Anne Laurie

Judge limits blame-the-lawyers defense

As the FT article said, “Bankman-Fried’s lawyers will probably try to undermine the credibility of the witnesses, pointing to their past relationships and the leniency they hope to receive in exchange for cooperating.” A “spree of interviews and filings by his legal team suggest his defense strategy will involve casting blame on others, including Ellison and FTX’s lawyers. He has said he was unaware of crucial details of the financial engineering behind the scenes of his empire, and that he never intended to defraud anyone.”

Bankman-Fried’s ability to blame FTX lawyers will be limited to some extent. An order by Kaplan yesterday partially granted a government motion related to the “advice-of-counsel defense” in which SBF could argue that he sought advice from company lawyers, received advice that his conduct was legal, and “relied on that advice in good faith.”…

SBF himself may not testify. “It would be foolhardy for Bankman-Fried to testify. He’s shown himself to be very erratic,” Bradley Simon, a former assistant US attorney and a criminal defense lawyer at Schlam Stone & Dolan, told FT. “Presumably his counsel are telling him that’s out of the question. But sometimes clients don’t listen.”

SBF has thirty years’ experience talking his way out of consequences for his behavior; it’ll take some very stern advice indeed to convince a professional grifter with his educational background *not* to try bamboozling a jury of mere non-effectively-altruistic mortals. But then again, Rikers Island has its own severe educational effects!

The week before his trial starts, disgraced FTX CEO Sam Bankman-Fried huddles with lawyers, subsists on peanut butter—and asks the judge for more Adderall. https://t.co/UnP6gwLslU

— Fast Company (@FastCompany) September 28, 2023

Inside the Metropolitan Detention Center, the Brooklyn jail where he is being held, Sam Bankman-Fried, once the head of a multibillion-dollar crypto empire, sounds as if he’s being treated like most inmates there—which is to say, shabbily. Arrested on federal fraud charges in December, after the collapse and bankruptcies of his hedge fund Alameda Research, his crypto exchange FTX, and related companies, Bankman-Fried was out on $250 million bond at first. But the judge overseeing his case revoked bail in August after prosecutors complained of Bankman-Fried’s “escalating evasions of his bail conditions,” and the 31-year-old was jailed.

Nowadays his lawyers have said he’s subsisting on peanut butter sandwiches—alas, Bankman-Fried, who is vegan, can’t eat the “flesh diet” served in jail, one lawyer said. His therapist, who’d also been an executive coach at FTX, wrote the court saying Bankman-Fried had only a small amount of his medications on hand when he was jailed, and needed a consistent supply of Adderall, for ADHD, and Emsam, for depression. (On Monday, his lawyers noted in a filing he’s been getting only a half dose of Adderall.)…

Yet at its core the case is not about emerging technology but rather old-fashioned fraud, with the allegations against Bankman-Fried echoing those of so many white-collar criminals past and present: that he used his company to enrich himself illegally…

Underneath the sophisticated, often befuddling overlay of cryptocurrency, and the whiz-kid reputation of Bankman-Fried, the charges against the FTX founder suggest classic fraud rather than anything particularly innovative. John J. Ray III, an executive appointed to sort out FTX’s affairs in bankruptcy, had also overseen the Enron bankruptcy. At Enron, he told Congress in testimony about FTX in December, “the crimes that were committed . . . were highly orchestrated financial machinations by highly sophisticated people to keep transactions off balance sheets.” At FTX, though, “this is just taking money from customers and using it for your own purpose. . . . This isn’t sophisticated whatsoever. This is just plain old embezzlement.”…

At FTX there was also a startling amount of money spent on random things: $379,013 on catering in September 2022, right before the implosion; and more than $10 million in the first nine months of 2022 for hotels. There were the expenses the company covered: the $2.5 million for an Alameda executive’s boat, the multimillion-dollar transfers for executives’ Bahamas apartments that were titled in their names, its bankruptcy investigators later wrote in court filings. There were the questionable transfers, like tens of millions sent to Bankman-Fried in 2021 and 2022 that were recorded as “Investments in Subsidiaries: Investments-Cryptocurrency.”…

Maybe SBF didn’t use — or at least try to use — this blizzard of bookkeeping to hide away a few untraceable millions for his eventual escape / exoneration. Although it might be hard to convince jurors who’ve ever watched a mobster movie or read an Elmore Leonard novel it was all just innocent mistakes.

"Every cause [Sam Bankman-Fried] sought to serve, he damaged. Every cause he sought to fight, he helped," says Michael Lewis. Sam Bankman-Fried is currently awaiting trial on fraud charges. https://t.co/CGlniPfd9h pic.twitter.com/c4xvQj51z4

— 60 Minutes (@60Minutes) October 1, 2023

Michael Lewis has to be extremely conflicted right now. On the one hand, you couldn’t buy this amount of publicity about his hot-off-the-presses SBF bio. On the other hand, from all reports, SBF conned Lewis every bit as successfully as he did the anonymous punters throwing their bitcoin at him. Per the NYTimes review:

… Is Bankman-Fried guilty?

Mr. Lewis does not offer a “yes” or “no” answer. He depicts Mr. Bankman-Fried as delusional and often callous in his treatment of co-workers, a young entrepreneur who “thought grown-ups were pointless” and left messes for other people to clean up.

But Mr. Lewis also expresses skepticism about the lawyers and executives who were brought in to manage FTX’s bankruptcy and have become some of Mr. Bankman-Fried’s fiercest public critics. Toward the end of the book, Mr. Lewis writes that Mr. Bankman-Fried’s explanations for the collapse of FTX, as implausible as they sound, have “remained irritatingly difficult to disprove.”…

Hey, he fooled a bunch of very smart lawyers. Who was I to get a clearer picture?

The NYTimes also reports that SBF’s fellow ‘crypto experts’ will be more than happy to see him immolated:

… Some insiders believe that a shakeout was necessary. The market had gotten too overheated in 2021, fueling greed, hype and bad ideas, insiders said. But they rued how Mr. Bankman-Fried’s actions destroyed trust in the entire industry.

Yury Lifshits, the founder of the crypto company Superdao, said the narrative connecting FTX’s fraud to the rest of the industry was deserved on some level, since so many crypto projects were guilty of similar shady behaviors. But plenty of legitimate businesses aren’t connected to the FTX situation at all, he said.

Ultimately, a guilty verdict for Mr. Bankman-Fried would make it easy for crypto companies and executives to move on from the whole ugly spectacle.

“It can’t be over soon enough,” Ms. Breitman said. “The only gift this man has given the industry is that he has self-immolated so aggressively.”…

(I strongly suspect the faculty at Stanford won’t regret seeing SBF sent away, either. But that’s a story for another day.)