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(Kitco News) -
Sam Bankman-Fried (SBF), the founder and former CEO of FTX and Alameda, is seeking to have nearly all criminal charges against him dismissed.
SBF’s legal team filed a series of seven pretrial motions with the Southern District Court in New York late Monday which argue for the dismissal of all but three of the charges he faces at his October criminal trial. And while the legal arguments are specific to each charge, the documents also outline a broader narrative which mirrors recent arguments by Coinbase, Ripple and others that the U.S. government is unfairly attacking crypto firms to cover up their own regulatory failures.
The motions group the charges according to their grounds for dismissal, with some focusing on the terms of SBF’s extradition from the Bahamas and others arguing a lack of evidence of a clear offense or improper discovery.
One motion seeks to dismiss four charges related to Bankman-Fried’s activities at FTX and Alameda including conspiracy, bank and wire fraud charges, arguing that the addition of these charges after extradition “violates the Treaty’s rule of specialty provision” which holds that the U.S. should only try SBF on the charges for which they were extradited.
Another motion seeks to dismiss four charges related to “conspiracy to defraud the United States” and other wire fraud and conspiracy charges, arguing that the Justice department has failed to state an adequate offense to support these counts.
The only charges the motions do not seek to dismiss are three counts of conspiracy to commit commodities fraud, conspiracy to commit securities fraud, and conspiracy to commit money laundering, though Bankman-Fried has pleaded not guilty to those charges as well.
Perhaps the most revealing information in the pretrial motions is the picture they attempt to paint of the U.S. government’s role in the problems that have plagued the broader crypto industry, which aligns FTX and SBF with other beleaguered crypto firms.
“In 2022 the entire cryptocurrency sector underwent tremendous shocks due to a broad market crash dubbed the ‘crypto winter,’” they wrote, saying that “every major participant––including exchanges, banks, lenders, and hedge funds” suffered massive losses and many went bankrupt during the year. “FTX, the non-U.S. exchange founded by Mr. Bankman-Fried and others, lasted far longer (paying back billions to customers and lenders during the course of the year), but ultimately succumbed to the same market forces, filing for bankruptcy on November 11, 2022.”
The lawyers characterized as “dramatic and troubling” the ensuing actions taken by the U.S. government.
“Rather than wait for traditional civil and regulatory processes following their ordinary course to address the situation, the Government jumped in with both feet, improperly seeking to turn these civil and regulatory issues into federal crimes,” they wrote. “In a classic rush to judgment, the Government brought the original indictment against Mr. Bankman-Fried on December 9, 2022, less than a month after FTX’s bankruptcy,” doing so before they could review evidence related to their case, including “detailed financial records of FTX” and their various counterparties.
“Not surprisingly, this resulted in an indictment containing eight vague and non-specific charges against Mr. Bankman-Fried” containing boilerplate language followed by “literally one sentence purportedly describing the basis for the charge” and no additional details or support, they said.
This narrative perfectly aligns with the arguments made by U.S.-based exchanges and crypto firms who have criticized the Securities and Exchange Commission (SEC) for their regulation-by-enforcement approach of issuing Wells notices with little or no specific charges, refusing to define the assets or support the supposed violations, and rushing to judgment before reviewing the evidence.
“In sum, the Government’s haste and apparent willingness to proceed without having all the relevant facts and information has produced an indictment that is not only improperly brought but legally flawed and should be dismissed,” they write.
Elsewhere, SBF’s lawyers focus on the failure of regulators and lawmakers to keep pace with the growth and evolution of the crypto ecosystem, another familiar refrain from U.S. crypto companies. “In the span of a single year, the combined market capitalization of all cryptocurrencies grew from less than $200 billion in 2020 to nearly $3 trillion in 2021,” they wrote, while the “applicable legal framework for the cryptocurrency industry developed much more slowly.”
They describe both U.S. policymakers and regulators as being divided over “whether existing regulations could be applied to the cryptocurrency markets, or whether new rules would need to be created, and whether any U.S. regulations could be applied to foreign-based cryptocurrency companies, generally deciding they would not be.”
The lawyers argue that SBF actively sought clear regulation, which was not on offer in the U.S., and moved the fledgling FTX exchange from Hong Kong to the Bahamas in 2021 because they had successfully implemented a regulatory structure.
Bankman-Fried “believed that by developing the exchange abroad, the concept could be fine-tuned and eventually brought within the U.S. legal framework,” they wrote. “While the cryptocurrency industry was skeptical of government regulation, Mr. Bankman-Fried and FTX sought to work constructively with global regulators, including the Securities Commission of the Bahamas, which became FTX’s primary regulator.”
In their characterization of the onset of the ‘Crypto Winter’ in 2022, the filings also make parallels between the bank collapses of 2008, and cast Sam Bankman-Fried in the role of a Jamie Dimon, using his superior acumen to survive and his considerable resources to rescue other foundering firms. “[M]uch of the cryptocurrency ecosystem became insolvent, with a series of companies – exchanges, banks, lenders and hedge funds – collapsing and filing for bankruptcy in the spring and summer of 2022,” they wrote. “In fact, Mr. Bankman-Fried tried to step in and stabilize the collapse.”
SBF’s lawyers are also perfectly willing to lump FTX and Alameda in with the rest of the pack when it suits their purposes, such as justifying the absence of risk management, segregation of customer accounts, or any financial, security, or accounting controls. “Ultimately, the fall became too pronounced and FTX was caught up in this same downturn,” they said. “Like many other cryptocurrency market participants, and many other start-ups that experience exponential growth in a short period, FTX did not have fully developed controls and risk management protocols. FTX, like other market participants, was susceptible to a broader market collapse.”
Interestingly, the motions make no mention of SBF’s multiple meetings with SEC chair Gary Gensler, or the U.S. cryptocurrency legislation he helped draft and actively promoted on Capitol Hill, even though it would seem to support the cooperative, pro-regulation, industry-champion role in which they’re casting their client. This could be an acknowledgement that the legal battle will be fought against a political backdrop, and a shrewd attempt to maintain as many potential allies as possible in a divided congress.
The Justice department has until May 29 to respond to the motions, and U.S. District Judge Lewis Kaplan will hear arguments on the dismissal requests from both sides on June 15.
