Since his December arrest on fraud charges, FTX founder Sam Bankman-Fried and his lawyers have suggested part of his defence will be seeking to distance himself from the day-to-day operations of the now-bankrupt cryptocurrency exchange.
But new accusations against him and a third former member of his inner circle in recent weeks could complicate that strategy, some experts said.
Federal prosecutors in Manhattan unveiled new charges on Feb. 23 that appeared to undermine some of Bankman-Fried’s public claims since the collapse of FTX, and later revealed the guilty plea and co-operation of the exchange’s former engineering chief Nishad Singh.
Former FTX technology chief Gary Wang and Caroline Ellison, formerly the CEO of Bankman-Fried’s Alameda Research hedge fund, had each previously pleaded guilty and are co-operating.
Bankman-Fried previously pleaded not guilty to stealing billions of dollars in FTX customer funds to plug losses at Alameda.
The 31-year-old former billionaire and his lawyers have suggested they will attempt to shift blame onto Ellison and dispute her expected testimony at his Oct. 2 trial.
It is common for defendants to challenge the credibility of co-operating witnesses, often arguing that they are motivated to lie and implicate others in a bid to win leniency.
Doing so is more difficult when multiple witnesses point the finger at the same person, experts said.
“The defendant is going to say, ‘No, you did it, you’re the one who was the most responsible, and now you’re trying to blame me,’” said Rebecca Mermelstein, a former Manhattan federal prosecutor and now a partner at O’Melveny.
Spokespeople for Bankman-Fried and for the U.S. Attorney’s office in Manhattan declined to comment.
At her plea hearing in December, Ellison admitted she and Bankman-Fried conspired to mislead Alameda’s lenders, with Alameda providing secret loans to Bankman-Fried which the hedge fund then hid on its balance sheets.
Bankman-Fried appeared to contradict that in a Jan. 12 blog post, saying he was not running Alameda and “was told” – without saying by whom – that its balance sheets were accurate.
Bankman-Fried’s defence lawyer Mark Cohen also challenged another of Ellison’s statements to prosecutors: according to U.S. District Judge Lewis Kaplan, she told them that Bankman-Fried had instructed FTX employees it was “best not to have documents” because they could be used as evidence.
“We have a very different view of what happened,” Cohen said at a Feb. 16 court hearing. “That’s for trial, your Honor, but that’s not what happened.”
Ellison’s lawyer did not respond to requests for comment.
In unveiling the new charges in a superseding indictment, prosecutors dismissed the idea that Bankman-Fried was in the dark about his former colleagues’ crimes. Prosecutors said he directed Ellison to mislead creditors about the money Alameda borrowed, and that he remained Alameda’s “ultimate decision maker” despite stepping down as CEO.
“The superseding indictment seems designed to undercut the defences that he has floated in public,” said Mark Kasten, counsel at Buchanan Ingersoll & Rooney in Philadelphia.
It also complicates Bankman-Fried’s defence because it contains references to an electronic message Bankman-Fried received from Ellison, as well as messages between him and Singh, who is referred to in the indictment as CC-1. Prosecutors described the conversation between the two men as a plot to conceal a scheme to make illegal political campaign donations.
Beyond the content of the particular messages, the mere revelation that prosecutors have them could be troubling for Bankman-Fried, since contemporaneous statements by a defendant can make it harder to refute witness testimony, experts said.
Despite the hurdles, experts said Bankman-Fried will still likely dispute that he knew former members of his inner circle were breaking the law, Kasten said.
“He still is going to have to attack the government witnesses,” Kasten said, summing up one possible defence: “Yes, he was the public face of the company, but he trusted his confidantes to run the business, and he thought that they were doing it lawfully.”