In a recent development, lawyers representing Sam “SBF” Bankman-Fried, the former CEO of FTX, have made a noteworthy move in his ongoing criminal trial. They have petitioned the United States District Court for the Southern District of New York to permit the questioning of witnesses for the prosecution with reference to FTX’s terms of service. Additionally, they seek to exclude testimony from “lay fact witnesses.” This strategic maneuver aims to address critical evidentiary issues at the heart of the trial.
The core of the matter revolves around conflicting interpretations of the alleged misuse of FTX funds, with prosecutors and the defense team presenting divergent viewpoints. Prosecutors intended to call witnesses who could shed light on their “understanding and expectation” of how their deposits with FTX would be utilized. On the other hand, Bankman-Fried’s defense team argues that compliance with FTX’s terms of service constitutes a valid defense against the charges.
The defense team’s stance can be succinctly summarized as follows: “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.” This perspective is central to their legal argument, indicating that they intend to question witnesses, including FTX customers, investors, and lenders to Alameda, to elicit testimony regarding the factors they considered pivotal in entering into the arrangements and transactions under scrutiny in the trial.
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The defense’s request to question prosecution witnesses based on FTX’s terms of service is twofold. They also aim to prevent testimony from what they term “lay fact witnesses.” The defense particularly pointed out the testimony of Matt Huang, co-founder of Paradigm, suggesting that he provided an “expert opinion” rather than representing the “everyday lay experience” regarding FTX’s services.
The legal filing emphasizes the defense’s position, alleging that the government is attempting to establish misappropriation through the beliefs and expectations of customers and others, thereby bypassing the need to prove an essential element of its embezzlement theory beyond a reasonable doubt. Furthermore, the defense contends that introducing evidence of customers’ beliefs regarding their legal relationship with FTX could only serve to distract and confuse jurors, as these beliefs must be evaluated in light of the meaning of the Terms of Service.
The trial, which commenced on October 13, has seen Sam Bankman-Fried plead not guilty to all charges. Notably, former Alameda Research CEO and Bankman-Fried’s ex-girlfriend, Caroline Ellison, testified this week, admitting to committing fraud at the direction of Bankman-Fried by providing fraudulent documents and making misleading statements regarding Alameda’s use of FTX funds.
Zac Prince, CEO of BlockFi, also took the stand, testifying on a $400-million credit line provided to FTX US in July 2022, and the implications stemming from the collapse of Terraform Labs and Three Arrows Capital. As the trial unfolds, it is clear that intricate legal arguments and high-stakes testimonies are shaping the narrative, with the trial adjourned until October 16th.
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