FTX: SBF pleads not guilty to the bankruptcy of crypto exchange

The first hearing in the FTX case for co-founder Sam Bankman-Fried (SBF) was held yesterday in New York, regarding the bankruptcy of the well-known crypto exchange in November last year. 

Reuters reports that SBF has pleaded not guilty to the charges against him, and Judge Lewis Kaplan has set a trial start date for 2 October. So SBF will have nearly ten months to prepare his defense, during which time he will presumably remain under house arrest at his parents’ home in California. 

Sam Bankman-Fried has arrived in court for his arraignment. We’re told he will plead not guilty to all the charges against him. pic.twitter.com/yakSLkOus8

— Connell McShane (@connellmcshane) January 3, 2023

Notably, the co-founder and former CEO of FTX has refused to plead guilty to misleading the exchange’s investors and causing billions of dollars in losses due to outright fraud.

The bankruptcy case of crypto exchange FTX

The main cause of FTX’s bankruptcy is the fact that the managers of the funds that customers deposited on the exchange’s custodial wallets were not just carefully guarding them, but were using them at will, without customers’ authorization, for business expenses or investments. 

It is hard to imagine that SBF was unaware of this, not least because many of those funds were donated by him to political candidates in the 2020 and 2022 elections. 

By not having the clients’ authorization to use their funds in this way, and by not alerting them to the fact that the company was using their funds at will, the use of those funds to pay for company expenses and investments appears to have been done illegally. At this point, it is really hard to imagine that SBF is not guilty in any way, but what he denies is the fact that he defrauded the exchange’s customers. 

There are eight charges against him in total, including wire fraud and conspiracy to commit money laundering, and SBF has been unwilling to admit any criminal liability on his part in any of this, at least for now. 

Instead, it is worth mentioning that the other co-founder, Gary Wang, and the former CEO of Alameda Research, Caroline Ellison, have agreed to plead guilty and cooperate with the authorities in order to settle for a reduced sentence. 

Instead, SBF has chosen another line of defense, probably at the suggestion of his lawyers. Specifically, he is being defended by Mark Cohen, a top lawyer famous for recently representing Ghislaine Maxwell in a sex trafficking trial.

Ghislaine Maxwell was the partner of Jeffrey Epstein, and in 2021 she was found guilty of child solicitation and other offenses related to her partner’s criminal activity. 

FTX: SBF’s defense strategy for the bankruptcy of his crypto empire

During the hearing, US Attorney Danielle Sassoon alleged that client funds were used by the company directed by SBF, and also laundered through political donations, charitable donations, and a variety of risk-on investments. 

He also suggested that the government has a lot of evidence against SBF, revealing that prosecutors will hand over hundreds of thousands of documents to the defense in the coming weeks.

While the failure of the FTX crypto exchange, and its causes, now seem well known, it remains to be ascertained who is responsible. 

Wang and Ellison, who are not being defended by hotshot lawyers like Cohen, have agreed to admit such liability, but it is possible that Cohen has advised SBF not to do so, at least for now. 

While the defense strategy is not yet known, the fact that SBF has decided not to admit guilt, unlike his two fellow sufferers, suggests that he wants to try to shift blame to others, refusing to accept personal responsibility. 

Thus Sassoon will not only have to prove that crimes were committed, but will also have to prove that SBF’s responsibilities are criminal. 

However, it is not certain that this line of defense will hold, especially once the trial begins. However, this will not take place until October, so for now there should be no problems in this respect. 

SBF has already admitted in recent months that he made mistakes in the management of FTX, but what he denies is having criminal responsibility in any of this. It is worth mentioning that he faces up to 115 years in prison if convicted of all charges, so even plea bargaining for a reduced sentence may not lead to significant benefits. 

The hearing

Bankman-Fried did not speak to the judge during the hearing, but conferred privately with his lawyers. He also shook hands with one of the prosecutors. 

Reuters also reports that Sassoon accused SBF of trying to transfer assets to a foreign country he believed to be more lenient toward him, and that prosecutors are also investigating Alameda Research’s recent financial movements. 

Cohen denied that SBF made those movements, saying that it had instead sought to comply with a Bahamian court order that temporarily seized some FTX assets last month.

Judge Kaplan also granted SBF’s request not to disclose the names of the other two co-signers of the $250 million bond given as bail for his release, since his parents apparently received physical threats as a result of him pledging their real estate as collateral. 

The sale of cryptocurrencies

In the meantime, it was discovered that SBF moved more than $680,000 in cryptocurrency funds while under house arrest in California. 

In fact, the public addresses of some of SBF’s wallets are known, and this therefore allows all their movements to be observed on the blockchain. 

According to what was revealed by the BowTiedIguana Twitter profile, SBF allegedly cashed in $684,000 in cryptocurrency on a crypto exchange based in the Seychelles Islands. The suspicious movements were made after SBF was placed under house arrest. 

If true, this would constitute a violation of the agreements his lawyers made with judges for his release, but SBF has denied any involvement regarding these transactions. In fact, the agreement stipulates that SBF cannot spend more than $1,000 without explicit permission from the court, except to pay his lawyers. 

Instead, it appears that all ETH held on one of SBF’s public addresses was sent to a newly created address. The public SBF address in question, however, was taken over in 2020 by the creator of SushiSwap, Chef Nomi. 

The newly created address received transfers totaling $367,000 from 32 addresses associated with Alameda Research, plus another $322,000 in funds from other wallets in a matter of hours. Later all these funds were sent to a centralized exchange in the Seychelles Islands via the RenBridge. 

The problem is that it was SBF himself in 2020 who claimed that the public address from which his funds originated was his own. 

When SBF agreed to take over control of the Sushiswap exchange from anonymous founder Chef Nomi in August 2020, he asked for ownership to be transferred to his Ethereum addresshttps://t.co/nE9z9tLd2n pic.twitter.com/vask9WqSHd

— BowTiedIguana (@BowTiedIguana) December 30, 2022

So it is a bit hard to imagine that he is not involved in these transactions. 

There has even been speculation that Chef Nomi is SBF himself, because many of the recent SBF-related transactions were strongly related to Sushiswap’s early activities. However, SBF is not a techie, so it seems strange that he was able to create a decentralized exchange. His partner Gary Wang, however, certainly would have been able to do so. 

Back in 2020, Bankman-Fried himself denied this hypothesis. 

6) I didn’t build sushi. I was called in and I’m trying my best to do what’s right for it.

But a lot of people seem to have gotten sidetracked fighting against those trying to fix it.

And I’m not the only one who feels that way.

— SBF (@SBF_FTX) September 15, 2020