NEW YORK (AP) — Sam Bankman-Fried, the founder of FTX cryptocurrency exchange, is preparing to defend himself at his upcoming fraud trial by arguing that the use of customer funds was not improper, according to court filings. Bankman-Fried, a former billionaire, is facing charges of stealing a fortune from FTX customers and causing the collapse of the exchange in November 2022. The defense team plans to challenge the credibility of those who claim that Bankman-Fried knew about the misuse of funds. Experts say that if others testify that Bankman-Fried was aware of the improper borrowing of customer money, it could undermine his argument that he acted in good faith.
Bankman-Fried, who has pleaded not guilty to seven counts of fraud and conspiracy, admitted to failing to manage risk at FTX, but denied the allegations that he stole billions of dollars from customer deposits. In court papers, his lawyers state that he believed the handling of customer funds by FTX and his hedge fund, Alameda Research, was permissible. They argue that FTX’s terms of service did not prevent the use of customer deposits as long as withdrawal requests were honored.
Prosecutors have cited FTX’s terms of service, which state that users retain ownership of their digital assets at all times. They allege that Bankman-Fried falsely claimed in public statements that the exchange properly maintained customer assets. The defense had sought to call an expert witness to interpret the terms of service but was denied by U.S. District Judge Lewis Kaplan. The judge did not rule out allowing the defendant to cross-examine witnesses about the terms.
Former colleagues of Bankman-Fried who were close to him, including former Alameda Chief Executive Caroline Ellison and former FTX executives Gary Wang and Nishad Singh, have pleaded guilty and are set to testify against him. Their testimonies could challenge Bankman-Fried’s claim of good faith. Prosecutors have a recording of an Alameda meeting where Ellison allegedly informed colleagues that Bankman-Fried approved the use of customer funds. They also allege that Bankman-Fried instructed Wang to modify FTX’s code to allow Alameda to have a negative balance, which other users could not do.
The defense is expected to argue that Bankman-Fried’s former colleagues have a motive to falsely implicate him in the hopes of receiving a more lenient sentence. They also assert that other companies in the cryptocurrency sector used customer assets in a similar manner, contributing to Bankman-Fried’s belief that FTX’s treatment of customer deposits was appropriate. The trial is set to begin on Tuesday, and Bankman-Fried remains jailed in Brooklyn.
Sam Bankman-Fried, the founder of the bankrupt cryptocurrency exchange FTX, is facing a fraud trial where he will defend himself against allegations of stealing from customers. The defense plans to argue that the use of customer funds was not improper and will challenge the credibility of those claiming otherwise. Bankman-Fried, who has pleaded not guilty, admits to failing to manage risk but denies stealing billions of dollars. Former colleagues who have pleaded guilty are set to testify against him, while the defense maintains that others in the cryptocurrency sector used customer funds in a similar manner. The trial is set to begin on Tuesday.
