Sam Bankman-Fried Says FTX Lawyers Said Insider Loans and ‘Sham’ Agreement Were Okay

FTX founder Sam Bankman-Fried will assert at his upcoming felony fraud trial that he had no intention of breaking the regulation, his counsel mentioned Wednesday. To show it, his legal professionals plan to make use of FTX attorneys who suggested him whereas he was nonetheless CEO of the now-defunct crypto trade.

His protection group plan to name on legal professionals from Fenwick & West, alongside members of FTX’s former in-house counsel, resembling Dan Friedberg, Can Solar, and Ryne Miller.

Their argument: Earlier than FTX collapsed final November beneath Bankman-Fried’s management, the legal professionals “gave him assurance that he was performing in good religion” and had been liable for reviewing parts of his alleged misconduct, based on a court docket submitting.

Earlier this week, Bankman-Fried once more pled not responsible to the seven expenses filed in opposition to him by the Division of Justice. The DOJ amended its criticism to take away expenses of marketing campaign finance violations, saying they will be dealt with in a separate continuing.

The disclosure from his protection attorneys follows a request final week {that a} choose order Bankman-Fried’s counsel to increase on its so-called advice-of-counsel protection or preclude the tactic from trial. The request was finally granted.

“To the extent that it’s demonstrated to be correct, SBF’s reliance on the recommendation of counsel is a good protection,” Hunt Ricker of regulation agency Riker Danzig instructed Decrypt in a written assertion. “The federal government might be required to indicate, past an inexpensive doubt, that SBF had an illegal intent to commit fraud.”

If Bankman-Fried did certainly obtain assurances that any alleged misconduct was authorized after making “full disclosures” to his counsel, a core part of the protection might be exhibiting that Bankman-Fried relied on that recommendation in earnest, Ricker famous.

“As a result of ‘good religion’ is a way of thinking, this may require a deeper inquiry into what SBF knew or understood about his actions,” he added. “For that reason, asserting an advice-of-counsel protection can also be a close to sure waiver of the attorney-client privilege, as it could put these communications with counsel at difficulty.”

Former Assistant U.S. Legal professional and Associate at Ford O’Brien Landy, Kevin O’Brien, instructed Decrypt the technique may doubtlessly backfire for Bankman-Fried if federal prosecutors get entry to extra damning info within the occasion his attorney-client privilege is waived.

“It’s a shot at nighttime,” he mentioned. “The possibilities of this being a viable protection are fairly slim.”

In Wednesday’s submitting, Bankman-Fried’s counsel mentioned he obtained assurance on billions of {dollars} in loans made with firm money to himself and insiders at FTX and Alameda Analysis, the trade’s sister firm.

A declaration made final November in FTX’s Chapter 11 chapter revealed that Bankman-Fried bought a $1 billion mortgage from Alameda. Extra just lately, the trade’s new administration mentioned $3.2 billion in funds and loans had been doled out to insiders.

One of many legal professionals talked about within the discover who served as basic counsel to FTX US, Ryne Miller, got here up in Bankman-Fried’s felony case in January when federal prosecutors raised witness tampering considerations for the primary time.

“I might actually like to reconnect and see if there’s a approach for us to have a constructive relationship, use one another as sources when potential, or at the least vet issues with one another,” Bankman-Fried allegedly instructed Miller through an encrypted message.

Notably, legal professionals talked about within the disclosure gave enter on a “Fee Agent Settlement” between FTX and Alameda, which the trade’s new administration referred to as a “sham” in a chapter report revealed in June. 

The report mentioned the settlement sought to “legitimize sure improper transfers” and the commingling of property. Moreover, as FTX contemplated the potential for going public in 2021, the settlement was allegedly backdated by two years for the aim of manufacturing audited monetary statements.

Different areas that Bankman-Fried obtained authorized assurance on embody insurance policies at FTX the place messages had been routinely erased, the creation of an entity allegedly used to masks transactions referred to as North Dimension, and FTX’s buyer agreements.

In a separate lawsuit introduced by the Securities and Alternate Fee (SEC), the company alleged Alameda siphoned off billions of {dollars} in FTX deposits via its subsidiary North Dimension.

Bankman-Fried’s counsel on Wednesday mentioned there are doubtlessly different areas that legal professionals may very well be referred to as upon for his advice-of-counsel protection. But the data included within the doc ought to be adequate for federal prosecutors, they mentioned.

“Bankman-Fried’s consciousness that counsel was concerned within the issues listed above and others is related to rebut [claims] that Mr. Bankman-Fried acted with felony intent to defraud,” his counsel mentioned. “These extra disclosures are greater than adequate.”