Lawyers representing former FTX CEO Sam “SBF” Bankman-Fried are seeking to bring up certain information from the cryptocurrency exchange’s terms of service during witness testimony.
In an October 12 filing with the U.S. District Court for the Southern District of New York, SBF’s legal team said the proposal is intended to address “certain evidentiary issues” in the ongoing criminal trial. The case at hand involves competing theories by prosecutors and the defense team about the alleged misuse of FTX funds.
According to Bankman-Fried’s attorneys, prosecutors intended to call witnesses and determine their “understanding and expectations” of how their deposits at FTX would be used. Defense attorneys claimed that regardless of users’ understanding of FTX’s terms of service, “compliance with these terms constitutes a defense to the crime charged.”
“[I]“The defense’s position is that the rights and obligations of the parties in a business relationship are not determined by their expectations and understandings for purposes of the misappropriation theory of federal fraud statutes,” he said, adding:
The defense expects to ask questions of witnesses who were customers and investors of FTX and Alameda’s lenders, intended to elicit testimony about the factors they considered to be material in entering into the arrangements and transactions at issue in this trial.
Defense attorneys petitioned the court to allow them to cross-examine prosecution witnesses based on FTX’s terms of service, as well as to block the testimony of “ordinary witnesses of fact.” They cited the testimony of Matt Huang, co-founder of Paradigm, claiming that he provided his own “expert opinion” rather than “day-to-day experience” with FTX services.
“By seeking to prove embezzlement through the testimony of clients and others regarding their beliefs and expectations, the government is attempting to avoid its burden of proving an essential element of the embezzlement theory beyond a reasonable doubt,” the filing said. “Indeed, evidence of customers’ belief regarding their legal relationship with FTX will only distract and confuse jurors when considering the facts in light of the meaning of the Terms of Service.”
Related: Caroline Ellison claims Changpeng Zhao’s tweet “contributed” to FTX’s collapse
October 13 was the eighth day of Bankman-Fried’s criminal trial, in which he pleaded not guilty to all charges. This week, Carolyn Ellison, former CEO of Alameda Research and a former friend of SBF, testified, admitting to committing fraud at the direction of Bankman-Fried by submitting fraudulent documents and making misleading statements regarding Alameda using FTX funds.
BlockFi founder CEO Zach Prince took the stand late on October 12 and into October 13, testifying about a $400 million line of credit the company extended to FTX US in July 2022 and the ripples caused by the collapse of Terraform Labs and Three Arrows Capital. The trial was postponed until October 16.
magazine: Can You Trust Cryptocurrency Exchanges After FTX Crash?