11.

Through a spokesman, Bankman-Fried declined to comment for this article.

Some defendants will go through their entire legal ordeal without saying anything that isn’t first approved by their attorneys. Even putting defendants on the witness stand at trial has long been viewed by defense attorneys as a last resort because it opens them up to questioning by prosecutors and often does more harm than good.

“When the prosecution prepares its case, it’s very important to figure out what the defense’s strategy might be, and a defense wants to keep that strategy under wraps as much as possible,” said Alonso, the former federal prosecutor.

Bankman-Fried faces decades in prison if convicted on all counts. Even if he were to agree to a plea bargain, a judge would have full discretion as to what sentence to impose. If the judge doesn’t believe Bankman-Fried is truly sorry for his actions, based in part on his public statements, he could ignore prosecutors’ recommendations and impose a harsher sentence, legal experts say.

Before FTX collapsed, Bankman-Fried had built up a gigantic public persona. He often spoke to reporters, testified before Congress and appeared at conferences to advocate for cryptocurrencies and his company. He gave millions of dollars to political candidates and advocated for charitable causes such as food issues in the Bahamas. It can be difficult to give up that kind of public influence.

“Some people just can’t help themselves,” Alonso said.