This week saw the Second Circuit Court of Appeals hear arguments in Sam Bankman-Fried’s appeal of his criminal conviction. The three-judge panel appeared very skeptical of his attorney’s arguments.
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The narrative
FTX founder Sam Bankman-Fried’s appeal was always going to be an uphill journey. Senior Judge Lewis Kaplan, the Southern District of New York jurist who oversaw the trial, is generally well-respected and the bar for securing a new trial is high.
Why it matters
Short of a presidential pardon (which still seems unlikely), this hearing may have been Bankman-Fried’s last chance at securing an early release from prison. While he’s been posting on the site formerly known as Twitter through a friend, the legal case has wound its way through the appeals process to the November 4 hearing.
Breaking it down
Circuit Judges Eunice Lee, Maria Araújo Kahn and Barrington Parker all appeared skeptical of appellate attorney Alexandra Shapiro’s arguments that Bankman-Fried did not receive a fair trial.
To quickly recap: the appeal centered around the request that the former FTX CEO receive a new trial with a new judge because, in Bankman-Fried and team’s view, Judge Kaplan was biased against him. Bankman-Fried was not allowed to argue that he was listening to lawyers or that FTX’s creditors were going to be made whole, the appeals filing said.
“The defense was cut off at the knees by [Judge Kaplan’s] rulings,” Shapiro said halfway through the hearing.
The judges did not appear to buy these arguments. Judge Kahn asked about whether FTX’s issues were not liquidity, rather than solvency, as well as that a recent Supreme Court precedent held that just taking the funds was sufficient to convict on fraud charges.
“How do you square that with, for example, the recent Supreme Court decision, and other decisions cited in the recent Supreme Court decision that the fact that victims might be whole or weren’t intended to be defrauded, is not a proper defense?” she asked.
Martin Auerbach, of counsel at Withers, told CoinDesk last week that if the panel asked certain questions around that dry run, it could hint that the judges were legitimately concerned about that proceeding.
“If you hear those kinds of questions, then it might lead you to conclude that the court has some concern about the complete impartiality that every defendant is entitled to,” he said.
Shapiro brought it up during the hearing: “the preview hearing itself was completely unprecedented and would set a terrible precedent if permitted that there was an ample disclosure which isn’t required by the rules in the first place.”
Not to overuse the word, but the judges seemed pretty skeptical. Judge Barrington Parker asked, “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 on this record?”
Shapiro even tried to point to news reports (including by yours truly) to support her argument that Judge Kaplan may have put his finger on the scale against Bankman-Fried during the trial.
“I think any objective observer reading this record can see that the rulings are incredibly one-sided,” she said. “I think you’d be hard pressed to point to any significant ruling that the defense won, quite frankly. But the bigger point is that on these two evidentiary issues, they created a very severe asymmetry that prevented Mr. Bankman-Fried from effectively presenting his defense to the jury, that he acted in good faith, that this was a margin exchange, that everyone would have understood that the assets could be loaned out, and that he did not intend to steal anyone’s money.”
Assistant U.S. Attorney Thane Rehn, one of the lead prosecutors of the case against Bankman-Fried, argued that at no point did his team try to point to how FTX’s bankruptcy might end in prosecuting the FTX founder.
“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,” he said.
Rehn said he did not believe Judge Kaplan was biased toward his team (naturally) but also argued that even if the defense had faced more objections than his team had, none were so egregious as to change the outcome of the trial.
And in contrast to the various lines of questioning the judges had for Shapiro, the judges spent most of their time with Rehn specifically asking about the forfeiture amount ($11 billion) and what purpose that really served.
“If one of the factors we consider is harm to the victims, and if it is going to possibly be in this case that all of the victims are going to be made whole, how do you still get to justifying this $11 billion number?” Judge Lee asked.
Rehn said the amount accounted for the value that FTX’s victims lost overall, and the funds were intended to support FTX’s bankruptcy estate’s efforts to repay its creditors.
“I do want to highlight one important aspect of this, which is the customer bankruptcy claims are linked to the dollar value of their crypto balances on FTX at the time of the bankruptcy,” Rehn said. “So when we talk about 100% customer recovery, it’s tied to that amount. … Three Bitcoin are now worth about eight times what the value of those three Bitcoin were in November of 2022 so those victims aren’t being close to being made whole in the bankruptcy, and in the sort of realistic economic sense, they’re being made whole as a percentage of the dollar value of the their Bitcoin balances as of November 2022.”
The panel did not explicitly indicate one way or another how they might rule on the appeals motion itself, and it may take some time for them to publish an opinion.
In other court cases:
- Samourai Wallet developer Keonne Rodriguez was sentenced to 60 months (five years) in prison after pleading guilty to one charge of conspiracy to operate an unlicensed money transmitter, the statutory maximum sentence for that charge and the one prosecutors requested. Rodriguez’s attorneys had asked for a year and day in prison followed by probation, but Judge Denise Cote of the Southern District of New York said she did not believe Rodriguez had “come to terms” with the fact that he had “engaged over a period of years in very serious, anti-social criminal behavior,” based on a letter he had written to support his sentencing memo. Fellow developer William Lonergan Hill, who pleaded guilty to the same charge, will be sentenced on November 19.
- The judge overseeing the U.S. Department of Justice’s prosecution of Anton Peraire-Bueno and James Peraire-Bueno declared a mistrial late Friday after the jury trying the case said its members could not come to a unanimous decision over the charges. The two brothers were charged last year with wire fraud, conspiracy to commit wire fraud and conspiracy to commit money laundering after allegedly stealing $25 million in crypto by exploiting MEV-boost (maximal extractable value), a piece of software that lets Ethereum operators preview upcoming transactions. The trial began in mid-October.
This week
- There are no hearings or regulator-hosted events scheduled for this week. The House of Representatives will be out of session for another week, while the Senate will resume session on Monday afternoon.
If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Bluesky @nikhileshde.bsky.social.
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See ya’ll next week!