SBF Runs Into Skeptical Judges at Appeal of FTX Fraud Verdict

Everybody was out to get Sam Bankman-Fried after the collapse of his cryptocurrency exchange in 2022. At least that’s what his lawyers told an appeals court Tuesday as the FTX co-founder seeks to reverse his fraud conviction and 25-year prison sentence.

Bankman-Fried’s lawyers claim he was wrongly convicted in a rush to judgment by the press, prosecutors, the team that took over FTX in the wake of its stunning implosion, and, critically, US District Judge Lewis Kaplan.

“The defense was cut off at the knees by the judge’s rulings,” his lawyer Alexandra Shapiro,said at the hearing at the 2nd US Circuit Court of Appeals in New York.

A jury in Manhattan found Bankman-Fried, 33, guilty in 2023 of seven criminal counts including fraud and conspiracy at his popular cryptocurrency exchange. The trial was closely watched by the industry and by the broader public, making him the perceived face of greed and mismanagement in the market for digital currencies.

The government claimed Bankman-Fried siphoned billions of dollars from FTX customers to the exchange’s sister hedge fund, Alameda Research, using the money for speculative investments, political donations and expensive real estate. Jurors found him guilty in less than five hours of deliberations, despite watching him take the stand in his own defense and testify that he never intended to defraud anyone.

Sam Bankman-Fried, co-founder of FTX Cryptocurrency Derivatives Exchange, leaves court in New York, US, on Wednesday, July 26, 2023.

Photographer: Yuki Iwamura/Bloomberg

But the appellate court appeared skeptical when Shapiro implored them to “look at the full picture” of the appeal.

“I am trying really hard to,” Judge Barrington Parker Jr. replied. “It almost seems like you’re spending more ink on Judge Kaplan than on the merits.”

The addition of Shapiro to Bankman-Fried’s legal team was considered a coup for the former crypto celebrity. A top criminal appeals lawyer who has won reversals this year for three executives convicted of white-collar crimes, she notched her most recent win on behalf of Iconix Brand Group founder Neil Cole, who was cleared by the 2nd Circuit last week after his conviction on charges he inflated the apparel licenser’s earnings and misled investors.

Shapiro is also working on appeals for music producer Sean “Diddy” Combs, Bill Hwang of Archegos Capital and Charlie Javice, who was convicted of defrauding JPMorgan Chase & Co in the sale of her online student-finance site.

In their appeals briefs, Bankman-Fried’s lawyers focused on Kaplan, 80, who has been a federal court judge since 1994. They accused the judge of “repeatedly putting a thumb on the scale to help the government and thwart the defense.” They’re asking for a new trial with a different judge.

Bankman-Fried’s team argued that the judge pressured jurors into a quick verdict by suggesting they could stay late on the first day of deliberations, offering them free dinner and a car service home. His lawyers said the judge “continually ridiculed Bankman-Fried, criticized his demeanor, and signaled his disbelief of Bankman-Fried’s testimony.”

At one point, Kaplan called Bankman-Fried’s testimony — that he didn’t run Alameda after stepping down as the hedge fund’s CEO — “a joke,” they said.

Caroline Ellison, former chief executive officer of Alameda Research LLC, center left, exits court in New York, US, on Tuesday, Sept. 24, 2024.

Photographer: Michael Nagle/Bloomberg

Witnesses against Bankman-Fried included three former close FTX friends and executives: his co-founder Gary Wang, engineering chief Nishad Singh and Caroline Ellison, Alameda CEO and Bankman-Fried’s sometime girlfriend. All three pleaded guilty to felony charges and took the stand to testify against Bankman-Fried in hopes of leniency.

Wang and Singh avoided prison, while Ellison was sentenced to two years.

Ellison’s testimony was particularly devastating. She described in detail how she worked with Bankman-Fried to deceive lenders and customers and their failed attempts to stop FTX’s slide into bankruptcy. Ellison walked jurors through the seven “alternative balance sheets” she said she prepared at Bankman-Fried’s direction to hide that $10 billion had been borrowed from FTX customers and $5 billion loaned to FTX executives and affiliated entities.

Bankman-Fried, who’s serving his sentence in California, didn’t attend the hearing.

Read More: Sam Bankman-Fried’s Parents Explore Seeking Trump Pardon for Son

In addition to the appeal, Bankman-Fried’s parents have been exploring ways to secure a pardon from President Donald Trump, a person familiar with the matter said earlier this year. In March, Bankman-Fried appeared on former Fox News host Tucker Carlson’s podcast, bashing former President Joe Biden and ex-Securities and Exchange Commission Chair Gary Gensler.

On Tuesday, Shapiro also argued that Kaplan wrongly blocked Bankman-Fried from telling the jury that FTX had enough assets to repay exchange customers. But, prosecutors were allowed to claim Bankman-Fried had stolen billions of dollars, forcing FTX into bankruptcy and causing billions in losses.

In addition to the prison time, Kaplan ordered Bankman-Fried to pay back $11 billion, which is also part of the appeal.

But again, the judges pushed back on Shapiro’s arguments.

“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 guiltys would have rolled in on this record?” Parker asked.

Bankman-Fried didn’t intend to defraud customers, believing they’d be fully repaid, his team argued. Shapiro also said Kaplan should have let Bankman-Fried testify that he had followed the advice of FTX lawyers in good faith. The judge directed Bankman-Fried to take the stand, outside the jury’s presence, to preview his testimony on that point, giving prosecutors an unfair advantage, they claim.

The judges also sparred with assistant US attorney Nathan Rehn over whether Bankman-Fried would still have a forfeiture obligation even if his victims are fully compensated through bankruptcy court proceedings.

“This is an important issue to us, so you have to stop bobbing and weaving,” Parker told Rehn.

To contact the reporter on this story:
Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net

To contact the editors responsible for this story:
Misyrlena Egkolfopoulou at megkolfopoul@bloomberg.net

Anthony Aarons, Anthony Lin

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