NEW YORK — Former FTX CEO Sam Bankman-Fried’s chances of getting a fresh trial seem to be dwindling, judging by the pointed questions of an appellate court during a hearing in Manhattan on Tuesday.
Bankman-Fried’s lawyer Alexandra Shapiro told the trio of Second Circuit judges that the high-profile trial was “fundamentally unfair” because her client was prevented by District Judge Lewis Kaplan 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 following its spectacular collapse in November 2022.
Bankman-Fried’s push for a new trial largely hinges on his long-standing argument that, because the majority of FTX creditors were made whole in the ongoing bankruptcy process — which has heavily relied on the sale of illiquid assets including real estate and venture capital investments — that there was, in fact, no actual theft.
During Shapiro’s presentation, the appellate judges repeatedly cut in to question her arguments.
“There’s a right to present evidence as to his intent, absolutely, but I don’t understand what you’re saying about there [being] objective corroboration, when the objective corroboration seems to be that, well, after the bankruptcy, more money was made,” said Circuit Judge Eunice Lee.
When Shapiro responded 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 view that the [FTX and Alameda Research] were solvent,” another judge, Circuit Judge Maria Araújo Kahn, pushed back, saying:
“But [Bankman-Fried’s] misrepresentations were not to solvency, but liquidity … part of the government’s theory of the case is that the defendant misrepresented to investors that their money was safe, was not being used in the way that it was the government claims and the jury convicted it was, in fact, used. So it wasn’t an issue of solvency, right? It was an issue of liquidity, whether they could get their money if they asked for it.”
Judge Kahn pointed out that a recent Supreme Court decision, Kousisis v. United States, found that fraud need not necessarily 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. Though Shapiro said that Bankman-Fried was not technically relying on an advice-of-counsel defense (in which the defendant claims that they cannot be held liable for fraud because they acted in good faith and relied on the advice of lawyers), he was legally entitled to “present a defense based on the involvement of lawyers, whether or not he is claiming to have specifically relied on their advice.”
“It’s evidence of good faith, and [Bankman-Fried] was entitled to present 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 customers were told to wire money in order to trade on the exchange.
“How is that relevant to any of the counts in the indictment?” interrupted Circuit Judge Barrington Parker. “The fact that an attorney drafted a certificate of incorporation or drafted an agreement between two of the subsidiaries —help me understand how that is evidence relevant to any of the counts?”
Shapiro urged the court to consider the “cumulative picture” of Bankman-Fried’s decision-making.
“The government claimed these entities were set up to take customer money so that the defendant could use it as he pleased,” Shapiro said. “So the fact that lawyers were involved in creating the entities, lawyers were involved in drafting the contract whereby the funds were deposited in those bank accounts for the benefit of FTX customers — of course, that’s all relevant to the defendant’s good faith.”
While both Judges Lee and Parker acknowledged that there was “some relevance” to the involvement of FTX lawyers, they pointed out that Bankman-Fried specifically chose not to advance an advice-of-counsel defense.
“If you had advanced the advice-of-counsel defense, a lot of this stuff, I agree, would have been much more probative, but you gave that up, and you just have this vague, you know, ‘there were attorneys out there somewhere,’ defense,” Parker said, adding that he wasn’t clear how it was evidence of Bankman-Fried’s supposed “good faith” that FTX had lawyers on staff.
“Are you seriously suggesting to us that if your client had been able to
testify about the role that attorneys played in creating these various documents, the ‘not guilties’ would have rolled in?” Parker asked.
Shapiro said that Bankman-Fried’s inability to tell the jury about his lawyers’ involvement, combined with what she described as Judge Kaplan’s “asymmetric rulings on loss,” had a cumulative effect on the trial outcome.
Parker pushed back, saying: “This was a high profile trial, both sides represented by able counsel. There was the usual back and forth and aggressive up-to-the-line advocacy. You won some things, you lost some things. And, I mean, it almost seems at times that you’re spending more ink on Judge Kaplan than you are on the
merits.”
“I don’t agree at all, your Honor,” Shapiro said.
Prosecutors push back
Assistant U.S. Attorney Nathan Rehn, one of lead prosecutors in Bankman-Fried’s original trial, told the appellate court that the jury had been presented with “overwhelming evidence” that the former FTX CEO had committed a large-scale fraud on the exchange’s customers.
“None of the claims that Bankman-Fried raises on appeal provide any basis to overturn the conviction in this case, especially in light of the overwhelming evidence that was presented at trial,” he said.
Rehn argued that what Judge Kaplan prevented Bankman-Fried from testifying about at trial was the present-day value of certain investments that Bankman-Fried had directed to be made with customer money.
“As this court has affirmed for decades, evidence about the potential ultimate recovery for victims or the defendant’s belief in the potential ultimate recovery for victims is simply not a defense to fraud,” Rehn said. “The government didn’t make the argument that the money was gone forever. The government’s arguments were focused on the crisis that consumed FTX in 2022 when, in fact, the money had been misappropriated when customers were seeking to make the withdrawals that they had been assured by FTX they would be able to make, and that would be available to them, and they weren’t able 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, saying that many of the defense’s arguments at trial were “meritless, and so the court appropriately ruled against the defense on those.”“Even if there had been any error, and we submit there wasn’t … this is a case if ever there was one where 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. Everybody else testified that they had no idea because they had relied on Sam Bankman-Fried’s representations that that wasn’t what was happening inside of 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 might have led to a different result at this trial simply can’t be sustained on this record.”
The panel did not make a ruling during Tuesday’s hearing. Appeals court rulings may sometimes publish months after the hearings themselves.
