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In a pivotal moment during the ongoing trial of Sam Bankman-Fried, the founder of the now-bankrupt cryptocurrency exchange FTX, the 31-year-old entrepreneur took the stand on Thursday. However, this was not your typical courtroom drama; the proceedings occurred without the presence of a jury. U.S. District Judge Lewis Kaplan decided to hear Bankman-Fried’s testimony in isolation to determine which parts of it could be deemed admissible.
The decision to exclude the jury from this phase of the trial came after prosecutors had presented their case, accusing Bankman-Fried of embezzling billions of dollars from FTX customers. In contrast, the defense had already called their first two witnesses.
Judge’s Unusual Decision
Following a lunch break, Judge Kaplan decided to release the jurors for the remainder of the day, instructing them to return the following morning. This unusual decision was prompted by Bankman-Fried’s legal team’s intention to introduce testimony concerning the involvement of FTX’s lawyers in crucial company decisions, such as document retention and the creation of loans to executives. Prosecutors alleged that these loans were part of Bankman-Fried’s scheme to siphon funds from the company.
The Role of FTX Lawyers
Bankman-Fried’s defense argued that the participation of FTX lawyers in these matters demonstrated his good faith and compliance with legal guidelines. Judge Kaplan, however, sought more information before allowing this testimony to be presented to the jury.
Bankman-Fried’s testimony began with an explanation of FTX’s use of encrypted messaging platforms such as Signal and Slack. He contended that these practices were consistent with FTX’s policies, which had been crafted by legal professionals. Prosecutors, on the other hand, alleged that Bankman-Fried had encouraged employees to use these platforms to conceal their actions.
Charges and Potential Consequences
Sam Bankman-Fried faces two counts of fraud and five counts of conspiracy. If convicted, he could be sentenced to several decades in prison. Prosecutors claim that he misappropriated funds to support his crypto-focused hedge fund, Alameda Research, make speculative investments, and contribute over $100 million to U.S. political campaigns.
Prosecution Rests Its Case
The prosecution concluded its case after presenting twelve days of testimony in federal court in Manhattan. Witnesses included former colleagues of Bankman-Fried, who testified that he had directed them to divert customer funds to his hedge fund while also instructing them to deceive investors and lenders. Bankman-Fried’s decision to testify now gives prosecutors the opportunity to cross-examine him regarding these claims.
Defense lawyers have argued that three of Bankman-Fried’s former colleagues, who pleaded guilty and agreed to cooperate with prosecutors, tailored their testimony in an attempt to implicate Bankman-Fried, hoping to receive more lenient sentences.
The Final Witness and Legal Disputes
Following the prosecution’s case, the judge denied a defense request to acquit Bankman-Fried before the case went to the jury. The defense argued that prosecutors had not presented viable legal theories of wire fraud, which was disputed by the prosecutor.
The last prosecution witness, FBI agent Marc Troiano, testified about Bankman-Fried’s use of the encrypted messaging application Signal. Jurors saw screenshots from a phone belonging to Caroline Ellison, the former CEO of Bankman-Fried’s Alameda Research hedge fund, which revealed that Signal groups often set messages to delete automatically.
Throughout the trial, Bankman-Fried has maintained that although he made mistakes running FTX, he never had the intention to steal funds.
Legal experts have noted that Bankman-Fried’s decision to testify is a calculated move, given weeks of damning testimony from insiders who portrayed him unfavorably.
The Defense Witnesses
Before Bankman-Fried’s testimony, the defense presented two witnesses. Krystal Rolle, Bankman-Fried’s lawyer in the Bahamas, testified that Bahamian authorities directed him to surrender remaining assets to regulators in the Bahamas after FTX declared bankruptcy in November 2022. This testimony could challenge earlier statements from Gary Wang, FTX’s former CTO, who claimed that Bankman-Fried transferred assets to the Bahamas to maintain control of the company.
The second defense witness, database expert Joseph Pimbley, testified that most FTX customers had accounts that allowed their funds to be loaned to other users. This information could be used to argue that Alameda’s use of FTX customer funds was not improper.
The trial continues as it delves into the heart of these allegations, including any potential involvement of FTX lawyers in structuring loans, a key element in the prosecution’s case against the defendant.
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