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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 just isn’t a felony, the lawyer declared, and each choice that led to the collapse of his FTX crypto trade 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 high lieutenants and directing them to deal with buyer deposits as if FTX have been a piggy financial institution.
The testimony has dealt a blow to Mr. Bankman-Fried’s “good religion” protection, which will likely 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 court docket 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 specialists stated, it was all however inevitable that Mr. Bankman-Fried would wish to inform the jury his aspect of the story.
“There’s nothing revelatory to say that is an uphill battle,” stated Caroline Polisi, a felony protection lawyer. “The prosecution has finished 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 court docket. He was the face of FTX and in addition based a crypto buying and selling agency, Alameda Analysis, the place FTX buyer deposits have 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 to date, his trial seems to have gone even worse for Mr. Bankman-Fried than anticipated, authorized specialists stated. Over the previous few weeks, prosecutors have forged the case as a garden-variety fraud investigation. They’ve caught to comparatively easy ideas and used solely a handful of the difficult monetary stream charts that may be onerous for juries to decipher.
Prosecutors have additionally known as fewer witnesses than anticipated, and plenty of of them obtained 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 felony instances, attorneys normally advise their purchasers to not testify due to the possibility that prosecutors would possibly journey them up on cross-examination.
“Any headway the protection has made within the case evaporates,” stated Michael Bachner, a felony protection lawyer and former assistant district lawyer in Manhattan. “But when the case just isn’t going properly, there’s not a lot to lose.”
With Mr. Bankman-Fried’s proclivity for speaking and his previous potential to appeal main buyers, he could have merely concluded that he’s the most effective individual to promote his story to the jury, authorized specialists stated.
“Up till now, the case has been completely concerning the cooperators” who agreed to testify towards 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 would possibly confuse the jury. He additionally curtailed some authorized arguments that Mr. Bankman-Fried’s attorneys needed to lift, together with the declare that prosecutors relied too closely on one in all FTX’s outdoors legislation companies in constructing its case.
After the trial started, Decide Kaplan saved a good leash on Mr. Bankman-Fried’s attorneys, interrupting their questioning of prosecution witnesses and sometimes overruling their objections.
“Counsel, once I rule, that’s the tip of the dialogue,” Decide Kaplan informed Mr. Cohen at one level. “Might 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 mates, three of whom had pleaded responsible within the case and agreed to cooperate with prosecutors. They informed the jury that Mr. Bankman-Fried had identified for at the very least six months that FTX wouldn’t be capable of 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 conventional guidelines of operating a enterprise utilized to him. Nishad Singh, an FTX government who has additionally pleaded responsible, stated his former boss had spent extravagantly even because the trade careened towards collapse. And Gary Wang, an FTX co-founder and the third cooperator, stated Mr. Bankman-Fried had directed him to write down pc code that enabled the theft of buyer deposits.
Once they questioned Ms. Ellison, Mr. Singh and Mr. Wang, they centered on the witnesses’ motivation for pleading responsible. The attorneys tried suggesting that the three have 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 instances, their trial testimony differed from notes taken months in the past by F.B.I. brokers.
However time and again, prosecutors interrupted the stream 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 a couple of providing comparable testimony, stated John P. Fishwick Jr., a former U.S. lawyer for the Western District of Virginia.
“When you have got three firm insiders who’re cooperators, that may be a heavy elevate on cross-examination,” he stated.
Elizabeth Holmes, the founding father of the failed blood-testing firm Theranos, used an analogous “good religion” protection in her felony fraud trial in 2021. She was accused of defrauding buyers and sufferers by mendacity that Theranos’s blood-testing gadget labored. (It didn’t.) Her attorneys argued that any dangerous enterprise selections had been pushed by a need to construct a workable gadget and weren’t supposed to deceive her rich buyers.
“It’s trying a bit like Elizabeth Holmes’s protection,” Ms. Polisi stated of the declare by Mr. Bankman-Fried’s attorneys that his enterprise selections have been cheap. “They’re making an attempt to painting him as a little bit of a hapless younger man who bought in over his head and didn’t have the dangerous intention that prosecutors are assigning to him.”
Ms. Holmes testified at her trial that she was manipulated by her a lot older enterprise companion, 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 needed to cease dangerous information from getting out.
Ms. Holmes was convicted on securities fraud fees in January 2022 and sentenced to greater than 11 years in a federal jail.
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