By Aaron Tan
The Story so Far
The case of Sam Bankman-Fried and FTX has been making headlines recently as the former crypto billionaire faces multiple charges in the United States. Bankman-Fried, the 31-year-old founder of now-defunct FTX Trading, has pleaded not guilty in Manhattan federal court to thirteen counts of fraud[1]. He is accused of illegally using FTX customer deposits to support his Alameda Research hedge fund, buy real estate, and make millions of dollars in political contributions, in what prosecutors have called a fraud of epic proportions[2].
Bankman-Fried is seeking documents from a law firm that advised his defunct FTX cryptocurrency exchange, saying in a court filing that they could help him beat fraud charges. He said the documents could prove that he relied on legal advice from the Silicon Valley law firm Fenwick & West and that he was not breaking the law.
Federal prosecutors must prove he knew his conduct was illegal[3]. On Tuesday the 30th of May 2023, he asked a judge to order prosecutors to turn over documents related to Fenwick’s legal advice on matters central to the the prosecutors case, including FTX’s use of disappearing messaging services and failure to properly register with regulators.
Bankman-Fried’s new motion said his lawyers are in negotiations with FTX’s new counsel about whether the company intends to assert attorney-client privilege over relevant Fenwick & West documents[4]. The motion did not name FTX's new law firm, but it is Sullivan & Cromwell. The defence added that Fenwick & West told them it would not turn over any documents without FTX’s permission. The motion floats two theories for why Bankman-Fried is entitled to gain access to certain Fenwick & West communications even if FTX claims privilege. Bankman-Fried said the law firm represented him personally in addition to serving as counsel to FTX and Alameda. That assertion seems to hint that Bankman-Fried will claim that he can personally waive privilege over some of the Fenwick & West communications.
Sam Bankman-Fried, ignoring legal advice, and speaks on FTX according to The New York Times[5]. He faces civil and criminal liability for the collapse in which investors and customers may be out billions in funds they will never recover. The US government's case against Bankman-Fried had expanded significantly since he was first charged with eight counts, including wire fraud[6]. Bankman-Fried has admitted to making mistakes running FTX but he said he did not believe he was criminally liable[7].
Conclusion
The case of Sam Bankman-Fried and FTX is negligible in the United Kingdom despite it being a case in the United States; the United States tends to adopt a more robust and aggressive stance towards fraud prosecution. The case highlights the importance of legal advice and the consequences of ignoring it. It also highlights the importance of proper registration with regulators and the use of disappearing messaging services. The case could have implications for cryptocurrency exchanges and their founders in the United Kingdom, as they may face similar charges if they are found to have acted illegally while also showing that this is another example of cryptocurrency’s interesting link to financial crime. The case also highlights the need for proper regulation of cryptocurrency exchanges to prevent fraud and protect investors.
[1] Jack Queen, Bankman-Fried seeks documents from former FTX law firm in crypto fraud case (Reuters, 31st of May 2023), https://www.reuters.com/legal/bankman-fried-seeks-documents-former-ftx-law-firm-crypto-fraud-case-2023-05-31/, accessed on the 4th of October 2023 [2]Edward Helmore, Sam Bankman-Fried pleads not guilty in FTX case, (The guardian, 3rd of January 2023), https://www.theguardian.com/business/2023/jan/03/sam-bankman-fried-ftx-plea-criminal-charges, accessed on the 4th of October 2023 [3] Jack Queen, Bankman-Fried seeks documents from former FTX law firm in crypto fraud case (Reuters, 31st of May 2023), https://www.reuters.com/legal/bankman-fried-seeks-documents-former-ftx-law-firm-crypto-fraud-case-2023-05-31/, accessed on the 4th of October 2023 [4] Alison Frankel, Bankman-Fried hints at blame-the-lawyers defense in criminal case (Reuters, 31st of May 2023) https://www.reuters.com/legal/bankman-fried-hints-blame-the-lawyers-defense-criminal-case-2023-05-31/ accessed on the 4th of October 2023 [5] Ephrat Livni, Igmoring legal advice, Sam Bankman-Fried speaks on FTX, (New York Times, 30th of November) 2022, https://www.nytimes.com/2022/11/30/business/dealbook/sam-bankman-fried-lawyers.html, accessed on the 4th of October 2023 [6] Joe Miller, Sam Bankman-Fried fails to dismiss criminal charges related to FTX, (Financial Times, 27th of June 2023), https://www.ft.com/content/935ec2fc-ce52-424c-a615-a7d49c26c397, accessed on the 4th of October [7] Joshua Oliver, Sujeet Indap and Joe Miller, FTX lawyers accuse Sam Bankman-Fried of ‘assault by Twitter’(Financial Times, 20th of January 2023), https://www.ft.com/content/5bc8e50c-3ca6-4915-8f5d-f539166a78e3, accessed on the 4th of October 2023