The Challenges Facing Sam Bankman-Fried’s Lawyers

Comply with stay protection of Sam Bankman-Fried’s testimony within the FTX fraud case.

On the second day of Sam Bankman-Fried’s fraud trial this month, one of many legal professionals for the cryptocurrency mogul delivered an emphatic message to the jury. Mr. Bankman-Fried will not be a prison, the lawyer declared, and each resolution that led to the collapse of his FTX crypto trade had been made in “good religion.”

That message has since been clouded by greater than two weeks of testimony from 15 authorities witnesses, most of whom have blamed Mr. Bankman-Fried for FTX’s spectacular implosion final yr. He lied repeatedly, they stated, working roughshod over his prime lieutenants and directing them to deal with buyer deposits as if FTX had been a piggy financial institution.

The testimony has dealt a blow to Mr. Bankman-Fried’s “good religion” protection, which will probably be put to the check this week. Federal prosecutors are scheduled to relaxation their case on Thursday morning, and the FTX founder’s legal professionals are then set to name 4 witness in federal court docket in Manhattan — together with Mr. Bankman-Fried, who has pleaded not responsible to seven counts of fraud, conspiracy and cash laundering.

At a listening to on Wednesday, Mark Cohen, a protection lawyer, confirmed that Mr. Bankman-Fried, 31, would take the stand. That could be a dangerous transfer for any defendant. However given the prosecution’s success in constructing its case, authorized consultants stated, it was all however inevitable that Mr. Bankman-Fried would need to inform the jury his facet of the story.

“There’s nothing revelatory to say that is an uphill battle,” stated Caroline Polisi, a prison protection lawyer. “The prosecution has performed a great job.”

Mark Botnick, a spokesman for Mr. Bankman-Fried, declined to remark.

From the start of Mr. Bankman-Fried’s case, he was anticipated to face main hurdles in court docket. He was the face of FTX and likewise based a crypto buying and selling agency, Alameda Analysis, the place FTX buyer deposits had been redirected. Prosecutors have charged him with orchestrating an unlimited scheme to make use of these deposits to finance enterprise investments, actual property purchases and different spending.

However to date, his trial seems to have gone even worse for Mr. Bankman-Fried than anticipated, authorized consultants stated. Over the previous few weeks, prosecutors have solid the case as a garden-variety fraud investigation. They’ve caught to comparatively easy ideas and used solely a handful of the difficult monetary circulation charts that may be arduous for juries to decipher.

Prosecutors have additionally referred to as fewer witnesses than anticipated, and lots of of them obtained solely minimal pushback from Mr. Bankman-Fried’s legal professionals. A trial that was anticipated to final six weeks may now wrap up inside a month.

Mr. Bankman-Fried’s testimony may create new dangers for the protection. In prison circumstances, legal professionals normally advise their shoppers to not testify due to the possibility that prosecutors may journey them up on cross-examination.

“Any headway the protection has made within the case evaporates,” stated Michael Bachner, a prison protection lawyer and former assistant district legal professional in Manhattan. “But when the case will not be going properly, there may be not a lot to lose.”

With Mr. Bankman-Fried’s proclivity for speaking and his previous skill to allure main traders, he might have merely concluded that he’s one of the best particular person to promote his story to the jury, authorized consultants stated.

“Up till now, the case has been solely concerning the cooperators” who agreed to testify in opposition to Mr. Bankman-Fried, stated Daniel Richman, a former federal prosecutor who now teaches at Columbia College. “When he testifies, it turns into about him.”

Even earlier than the trial, obstacles had piled up for Mr. Bankman-Fried’s legal professionals.

In a pretrial ruling in September, Lewis A. Kaplan, the federal choose overseeing the case, sharply restricted the variety of skilled witnesses the protection may name, stating that the proposed testimony was irrelevant or may confuse the jury. He additionally curtailed some authorized arguments that Mr. Bankman-Fried’s legal professionals needed to lift, together with the declare that prosecutors relied too closely on one among FTX’s exterior regulation companies in constructing its case.

After the trial started, Choose Kaplan saved a good leash on Mr. Bankman-Fried’s legal professionals, interrupting their questioning of prosecution witnesses and infrequently overruling their objections.

“Counsel, after I rule, that’s the tip of the dialogue,” Choose Kaplan advised Mr. Cohen at one level. “May we agree on that?”

However nothing has been as damaging because the testimony from about half a dozen of Mr. Bankman-Fried’s closest advisers and pals, three of whom had pleaded responsible within the case and agreed to cooperate with prosecutors. They advised the jury that Mr. Bankman-Fried had identified for at the very least six months that FTX wouldn’t have the ability to return $8 billion in buyer cash that Alameda had borrowed.

Caroline Ellison, who ran Alameda and has pleaded responsible to serving to steal cash from FTX clients, testified that Mr. Bankman-Fried didn’t consider that the traditional guidelines of working a enterprise utilized to him. Nishad Singh, an FTX government who has additionally pleaded responsible, stated his former boss had spent extravagantly even because the trade careened towards collapse. And Gary Wang, an FTX co-founder and the third cooperator, stated Mr. Bankman-Fried had directed him to jot down laptop code that enabled the theft of buyer deposits.

After they questioned Ms. Ellison, Mr. Singh and Mr. Wang, they centered on the witnesses’ motivation for pleading responsible. The legal professionals tried suggesting that the three had been telling damaging tales about Mr. Bankman-Fried to keep away from jail time. They identified that every cooperator had met with the federal government dozens of occasions and that in some circumstances, their trial testimony differed from notes taken months in the past by F.B.I. brokers.

However again and again, prosecutors interrupted the circulation of questions with objections, forcing Mr. Cohen to maneuver forwards and backwards within the chronology of FTX’s rise and fall as he tried to weave a story. Prosecutors additionally blocked the protection from presenting the jury with a doc meant to assault Ms. Ellison’s credibility throughout her cross-examination.

When Mr. Singh was on the stand, Mr. Cohen received him to acknowledge that he used an organization mortgage to purchase a home final October — a month after he had grown distraught, he stated, concerning the obvious theft of FTX buyer cash.

However questioning the motivation of cooperating witnesses tends to lose its affect when prosecutors have multiple providing comparable testimony, stated John P. Fishwick Jr., a former U.S. legal professional for the Western District of Virginia.

“When you will have three firm insiders who’re cooperators, that may be a heavy raise on cross-examination,” he stated.

Elizabeth Holmes, the founding father of the failed blood-testing firm Theranos, used the same “good religion” protection in her prison fraud trial in 2021. She was accused of defrauding traders and sufferers by mendacity that Theranos’s blood-testing system labored. (It didn’t.) Her legal professionals argued that any dangerous enterprise selections had been pushed by a want to construct a workable system and weren’t meant to deceive her rich traders.

“It’s trying a bit like Elizabeth Holmes’s protection,” Ms. Polisi stated of the declare by Mr. Bankman-Fried’s legal professionals that his enterprise selections had been affordable. “They’re attempting to painting him as a little bit of a hapless younger man who received in over his head and didn’t have the dangerous intention that prosecutors are assigning to him.”

Ms. Holmes testified at her trial that she was manipulated by her a lot older enterprise associate, who was additionally her former boyfriend. However the testimony backfired, giving prosecutors a gap to query Ms. Holmes about her makes an attempt to muzzle Theranos staff who turned whistle-blowers, exhibiting that she needed to cease dangerous information from getting out.

Ms. Holmes was convicted on securities fraud expenses in January 2022 and sentenced to greater than 11 years in a federal jail.