In the three weeks since his trial began, Sam Bankman-Fried, founder of crypto exchange FTX, has watched in near silence as a parade of ex-colleagues, peers and other witnesses have taken the stand. They have testified to his greed, recklessness, bullying and chicanery. His lawyers have offered relatively little in the way of riposte—and have been pilloried for it. But the strategy and ambitions of the defense, ex-prosecutors say, have been misinterpreted.
Bankman-Fried is charged with multiple counts of fraud in connection with the collapse of FTX. The exchange fell to pieces in November after users found they could not withdraw their funds, worth billions of dollars in aggregate. The money was missing, the US government claims, because Bankman-Fried had swept it into a sibling company, Alameda Research, where it was used to bankroll high-risk crypto trades, venture bets, personal loans, political donations, debt repayments and other expenses.
Tasked with defending Bankman-Fried are Mark Cohen and Christian Everdell of law firm Cohen & Gresser, which specializes in corporate and white collar cases. Their cross-examination of key prosecution witnesses—particularly Caroline Ellison, CEO of Alameda and one-time girlfriend to Bankman-Fried—has been described in the press as “meandering,” “confused,” and “lacklustre”. The defense has also aggravated the judge with repetitious questioning, groundless objections and requests for sidebars: “I’ve given you a lot of latitude,” judge Lewis Kaplan told the defense on October 5, “but you’re wearing out the welcome.”
In a case like this, though, says Joshua Naftalis, a former US prosecutor and partner at law firm Pallas Partners, where the evidence against the defendant seems “unbelievably overwhelming,” the defense isn’t expected to have it easy. It is “unfair,” therefore, to suggest Bankman-Fried’s counsel is “fumbling it,” says Naftalis. “They have been dealt a challenging hand.”
In its opening statement, the defense implied it would try to defend Bankman-Fried by undermining the credibility of key witnesses, deflecting blame for fraudulent acts onto members of his inner circle, and demonstrating he acted in a way that any rational businessperson might have. Much of the criticism of the defense has focused on its failure to achieve the first objective: to call into question the reliability of the insider witnesses, who will benefit from plea deals in exchange for their testimony.
Ellison left the stand practically unscathed, as did Gary Wang, FTX co-founder and CTO. On October 17, the defense scored only minor points against Nishad Singh, FTX director of engineering, who had testified to his distress at the reckless spending of FTX, but also, Cohen pointed out, took a large personal loan from the company after having discovered the alleged theft of customer funds.
But faced with cooperating witnesses prepared to speak to their own guilt, the defense has to settle for small wins like these. “The fact they haven’t been able to land body blows isn’t unusual,” says Naftalis. The testimony delivered by insiders is typically “the best evidence,” he says, so it’s “really hard, if not impossible, to achieve a gotcha moment in front of the jury.”
The objective in cross-examination, says Daniel Silva, an ex-prosecutor and attorney at law firm Buchalter, is instead to ensure that facts relevant to the defense strategy are introduced to the record. In this case, for example, having Ellison concede that, sometimes, Bankman-Fried was not abreast of everything going on at Alameda, or that he may have been unaware that FTX customer deposits continued to be wired to Alameda-owned bank accounts, even after FTX had set-up its own. Wang and Singh were also led to confirm that they, not Bankman-Fried, had coded in the mechanism that allowed Alameda to withdraw virtually unlimited amounts of customer funds from the FTX platform. In this regard, says Naftalis, Bankman-Fried’s lawyers are “doing exactly what they should be doing.”
The performance of Cohen and Everdell is also being measured against an inappropriate yardstick, Naftalis and Silva say. Though it may not be intuitive to an arm-chair observer, the defense is not trying to convince every juror of Bankman-Fried’s innocence, they say, but only to “sow doubt” in the minds of one or two. In the US, a jury must reach a unanimous decision before they can return a guilty verdict. Bankman-Fried’s best chance of securing a retrial or favorable plea bargain, says Naftalis, is to hang the jury.
There are multiple advantages to a retrial. Bankman-Fried’s preparations for this trial have been suboptimal, partly due to his imprisonment in August over alleged witness tampering, but partly because the case has moved from indictment to trial “as fast as I’ve ever seen for something of this complexity, profile, and magnitude,” says Silva. A retrial would offer Bankman-Fried’s team more time to “develop a coherent theory of defense,” according to Silva. At a second trial, his lawyers might have the opportunity to catch witnesses in any deviations from their original testimony, thereby undermining their credibility.
In the next stage of the trial, after the prosecution rests its case on October 26, control of proceedings will pass to the defense, which must decide who, if anybody, to bring to the stand. The pivotal decision will lie in whether to let Bankman-Fried himself testify, something criminal defendants are typically advised to avoid for risk of incriminating themselves.
But given the strength of testimony provided by Ellison and others, Naftalis predicts, Bankman-Fried may well buck the trend. It would be a risky play. If the prosecution can catch Bankman-Fried in a lie, it can be used to point the jury to his inconsistencies. If he is convicted, meanwhile, the judge would take into account any perjury in sentencing. But in the circumstances, says Naftalis, there may have to be a “hail mary aspect” to the defense.
If the evidence presented at trial has demonstrated anything, says Silva, it’s that Bankman-Fried’s “evaluation of risk is different” to the average person. His lawyers may advise against his testifying, because the risk is too great, but his personal calculation may lead him to a different conclusion. “The decision to testify is entirely his, if he wants to,” says Silva, “even if his attorneys say he will be eviscerated.”
