Sam Bankman-Fried’s Appeal Heard in New York

A panel of judges on the 2nd Circuit U.S. Court of Appeals in New York appeared unconvinced by arguments presented Tuesday by lawyers representing Sam Bankman-Fried, the convicted founder of the collapsed cryptocurrency exchange FTX. Bankman-Fried is seeking to overturn his conviction on seven criminal counts related to multi-billion-dollar fraud against FTX customers and lenders to his associated hedge fund, Alameda Research.

Alexandra Shapiro, Bankman-Fried’s attorney, faced immediate and persistent questioning from the three-judge panel as she argued that her client’s first trial was “fundamentally unfair.” She contended that rulings made by the trial judge, Lewis Kaplan of U.S. District Court in Manhattan, improperly limited Bankman-Fried’s ability to testify, thus skewing the proceedings in favor of the prosecution.

“From my reading of the record, [there was] very substantial evidence of guilt,” Judge Barringon Parker stated to Shapiro, highlighting the challenging path ahead for the defense team. He further questioned whether additional testimony from Bankman-Fried regarding the role of attorneys in preparing key documents would have swayed the jury. Bankman-Fried’s Parents attended the hearing from the courtroom gallery.

Bankman-Fried, currently serving a 25-year prison sentence, maintains that the trial was prejudiced against him, a claim the appeals court is now reviewing.

Shapiro argued that the trial court’s limitations on Bankman-Fried’s testimony prevented the defense team from effectively challenging the prosecution’s narrative. “That ‘allowed the prosecution to present this morally compelling tale, but prevented the defense from showing that the story wasn’t true,” she said, characterizing the judge’s rulings as having “cut off” the defense “at the knees.”

The appeal hinges on whether these restrictions fundamentally hampered Bankman-Fried’s ability to present a defense and whether the jury’s verdict was unduly influenced as a result. Legal experts note that overturning a conviction based on evidentiary rulings is a high hurdle to clear, requiring a demonstration of clear abuse of discretion by the trial court and a showing of substantial prejudice to the defendant.

A key point of contention revolves around the prosecution’s assertion that FTX customers and lenders suffered irreparable financial losses. Shapiro countered this, stating that, based on her understanding, 98% of FTX creditors have received 120% of their investments plus interest. She further claimed that the FTX estate has already distributed $8 billion to creditors, allocated $1 billion for legal fees, and possesses an additional $8 billion to address the remaining $2 billion in claims.

These figures, if accurate, could undermine the victims’ narrative presented during the original trial, potentially bolstering Bankman-Fried’s appeal. However, the appeals court is likely to scrutinize the source and reliability of these figures, as well as the broader implications for the forfeiture order.

Assistant U.S. Attorney Thane Rehn dedicated a significant portion of his argument to addressing questions from the panel regarding the structure of an $11 billion forfeiture order against Bankman-Fried. The judges probed the handling of the forfeiture in the event that all victims are compensated before the entire amount is exhausted. This line of questioning suggests that the court is considering the equitable distribution of recovered assets and the potential for mitigating the severity of the forfeiture order if restitution is substantially achieved.

The appeals court’s decision will have far-reaching implications, not only for Bankman-Fried himself but also for the broader cryptocurrency industry. The case highlights the complex legal and regulatory challenges surrounding digital assets and the potential for fraud and mismanagement within the sector. A successful appeal could embolden others facing similar charges, while a rejection could further solidify the legal framework for prosecuting cryptocurrency-related crimes. The financial markets will be closely watching the outcome to gauge the stability and level of investor protection in this emerging asset class.