Bankman-Fried’s Prospects for Exoneration Look Dim as Defense Winds Up Case, Legal Expert Says

Courtroom sketch of FTX founder Sam Bankman-Fried during his fraud trial at the federal court in New York, on Oct. 31, 2023. (Jane Rosenberg/Reuters)

News Analysis

Sam Bankman-Fried once again tried to skirt responsibility for cryptocurrency exchange FTX’s November 2022 implosion and the loss of billions of dollars in customer funds during the concluding phases of his testimony in a Manhattan federal court on Wednesday.

His risky decision to take the stand, and his legal maneuvers while his own defense team and government prosecutors questioned him about his actions as head of FTX and what he knew or did not know, are unlikely to make much difference in the outcome of the trial, a business law expert told The Epoch Times.

Going Out on a Limb

The final round of Mr. Bankman-Fried’s testimony contained a number of surprising revelations along with some predictable ones.

Mr. Bankman-Fried repeated some of the familiar claims from his time on the stand on Monday, blaming his former girlfriend Caroline Ellison for the growing liquidity crisis at FTX and the hedge fund Alameda Research, of which she was head. According to sources present in the courtroom, he continued to argue that willful neglect rather than conscious malfeasance was to blame, suggesting that Ms. Ellison and colleague Sam Trabucco ran the show at Alameda from day to day. Mr. Bankman-Fried also claimed ignorance of what his subordinates did with the $8 billion of FTX funds that Alameda came to hold.

This portion of Mr. Bankman-Fried’s testimony contained little that would come as a surprise to those who have followed the trial up to now. His comments are of a piece with a general stance asserting that he meant well and was in over his head at times, and the inexperience and ineptitude of those to whom he had delegated responsibilities—along with some admitted mistakes on his own part—doomed the exchange.

Somewhat more surprising is the revelation, noted in The Wall Street Journal, of the content of a sidebar huddle that took place yesterday involving the defense and prosecution teams along with Judge Lewis Kaplan. According to a transcript of the exchange, defense witnesses sought to introduce as evidence a passage in popular business writer Michael Lewis’s book Going Infinite. The passage quotes a conversation in which Mr. Bankman-Fried purportedly told a colleague that he believed neither the colleague nor he himself had done anything wrong in the running of FTX.

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Judge Kaplan sustained prosecutors’ objection to the presentation of such a form of evidence in court. The fact that Bankman-Fried’s legal team would attempt such a ploy—presenting a hearsay account, from a journalist not present in court and not under oath, of a conversation that supposedly took place years before—suggests how desperate the defense has grown and how dim the prospects of exonerating Mr. Bankman-Fried through traditional witness testimony now look.

FTX founder Sam Bankman-Fried leaves the U.S. federal courthouse in New York, on March 30, 2023. (Ed Jones/AFP via Getty Images)

‘An Open-and-Shut Case’

The defense may have resorted to desperate steps, from putting Mr. Bankman-Fried on the stand in the first place, to pleading ignorance, to trying to curry favor by citing the legally immaterial work of a bestselling author, because the facts in the case are plain and, legally speaking, there is not really much room to maneuver.

The outcome of the case is not really in doubt at this stage, and things do not look promising for the former high-flying mogul and political influencer who founded and ran—or, as he now claims, failed to run—FTX.

That’s the view of Charles Steele, chair of the department of economics, business, and accounting at Hillsdale College in Michigan. “It seems to me to be an open-and-shut case. It’s clear Samuel Bankman-Fried diverted clients’ funds to other uses; it’s really just a kind of theft,” Mr. Steele told The Epoch Times.

Mr. Steele also illustrated this point with an analogy.

“He [Bankman-Fried] says he simply ‘borrowed’ the funds. If a banker were to take depositors’ funds and put them on the roulette wheel in Vegas and then say he was just ‘borrowing’ them, it would not be a successful defense, and it won’t be here, either,” Mr. Steele said.

Moreover, in claiming he lacked direct oversight of what subordinates did, Mr. Bankman-Fried is not really dodging responsibility. Rather, he is opening himself up to the highly serious charge of failing to implement and maintain proper management procedures and undertake critical risk assessments, Steele commented.

“Bankman-Fried admits he had no idea what he was doing. He completely abandoned his fiduciary responsibilities to his clients,” said Mr. Steele.

Unanswered Questions

Many view the case of FTX and Sam Bankman-Fried as the sordid tale of a young man who got in over his head and, whether through negligence or scienter—i.e., culpable wrongful intent—crashed a cryptocurrency exchange and left customers seeking to recoup $3 billion in vanished funds.

But Mr. Bankman-Fried’s extensive political connections, and his familial relationships, still have not gotten the scrutiny they deserve, Steele believes.

“While it is somewhat amusing to see how utterly incompetent he is, there are some more sinister things here. Mr. Bankman-Fried was a major donor to the Democrat Party, and much of what he was doing has the appearance of money laundering,” Steele commented.

At the height of his fame and fortune, Mr. Bankman-Fried was one of the most active and generous Democrat Party donors in the world. He gave $6 million to the pro-Democrat House Majority PAC, $250,000 to the Democratic Congressional Campaign Committee, and $66,500 to the Democratic Senatorial Campaign Committee, records reveal. The former FTX chief also donated to Republicans but in smaller numbers.

Mr. Bankman-Fried’s self-promotion as an expert on cryptocurrency, and how best to regulate the crypto market, is well known. A New York magazine cover story from August 2022 on the troubles of another exchange, Three Arrows Capital, even quoted Mr. Bankman-Fried.

This stance may have been a self-serving ruse aimed at influencing politicians and regulators to take a more lax and laissez-faire approach to the market where Mr. Bankman-Fried built his fortune, Mr. Steele suggested.

But were one eccentric young man’s outsized ambitions the only factor at work here? Mr. Steele isn’t convinced at all.

“His parents are law professors at Stanford, and the parents of his then-girlfriend who ran FTX’s sister company Alameda Research are professors in MIT’s economics department. I would suspect that the parents knew what their kids were up to, and it wouldn’t be surprising if they have been advising them.”

Concluding arguments in the trial may begin as soon as Wednesday, and testimony has avoided the many questions that Bankman-Fried’s rise and fall pose.

“I wonder if we will ever know the full truth about the FTX scheme,” said Mr. Steele.