A federal judge on Thursday ordered lawyers for Sam Bankman-Fried, the disgraced founder of bankrupt cryptocurrency exchange FTX, to create a plan with prosecutors that would ensure Bankman-Fried would not delete text messages he sent while awaited trial on charges that he orchestrated the theft of billions of dollars in customer deposits.
Judge Lewis A. Kaplan issued his instructions at a hearing in Federal District Court in Manhattan two days after rejecting a plea bargain Manhattan federal prosecutors reached with Bankman-Fried’s lawyers to limit his ability to use certain Internet services. encrypted messaging like Signal.
Judge Kaplan said the proposal had done “no more than raise more questions in my mind”, explaining that it did not completely eliminate the possibility of Bankman-Fried sending messages that he could later delete.
“I read all the spy novels,” Judge Kaplan said.
The tug of war in court arose from a dispute over the conditions of Mr Bankman-Fried’s bail. Prosecutors sought additional conditions last month after presenting evidence in court documents that Bankman-Fried had sent emails and Signal to Ryne Miller, the general counsel for FTX’s US arm. In court documents, prosecutors said Miller, whose name was not identified, could be a possible witness against Bankman-Fried.
They asked the judge to block Mr. Bankman-Fried from contacting former FTX employees and using Signal or other encrypted apps, arguing that the technology could allow Mr. Bankman-Fried to secretly engage in witness tampering.
What to know about the FTX crash
What is FTX? FTX is a now bankrupt company that was one of the largest cryptocurrency exchanges in the world. It allowed customers to exchange digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. The Bahamas-based company built its business on risky trading options that are not legal in the United States.
Who is Sam Bankman-Fried? He is the 30-year-old founder of FTX and a former CEO of FTX. Once a golden boy of the crypto industry, he was a major donor to the Democratic Party and known for his commitment to effective altruism, a charitable movement that encourages adherents to donate their wealth efficiently and logically. .
How did the FTX problems start? Last year, Changpeng Zhao, CEO of Binance, the world’s largest cryptocurrency exchange, sold his stake in FTX to Mr. Bankman-Fried, receiving a number of FTT tokens in return. In November, Mr. Zhao said that he would sell the tokens and raised concerns about FTX’s financial stability. The move, which lowered the price of FTT, spooked investors.
What led to the collapse of FTX? Zhao’s announcement sent the price down and spooked investors. Traders were quick to pull out of FTX, putting the company in an $8 billion deficit. Binance, FTX’s main rival, offered a loan to save the company, but then backed out, forcing FTX to file for bankruptcy on Nov. 11.
Why was Mr. Bankman-Fried arrested? FTX’s collapse sparked investigations by the Justice Department and the Securities and Exchange Commission focused on whether FTX misused client funds to prop up Alameda Research, a crypto trading platform that Mr. Bankman-Fried had helped start. . On December 12, Mr. Bankman-Fried was arrested in the Bahamas for lying to investors and committing fraud. The next day, the SEC also filed civil fraud charges.
Lawyers for Mr Bankman-Fried denied that he was trying to influence a witness. But after Judge Kaplan temporarily imposed the new restrictions, defense attorneys reached a deal with prosecutors to bar Mr. Bankman-Fried from using certain encrypted apps but explicitly allow him to engage in other forms of electronic communication.
At the hearing, Judge Kaplan said he was dissatisfied with the settlement, noting that “I am far less concerned with the convenience of the defendant.” He has given both sides until Tuesday to submit a new proposal and until February 21 to make it final.
A lawyer for Bankman-Fried said that some commercially available products retained messages even if they were removed and that they could be a solution to address Judge Kaplan’s concerns.
Mr. Bankman-Fried, 30, once a high-flying crypto executive, was arrested in December on charges that he used billions of dollars of FTX client deposits to finance political contributions, lavish property purchases real estate and business operations in his hedge fund.
He has been living with his parents in Palo Alto, California, after reaching a $250 million bail agreement late last year. The terms of the bail package required that he remain confined to his parents’ home and wear an electronic monitoring device on his ankle.
The terms of the bail have drawn criticism, in part because Mr. Bankman-Fried was allowed to move out of the house without depositing any real money at the time he was released. On Tuesday, the court entered into the case file a letter from a retired New Haven, Connecticut, detective who asked Judge Kaplan to reconsider home detention given the scale of the apparent theft and embezzlement of billions in US money. customers by Bankman-Fried.
Mr. Bankman-Fried’s bail was secured in large part by his parents’ $4 million home. Two unnamed people not related to him have also agreed to secure the link with a much smaller amount of collateral. In theory, those individuals and Mr. Bankman-Fried’s parents would be responsible for the entire $250 million if Mr. Bankman-Fried fled.
Last month, Judge Kaplan granted a motion by nearly a dozen news organizations, including The New York Times, to reveal the names of the two people. Bankman-Fried’s lawyers filed an appeal Tuesday to keep the names confidential.
The consequences of the fall of FTX
The spectacular collapse of the cryptocurrency exchange in November has left the industry stunned.
Unlike the vast majority of criminal defendants awaiting trial, Mr. Bankman-Fried has not been silent. He has met with reporters at his home, in some cases giving official interviews. He has also posted messages on Twitter and on his personal Substack page.
In most of his posts, Mr. Bankman-Fried has maintained his innocence and insisted that FTX has far more assets than its bankruptcy lawyers have said.
Mr. Bankman-Fried appeared in court on Thursday, wearing a navy blue suit and a blue and white striped tie. The government is not paying for his trip to federal court in New York, a spokesman for the US attorney’s office in Manhattan said.
At one point during the hearing, Justice Kaplan commented that he had recently read about how Mary Queen of Scots had written some of her letters in encrypted code and investigators had finally found a way to crack them. Prosecutors said they were not as concerned about Bankman-Fried’s handwritten communications as they were about the electronic messages.
But Judge Kaplan shot back: “Don’t you think this defendant is smart enough to encrypt something without a computer?”
