Lawyers representing former FTX CEO Sam “SBF” Bankman-Fried are seeking to bring up specific information from the crypto exchange’s terms of service during witness testimonies in the ongoing criminal trial. The legal team filed a motion on Oct. 12 in the United States District Court for the Southern District of New York to address “certain evidentiary issues” related to the alleged misuse of FTX funds.
The crux of the matter revolves around competing theories presented by the prosecutors and the defense team regarding the alleged misuse of FTX funds. Bankman-Fried’s lawyers stated that the prosecutors intended to call witnesses to establish their “understanding and expectation” of how their deposits at FTX would be utilized. However, the defense argued that regardless of users’ understanding of FTX’s terms of service, compliance with those terms would serve as a defense to the charged offense.
The defense’s filing stated, “It is the defense’s position that the rights and obligations of parties to a commercial relationship are not established by their expectations and understandings for purposes of the misappropriation theory of the federal fraud statutes.” They further added that they planned to question witnesses who were customers, investors of FTX, and lenders to Alameda to gather testimony about the factors they considered material in entering the arrangements and transactions at issue in the trial.
To support their argument, the defense requested permission from the court to question witnesses for the prosecution based on FTX’s terms of service. They also sought to preclude testimony from “lay fact witnesses” and referenced Paradigm co-founder Matt Huang’s testimony as an example. The defense claimed that Huang’s testimony offered an “expert opinion” instead of everyday lay experience on FTX’s services.
The defense’s filing highlighted their belief that the prosecution’s attempts to prove misappropriation through customer and witness testimony regarding their expectations and beliefs about their legal relationship with FTX would not meet the burden of proof required beyond a reasonable doubt. They argued that such evidence would distract and confuse jurors when considering the facts in light of the meaning of the Terms of Service.
Oct. 13 marked the eighth day of Bankman-Fried’s criminal trial, where he pleaded not guilty to all charges. Testifying during the trial this week, former Alameda Research CEO and Bankman-Fried’s ex-girlfriend Caroline Ellison admitted to committing fraud at his direction. She provided fraudulent documents and made misleading statements concerning Alameda’s use of FTX funds.
BlockFi founder and CEO, Zac Prince, also took the stand late on Oct. 12 and continued his testimony on Oct. 13. He discussed the $400-million credit line BlockFi provided to FTX US in July 2022 and the repercussions caused by the collapse of Terraform Labs and Three Arrows Capital. The trial has been adjourned until Oct. 16.
The outcome of this trial is closely watched by the crypto community and the broader financial industry, as it could have significant implications for future regulatory actions and how crypto exchanges operate. The defense’s argument regarding the importance of FTX’s terms of service in establishing the rights and obligations of parties in a commercial relationship may set a precedent for similar cases in the future.
As the trial progresses, it will be interesting to see how the court handles the defense’s request to rely on FTX’s terms of service and the weight given to customer and witness testimony regarding their expectations and beliefs about their relationship with FTX. Both sides will present their evidence and arguments, and the court will ultimately determine the validity of the allegations against Bankman-Fried and the interpretation of FTX’s terms of service.
The outcome of this high-profile trial will not only impact Bankman-Fried’s future but may also shape the legal landscape for the cryptocurrency industry as a whole. It underscores the growing importance of establishing clear terms of service and ensuring compliance with them to avoid potential legal issues.