Bankman-Fried Points to Law Firm Advice as FTX Fraud Defense (1)

FTX co-founder Sam Bankman-Fried is laying the groundwork for a defense that argues he relied upon the advice of a prominent Silicon Valley law firm in taking many of the actions for which he is now facing fraud charges.

Bankman-Fried’s defense lawyers on Tuesday asked the judge overseeing his criminal case to force prosecutors to hand over documents given to the government by former FTX law firm Fenwick & West. If the government doesn’t agree, Bankman-Fried wants permission to subpoena the Mountain View, California-based firm.

Sam Bankman-Fried

Photographer: Angus Mordant/Bloomberg

The legal advice Fenwick & West provided to FTX and Bankman-Fried between 2017 and 2022 is “material to preparing a defense,” his lawyers said in their Tuesday filing.

That advice included the use of encrypted messaging apps, the provision of multimillion-dollar loans to FTX executives and the cryptocurrency exchange’s compliance with US banking regulations, the defense said. Those are all key elements of the charges against Bankman-Fried, who’s accused of orchestrating and concealing a yearslong fraud in which he used billions of dollars in FTX customer funds for risky investments, personal expenses and political donations.

Bankman-Fried has pleaded not guilty to his 13-count indictment and is due to stand trial in October.

A so-called advice-of-counsel defense can be used to rebut suggestions a criminal defendant intended to break the law, New York University law Professor Stephen Gillers said.

“In other words, the defendant’s argument is ‘my lawyers told me it was legal, and I thought it was legal,’” said Gillers. That would cut against the government’s contention that the defendant knowingly acted illegally — a necessary element of many criminal charges, including those against Bankman-Fried.

Such a defense would place further scrutiny on the relationship between FTX and Fenwick & West. The firm started representing Alameda Research, the exchange’s hedge fund affiliate and, according to prosecutors, the conduit for much of Bankman-Fried’s fraud, in 2017 and became the main outside counsel to FTX after its 2019 founding.

Fenwick & West didn’t immediately respond to a request for comment.

Former employees interviewed by federal prosecutors during the investigation have also referred to Fenwick & West legal memos that they claim guided their decisions, according to two people with knowledge of the case. Law enforcement has also sent subpoenas to the law firm, and it has been accused by investors in a class action lawsuit of aiding Bankman-Fried’s fraud.

Dan Friedberg, FTX’s former chief regulatory officer, joined the exchange in 2020 after previously representing it as an outside lawyer with Fenwick & West. As the cryptocurrency exchange began to fall apart in early November, Friedberg approached federal prosecutors offering his assistance, according to a person familiar with exchange. FTX’s former general counsel Can Sun was also poached from the firm.

Some material Bankman-Fried’s lawyers are asking for relates to a charge that he lied to Silvergate Bank to open an account in 2020 to receive customer deposits for FTX’s international exchange. The bank said at the time that he couldn’t open such an account if FTX wasn’t licensed as a money services business in the US.

Fenwick & West provided legal advice to FTX about such registration. The exchange’s US platform was registered as a money services business in 2020, but the law firm advised Friedberg in February 2020 that FTX’s international division didn’t need to register in the US as it didn’t accept US customers, according to a legal memo filed in court.

To get around Silvergate’s conditions, prosecutors allege, Bankman-Fried incorporated a new company, North Dimension, and told the bank he wanted to open a trading account connected to Alameda. Alameda employees, allegedly at Bankman-Fried’s behest, filed an application to the bank with this false information. Charges related to a conspiracy to commit bank fraud were added to Bankman-Fried’s indictment earlier this year.

Bankman-Fried said in Tuesday’s filing that Fenwick & West provided “real-time advice” on the opening of the North Dimension account.

The case is US v. Bankman-Fried, 22-cr-673, US District Court, Southern District of New York (Manhattan).

(Updates with request for comment from law firm.)

To contact the reporter on this story:
Ava Benny-Morrison in New York at abennymorris@bloomberg.net

To contact the editors responsible for this story:
Angela Moon at hmoon43@bloomberg.net

Anthony Lin, Peter Blumberg

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