by NEW YORK (AP) — 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 aimed at presenting his version of events. He was indicted in December and charged with perpetrating one of the largest frauds in US history — and he’s still speaking out, in person or on the Internet.
The talkativeness atypical for a criminal defendant is probably making Bankman-Fried’s lawyers scratch their heads, or worse. Prosecutors can use any statement, tweet or other communication against him during his trial, which is scheduled for October.
“Prosecutors love it when defendants open-mouthed shoot,” said Daniel R. Alonso, a former federal prosecutor who is now a white-collar defense attorney. If Bankman-Fried’s public comments before the trial can be proven false during the trial, it could undermine his credibility with a jury, he said.
Bankman-Fried’s more immediate concern, however, is a recent private communication. Prosecutors say he sent an encrypted message via messaging app Signal to the general counsel of FTX US on Jan. 15, a likely government witness. Bankman-Fried will return to a New York court 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 second largest cryptocurrency exchange in the world, and Bankman-Fried, 30, was its CEO and a multiple-time billionaire, at least on paper. Celebrities and politicians alike vouched for FTX and its founder, and Bankman-Fried was considered a leading figure in the cryptocurrency world.
However, the broad cryptocurrency crash last year has placed severe financial stress on numerous companies in the cryptocurrency space, from lenders to exchanges to companies focused on investing in digital assets. FTX sought bankruptcy protection in November after clients withdrew their money in the crypto equivalent of a bank run.
Federal prosecutors said Bankman-Fried had been masterminding “a scheme and contrivance to defraud” FTX’s clients and investors since FTX’s inception. They say he illegally diverted their money to cover expenses, debt and risky trades at Alameda Research, the cryptocurrency hedge fund he started in 2017, and to make lavish real estate purchases and large political donations.
In interviews and Twitter posts, Bankman-Fried said he never intended to defraud anyone. He argued that managing FTX took up all of his time and that he didn’t know about the hedge fund’s financial problems until it was too late.
Those 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 the collapse of FTX and testify against Bankman-Fried. At an appeals hearing in December, Ellison said he knew FTX had used billions in client 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, has also entered into a cooperation agreement. During his own hearing, Wang said he made changes to computer code to allow FTX customers’ funds to be transferred to Alameda.
Another claim Bankman-Fried often makes is that he is trying to help recover funds for FTX clients, but that FTX’s new management has cut him off and taken steps, including filing for bankruptcy protection, that could prevent customers to get their money back.
For example, Bankman-Fried says that when FTX collapsed, outside parties had made funding offers totaling billions of dollars, and if given a few weeks, the company could have raised enough cash “to make customers substantially integers”. Instead, he was “forcefully armed” into filing for bankruptcy protection by his lead law firm, Sullivan & Cromwell, a claim the firm denies.
Bankman-Fried has also frequently contested decisions made by FTX’s new CEO, John Ray. Bankman-Fried has frequently claimed that FTX’s US operation, which was considerably smaller than its international operations, was solvent at the time it filed for bankruptcy, a claim Ray disputes.
“Still waiting for him to finally admit FTX US is creditworthy and give customers money back,” Bankman-Fried tweeted on Jan. 19.
Bankman-Fried was supposed 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 takes in making public comments that ‘explain’ what happened is that they could be seen as ongoing attempts by regulators and prosecutors to mislead investors,” said Jeff Linehan, a former prosecutor in the financial crimes division of the New York State Attorney General. Linehan is now a criminal defense attorney.
Bankman-Fried’s comments at the time of FTX’s collapse could also come back to haunt him. On Nov. 7, as customers furiously demanded their money back, he tweeted “FTX is fine. The goods are fine. He deleted the tweet the next day. On Nov. 11, FTX filed for Chapter 11.
Through a spokesperson, Bankman-Fried declined to comment on this article.
Some defendants will go through the entire legal ordeal without saying anything that wasn’t first authorized by their attorneys. Putting defendants on the stand at trial has also long been seen by defense attorneys as an option of last resort because it opens them up to questioning by prosecutors and often does more harm than good.
“As the prosecution prepares its case, it’s really important to understand 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 the possibility of decades in prison if convicted on all counts. Even if he were to take a plea deal, a judge would have full discretion as to what sentence to impose. If the judge doesn’t believe Bankman-Fried is genuinely sorry for his actions, based in part on his public statements, she could ignore the prosecution’s recommendations and impose a harsher sentence, legal experts say.
Before FTX collapsed, Bankman-Fried had built a giant public persona. He has spoken frequently with reporters, testified before Congress, and appeared at conferences to defend cryptocurrencies and his company. He has donated millions of dollars to political candidates and supported charities such as food issues in the Bahamas. It might be hard to give up that kind of public influence.
“Some people just can’t help themselves,” Alonso said.
