How SBF Defends Itself What are the variables in the future?

SBF's criminal fraud trial is about to settle. The prosecution and defense held a marathon courtroom debate on Wednesday, with the jury set to begin deliberations before the end of the day.

These closing arguments are the final statements of the respective legal teams to the jury. On a legal standpoint, the onus is on the prosecution to prove that SBF's allegations are beyond reasonable doubt. U.S. Assistant Attorney Nicolas Roos delivered the prosecution's closing argument with passion and precision, reviewing a large number of documents and testimony to show that SBF directed a group of complicity to transfer FTX customer funds to Alameda Research, with profits going almost entirely to SBF.

The courtroom was solemn, with almost all the jury members and substitutes listening intently. Notably, SBF's parents were absent during the prosecution's closing argument and may have been placed in a private room throughout the trial. But they later showed up to watch the defense team make a final defense of their son's freedom.

From a legal point of view, the defense is easier than the prosecution's job: they only need to induce reasonable doubt in the jury's mind about SBF's guilt. But given the evidence the jury has seen over the past few weeks, this may be more challenging than it seems. These include testimonies from former subordinates of SBF, stating that he clearly instructed them to defraud investors. There is also substantial evidence that SBF himself deliberately made false claims about the security of customer funds on FTX and Alameda's privileges on the exchange.

The focus of the defence is on discrediting these witnesses or otherwise casting doubt on the prosecution's tactics. In the closing arguments, it included reiterating that Caroline Ellison and others had reached a plea deal with the government, and implying that they were trying to "get out" of the FTX disaster and abandon SBF. Cohen also claimed that the prosecution unfairly portrayed SBF as a "monster, villain," emphasizing his consumption and lifestyle.

However, it is more difficult to find a coherent alternative explanation of what happened in the arguments of the defense. The fact that $8 billion is missing is hardly disputed – so how could there be no crime?

Good faith is a complete defense

In fact, the real focus on the narrative and plausibility of the defense has come to light in the testimony of the SBF in recent days, as well as in the defense statement on Wednesday. Its core proposition is that from the founding of FTX to its catastrophic failure, SBF acted "in good faith" every step of the way. As Cohen expounded on Wednesday's legal theory, if SBF did believe that his statements were true when he made them, while believing that all of his actions were lawful and in the best interests of his clients, then there was no criminal act.

Unlike Roos, who presented the elements of this defense in a relatively low-key manner, unlike Roos, who presented the prosecution's closing argument in a dialogistically and impromptu tone, Cohen stood firmly behind the podium and spent most of his time reading the script, a tone that could be described as somewhat tired and frustrated.

To justify his "good intentions," Cohen argued in part that SBF's spending and risk-taking were sound business decisions, even if his judgment was proven wrong after the fact. Some of these details may be trivial, such as arguing that FTX Arena naming rights and other marketing spend are a reasonable percentage of FTX's revenue.

More substantively, Cohen argues that some of the decisions that have been characterized by the government as evidence of criminal motives are actually strategic business choices. For example, in the fall of 2021, SBF knew that Alameda Research's trading account owed about $3 billion in debt to FTX customers, but still insisted that Alameda should borrow billions more to make venture capitals. Caroline Ellison thought it was a very bad idea, and SBF vetoed her idea. Cohen did not dispute the fact of this pivotal moment, but described it as a difference in "business judgment" between SBF and Ellison.

However, the bona fide defense also relies on some of the more far-fetched claims. These included SBF's sincere misunderstanding of the essential elements of its own corporate policy and its ignorance of FTX's finances at a critical time.

Perhaps the most challenging point for a good faith defense is SBF's genuine belief that the other party has the right to borrow all of FTX's customer deposits or custody funds, including fiat and cryptocurrency. SBF further asserts that he believes that the funds borrowed through the FTX margin loan program can be withdrawn from the exchange and used for any purpose chosen by the borrower.

However, as a good illustration of the fragility of the defense good faith argument, the prosecution showed the jury in its closing argument a margin loan agreement that explicitly prohibits the withdrawal of margin loan funds from FTX or for any purpose other than trading.

SBF's lawyer says FTX's customers are aware of the risks

In what is probably the most far-fetched argument in the defense, Cohen argues that FTX's terms of service include "no restrictions" on the use of fiat currencies by the exchange. In other words, Cohen argues that all FTX customers acquiesce to their fiat currency deposits that are in fact unrestricted loans to FTX and not property over which they retain control.

SBF's alleged ignorance of FTX's financial details is another important support for the defense. These claims, in particular, require a rather complex theoretical interpretation of the events that took place. For example, Cohen discusses an infamous spreadsheet in which Caroline Ellison prepares seven alternate versions of the other's balance sheet for the purpose of obtaining loans.

Google metadata clearly shows that SBF looked at the file. So to claim that SBF was not the party that defrauded the lenders, Cohen had to defend himself to Ellison, saying that his client only looked at one of the labels and approved the use without careful review. "SBF's reliance on Ellison's prepared balance sheet seems plausible," Cohen told the jury.

This is just part of the evidence that SBF may have remained in the dark about FTX's finances until November 7, 2022. Specifically, Cohen talked about a tweet made by SBF on November 7, claiming that "FTX is fine. Assets are fine. ”

In order to claim that this was not a deception, the defense once again returned to SBF's "good-faith" misunderstanding of the borrowing privilege of the other party on FTX. As Cohen put it, SBF's belief that "assets are fine" means that Alameda's loans to FTX customers' assets are secured by a large number of assets, including FTT and Serum tokens, as well as Robinhood stock.

However, the jury has seen some contradictions here: Similar to restrictions on the use of funds, various FTX policies have made it clear that all margin collateral must be placed on exchanges. In fact, SBF himself outlined this policy in his congressional testimony. Collateral within the exchange is essential for the well-respected automated "risk engine", which has given rise to many customer counter-compensation protections. SBF and his team attempted to argue that Alameda was not the only entity that allowed borrowing using off-exchange collateral, but these efforts were brief and lacked strong evidence to back them up.

In addition, the "good faith" defense of Alameda's lending must claim that the assets, including a large number of Robinhood shares, were valid collateral for Alameda, even though they were technically no longer Alameda's property: the shares had been transferred to a holding company controlled by SBF by November 2022. SBF's liberal understanding of corporate property structures is just one of the many complexities and contradictions that defend the event theory.

After some formalities, the jury will begin deliberations on November 2. How long it takes them to reach a verdict may depend heavily on whether they take SBF's arguments seriously or whether the prosecution has fully refuted his plea of ignorance.

Result of the trial

On Thursday, the jury reached a verdict on all seven counts in less than five hours, a verdict that was surprisingly swift and decisive. SBF will be sentenced on March 28, 2024, and faces up to 110 years in prison. The final verdict is more likely to be 25-50 years, but his deceptive testimony will not do him any favor. The government has until February 1 to decide whether to proceed with a second trial of further charges, including campaign finance fraud and bribery.

Late Thursday, Nov. 2, a Manhattan jury found Sam Bankman-Fried guilty of seven counts of wire fraud, conspiracy, and money laundering. The verdict partly marks the end of one of the largest financial fraud cases in U.S. history. Bankman-Fried's name is now alongside the likes of Bernie Madoff, Elizabeth Holmes, Jho Low, and Charles Ponzi, all of whom have been involved in or suspected of large-scale fraud in the financial sector and are now infamous.

The jury deliberations and the entire trial process were quicker than expected. Under the ruling of Judge Lewis Kaplan, the trial ended nearly two weeks early. Kaplan also seems eager to bring things to a close this week, adding extra time to court days on Wednesday and Thursday.

Kaplan on Thursday proposed that the jury stay nearly four hours later than normal would likely be a lengthy struggle for seven complex charges. But at 7:45 p.m. that day, just before the 8 p.m. deadline, the jury announced that they had reached their verdict.

Bankman-Fried's parents, Stanford University professors Barbara Fried and Joseph Bankman, appeared in court almost every day during the trial — including the announcement of the verdict. As the jury chairwoman began to read the verdict, Bankman fell forward in her seat. As the trial progressed, Fried's uncontrollable twitching and tremors became more and more apparent, and she briefly plugged her ears with her fingers, as if not wanting to hear.

SBF himself ended by demonstrating consistent behavior. He was ordered to stand and face the jury when the verdict was read, but there was no noticeable reaction after the verdict came down. Then he sat back in his chair, but changed his mind, stood up, and looked around as the chair was half-seated, as if wishing someone would tell him what to do. His legal team did not provide any advice.

There are many reasons to be outraged by SBF and its parents because they have benefited from it and allegedly participated in shaping its fraud. But when the truth is revealed, it is inevitable to sympathize with their pain and confusion. Even those of us who helped expose and pursue FTX's fraud find it hard to take comfort in the fact that we witnessed a vision of a life nearing its end.

After the verdict was read, the jury was released, and the court officers gratefully left work. But SBF and his legal team remained in the courtroom, whispering together, lead counsel Mark Cohen reassuringly placing his hand on SBF's shoulder and a group of reporters watching. His parents held each other and walked behind the defense table to say goodbye to their son. But they weren't allowed one last hug or a long goodbye. Before being escorted to face his fate, SBF barely looked at his parents.

SBF was returned to federal custody at the end of the trial, but his sentence will not be decided until March 28, 2024. He could face up to 110 years in prison, but the actual number will depend on the number of victims affected and Judge Kaplan's judgment on SBF's repentance. Given that SBF appears to have lied in court, Kaplan is unlikely to be lenient. It is widely estimated that SBF will be sentenced to an actual sentence of about 25 years, with no release from prison until he is in his fifties.

SBF may also need to be tried again. The second set of charges, particularly alleged campaign finance irregularities, was segregated from the case due to procedural reasons for SBF's extradition from the Bahamas, and a trial is currently scheduled for March 11 next year, but the government is not required to notify Judge Kaplan until February 1 whether it intends to proceed with the trial.

Sometimes, in cases such as these, no further charges are pursued once an initial conviction has been obtained. But in this case, it may be politically risky to drop the campaign finance charges: the SBF's criminal act of concealing donations as part of its plan to project the image of the Democrats' huge donors is undoubtedly extremely ironic. This has led to conspiracy theories from right-wingers that could spark public outrage if he gets away with allegations such as channelling money to his mother's political action committee through a front donor.

There will also be a series of post-trial proceedings between now and the end of November. SBF's defense team is likely to appeal, although Mark Cohen didn't make that explicitly in a brief statement last night. On the contrary, he promised more generally to "keep fighting."

In the end, it will take months or even years to clean up the vast mess caused by a handful of extremely reckless fraudsters. This includes a series of recourse lawsuits filed by FTX estate in recent months, including a lawsuit against FTX legal director Dan Friedberg and a lawsuit against SBF parents Joe Bankman and Barbara Fried. Another long-standing but extremely important question is whether SBF's parents will also face criminal charges given that they appear to have played a significant role in mentoring and benefiting from the fraud.