The Most Astounding Part of the Sam Bankman-Fried Trial
This is part of Slate’s daily coverage of the intricacies and intrigues of the Sam Bankman-Fried trial, from the consequential to the absurd. Sign up for the Slatest to get our latest updates on the trial and the state of the tech industry—and the rest of the day’s top stories—and support our work when you join Slate Plus.
The trial of Sam Bankman-Fried begins in New York on Tuesday, Oct. 3, a little less than a year after his crypto exchange FTX and hedge fund Alameda Research collapsed. The short version of what happened: Alameda took FTX customer deposits (possibly illegally, but definitely riskily) and put them into made-up crypto tokens whose value derived from confidence in FTX’s business. When that slipped, both businesses cratered, arguably along with the broader public illusion that cryptocurrency was going to the moon. The feds found a lot of crime to allege, and the hazmat crew that came in to handle FTX’s bankruptcy proceedings—the folks who mopped up Enron’s mess—found FTX to be an even bigger disaster than that one.
Now Bankman-Fried faces seven federal fraud and money-laundering charges, with more on the table in the future. At least four members of Bankman-Fried’s inner circle at FTX have made plea deals to cooperate in an investigation led by the U.S. attorney for the Southern District of New York, Damian Williams. Other legal proceedings continue apace around FTX’s bankruptcy, including a lawsuit that the company’s new management filed against SBF’s parents last month. Bankman-Fried awaits trial in a Brooklyn jail because the prosecutors and judge in the case got annoyed with his pretrial behavior. If he’s convicted, he could face up to 115 years behind bars, but probably more like a decade or two.
All of that suggests one question: Should Bankman-Fried have clamored for a deal of his own? But also: Would prosecutors even have offered him one? He was, after all, the top executive at FTX and the very literal face of the company, and there appears to be a mountain of evidence and testimony against him. But could he change his mind, or could they? And one more question: If the trial does wind up going the distance, does Bankman-Fried have any clear path to winning?
To answer all of this, I recently interviewed Yesha Yadav, a Vanderbilt Law School professor whose areas of study include international financial and banking regulation, bankruptcy proceedings, and securities regulation. Late in 2022, she walked me through the case prosecutors were building. Now we talked about the hand they’ll play as their work comes to fruition.
Alex Kirshner: In big financial cases, and in this one specifically, it’s common to see a lot of the underlings make deals and cooperate in a case against someone at the top. Is it common, or would there be precedent, for prosecutors to offer a deal to the biggest fish?
Yesha Yadav: I’m a little surprised that there hasn’t been greater talk of a deal, given the fact that so many of the principals, so many of the closest folks in that circle, have essentially taken deals, have put pen to paper in a great deal of detail on what went wrong at FTX. Given the weight of that evidence that’s been piling up, it’s surprising that SBF himself has not been going for a deal on the seven charges.
In addition, it’s also worth noting that it’s seven charges this year, and there’s a likelihood of more charges to come that will be taken to trial next year. And so given the weight of the legal process that is coming due at this point, it is quite surprising, in light of the various witness testimonies here, that a deal hasn’t been offered or doesn’t look like it’s being discussed between SBF’s lawyers and SDNY.
Why do you think that it might not be coming together? I know that’s a bit of armchair lawyering, but I had the same reaction that you did.
The prosecutors have a very strong hand. At least it would seem on paper that the prosecutors have accumulated a great deal of evidence. It’s also worth noting that many of these processes are happening hand in hand with the bankruptcy process that’s also underway on the other side. And a great deal of forensic accounting, a great deal of accumulation of data, of insights about where the money has gone, has been happening through the bankruptcy system. So the prosecutors have another source of evidence to lean on in trying to make a really airtight case against SBF. And so in that context, given how high-profile this is, the prosecutors may not be willing to give up a great hand and make a deal.
Of course, this is a big expenditure of prosecutorial resources, court time, and so forth. There is obviously uncertainty in any trial. You have to have 12 jurors agree to convict, and if one juror can be convinced that there is reasonable doubt as to his guilt on the counts, then obviously that case is lost. So given that uncertainty, there is some incentive on part of the prosecutors to think about a deal.
On the SBF side, as to why his lawyers are not gunning for a deal, that’s maybe slightly harder to understand. It’s not clear exactly what defense is going to be put forward, but it does seem based on some initial indicators that potentially they’re looking at an advice-of-counsel defense—in other words, that SBF relied on legal advice when he was making certain decisions. It also feels like, given his statements to the press in the run-up to the trial, that he’s been blaming a lot of the other lieutenants. Maybe he’s trying to blame them and keep himself absolved of guilt. So it’s not clear what his defense is, but he seems to be going down the line of relying on counsel’s advice as a defense, and potentially that of other close executives in FTX. But again, it’s just harder to understand, given the weight of the evidence, given what’s been coming out in the bankruptcy process, how SBF’s lawyers are potentially not pushing for a deal here. Maybe they are, but at least in the public, it doesn’t look like it.
I’m curious if there’s a “making an example of him” angle, given the profile of the case, that might affect the prosecutors’ stance on a deal. Bernie Madoff pleaded guilty, but he got way more years on way more charges than he ever could’ve possibly served, given his age. If you look at the charges against Bankman-Fried and how many of them there are, do you see hints that they’re sending a message, or do you see prosecutors setting themselves up to deal?
It’s likely to be a little bit of both. There is definitely a sense that SBF is being held up as a poster child for corruption, for greed, for fleecing everyday people of their money, and holding him up as an example of that—not essentially giving him a pass on charges, recognizing that he is exemplifying a form of gross mismanagement of funds and just mistreatment of customers. So I can definitely see a post-Madoff type of exemplification here, and [U.S.
attorney] Damian Williams has certainly indicated in press conferences that he is not here to take this lightly. This is something that the office has been putting their resources into and holding miscreant executives’ feet to the fire. So I definitely see that as being part of what’s going on here, which is making an example of Bankman-Fried and making it very clear not just for the crypto industry, but the financial industry as a whole, that SDNY is watching. And that particularly with respect to areas such as crypto, it’s not an excuse that it’s a complex new industry. If there’s fraud, you’ll be held accountable. So I definitely see that as a part of the mix here.
On the other hand, of course, prosecutors do have optionality here with multiple charges, and certainly with charges like wire fraud, which are extremely broad in scope. Each charge has its own sentencing. To the extent that you’re able to find someone guilty of multiple charges of wire fraud and conspiracy in that context, then the accumulation of years that mount creates very strong pressure to create some kind of plea deal in advance. That’s one thing. And obviously it gives prosecutors some degree of hedging. Maybe a conviction is not achieved on one count, then you can achieve it on another.
Do you see either of those defense strategies—ineffective counsel by FTX’s old lawyers, or blaming the other execs who already made deals—as a plausible winner?
It’s hard. The baseline here is what the crime requires, which is intent. This whole game plan appears geared toward mitigating an intent on the part of SBF: that he was simply doing what he was told, that he was essentially relying on a whole bunch of other people to do the job, that he never actually intended to do any kind of malfeasance, and that he was simply quote-unquote “following instructions” from his lieutenants with respect to how the shop should be run.
It’s very, very hard to believe that that defense could fly, given how deeply enmeshed Sam Bankman-Fried was in the running of the whole business. He was the face of FTX. He was, based on reporting and bankruptcy case filings, deeply involved in Alameda and in its running. He was clearly the founding genesis behind Alameda and FTX way back in 2017 and 2019. So to that extent, to make the argument that somehow he was completely oblivious is definitely risky and a long shot on the part of his lawyers. Making the case to everyday people that somehow he was completely passive in the operations. It’s very hard to square with the fact that he was the face of FTX, he was constantly out and about talking about FTX to lawmakers, the media, to the industry, and his knowledge seemed to be extremely detailed in those conversations. And he was getting money based off of the fact that he was the one running the ship.
That being said, there’s always that risk when the prosecution needs to prove it beyond a reasonable doubt. That standard’s hard to quantify, but it’s around 90 percent probability. So obviously there could be that risk that one juror believes that obviously he had nothing to do with it or something. So obviously prosecutors do face that hill that they have to climb. One thing that seems to be coming out in the reporting is a reliance-on-counsel defense that basically there was a reliance on FTX counsel’s advice. That’s another hard defense to pull off, because certainly there are a number of different conditions that have to be satisfied before that defense can be satisfied. In other words, that you gave counsel all the information that they needed to give an opinion, and that you followed that opinion to the letter. And the prosecutors could look for things like running around to shop for opinions from different kinds of lawyers.
So all of these things are, again, a risk for the defense. And finally, of course, it does require waiving privilege for this counsel’s advice to be revealed. That’s another thing that has to be a part of any thinking around whether or not this defense can succeed, is whether FTX will waive privilege on this advice. These are really pretty risky strategies, and so again, it comes down to the fact of finding it slightly hard to believe that SBF’s lawyers are not gunning for a deal here.
When FTX’s bankruptcy management filed the lawsuit against his parents, the parents’ lawyer said it was an effort to intimidate them right before their son’s trial. The timing is interesting. How do you see the interplay between the bankruptcy litigation and this criminal trial?
I’m still kind of working through that in my head. Certainly the fact that his parents are now under so much pressure themselves, that is something that could potentially push for maybe a deal to be reached on the part of the criminal side, or otherwise to ask for some kind of leniency—just to create a degree of closure for the parents, and to protect them from the continuing hardship of seeing their kid go through trial at this time.
That being said, this is high-stakes at this point. The cat’s out the bag. The trial is happening, the fact that SBF is in jail is happening, his parents know that he’s in jail, that his bail was revoked. This has been priced in. And if there is pressure that’s coming from the civil side, to some extent, it’s a little bit incremental. This was expected, to some extent, given the fact that these are parents who are extremely smart lawyers, extremely accomplished lawyers. That they would be subject to a fraudulent conveyance was something that was long in the works, and was something that certainly should have been expected by them, and they should have been advised to that effect, that this was coming.
The fact that this happened now is obviously added pressure, but at the same time, if they’re playing for the ultimate prize, which is having Sam be deemed not guilty, then issues like [civil fraud] can potentially come out of that as well. Or it can be shown, on the criminal side, that maybe the family wasn’t as culpable as has been claimed. So if there is a win for Sam on the criminal side, then that could ease a little bit of the pressure on the civil side by showing that there was less wrongdoing or less intent overall in the running of this enterprise. But again, these are high-stakes issues that are intertwined.
