On the second day of Sam Bankman-Fried’s fraud trial this month, one of many attorneys for the cryptocurrency mogul delivered an emphatic message to the jury. Mr. Bankman-Fried is just not a legal, the lawyer declared, and each choice that led to the collapse of his FTX crypto alternate 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 12 months. He lied repeatedly, they stated, operating 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 shall be put to the take a look at this week. Federal prosecutors are scheduled to relaxation their case on Thursday morning, and the FTX founder’s attorneys are then set to name 4 witness in federal courtroom 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 may 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 wish to inform the jury his facet of the story.
“There’s nothing revelatory to say that is an uphill battle,” stated Caroline Polisi, a legal protection lawyer. “The prosecution has achieved 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 courtroom. He was the face of FTX and in addition 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 thus far, 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 circulate charts that may be exhausting for juries to decipher.
Prosecutors have additionally known as fewer witnesses than anticipated, and plenty of of them acquired solely minimal pushback from Mr. Bankman-Fried’s attorneys. 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 legal circumstances, attorneys normally advise their shoppers to not testify due to the prospect that prosecutors may journey them up on cross-examination.
“Any headway the protection has made within the case evaporates,” stated Michael Bachner, a legal protection lawyer and former assistant district lawyer in Manhattan. “But when the case is just not going nicely, there’s not a lot to lose.”
With Mr. Bankman-Fried’s proclivity for speaking and his previous means to allure main traders, he might have merely concluded that he’s one of the best individual to promote his story to the jury, authorized consultants stated.
“Up till the now the case has been completely 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 attorneys.
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 attorneys wished to boost, together with the declare that prosecutors relied too closely on one in all FTX’s exterior regulation companies in constructing its case.
After the trial started, Decide Kaplan stored a good leash on Mr. Bankman-Fried’s attorneys, interrupting their questioning of prosecution witnesses and sometimes overruling their objections.
“Counsel, after I rule, that’s the tip of the dialogue,” Decide Kaplan instructed 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 buddies, three of whom had pleaded responsible within the case and agreed to cooperate with prosecutors. They instructed the jury that Mr. Bankman-Fried had recognized for not less than 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 prospects, testified that Mr. Bankman-Fried didn’t consider that the traditional guidelines of operating a enterprise utilized to him. Nishad Singh, an FTX govt who has additionally pleaded responsible, stated his former boss had spent extravagantly even because the alternate careened towards collapse. And Gary Wang, an FTX co-founder and the third cooperator, stated Mr. Bankman-Fried had directed him to write down laptop code that enabled the theft of buyer deposits.
Once they questioned Ms. Ellison, Mr. Singh and Mr. Wang, they targeted on the witnesses’ motivation for pleading responsible. The attorneys 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 time and again, prosecutors interrupted the circulate of questions with objections, forcing Mr. Cohen to maneuver backwards and forwards 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 supposed to assault Ms. Ellison’s credibility throughout her cross-examination.
When Mr. Singh was on the stand, Mr. Cohen bought 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 impression when prosecutors have multiple providing comparable testimony, stated John P. Fishwick Jr., a former U.S. lawyer for the Western District of Virginia.
“When you could have three firm insiders who’re cooperators, that may be a heavy carry 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 legal 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 attorneys argued that any unhealthy enterprise choices had been pushed by a need to construct a workable system and weren’t supposed to deceive her rich traders.
“It’s wanting a bit like Elizabeth Holmes’s protection,” Ms. Polisi stated of the declare by Mr. Bankman-Fried’s attorneys that his enterprise choices had been cheap. “They’re attempting to painting him as a little bit of a hapless younger man who bought in over his head and didn’t have the unhealthy intention that prosecutors are assigning to him.”
Ms. Holmes testified at her trial that she was manipulated by her a lot older enterprise accomplice, 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 workers who grew to become whistle-blowers, exhibiting that she wished to cease unhealthy information from getting out.
Ms. Holmes was convicted on securities fraud costs in January 2022 and sentenced to greater than 11 years in a federal jail.