Molly White's Citation Needed - Issue 96 – Redefining solvency

Episode Date: November 8, 2025

Sam Bankman-Fried makes his case for a retrial and aspiring crypto banks hit roadblocks. Originally published on November 7, 2025.

I'm Molly White, and you're listening to the audio feed for the citation-needed newsletter. You can see the text version of the newsletter online at citation-needed.news. Issue 96, redefining solvency. Sam Bankman-Freed makes his case for a retrial, and aspiring crypto banks hit roadblocks. This issue was originally published on November 7, 2025. A quick scheduling note. Citation Needed will be taking its first ever break, since I began publishing this newsletter more than three years ago.

I'll be away beginning November 26 and back in your inbox and or podcast feed the second week of December. Sam Bankman-Fried is taking a long-shot bid at having his conviction and 25-year sentence overturned, arguing that FTCS was never insolvent and that he was improperly prohibited from telling the jury about his lawyer's involvement in various aspects of FTC's business. Though the presentation to and questioning by the appeals court has completed, it may be several months before they come to a decision. Besides that, crypto banks are having a bit of a tough time of things. Custodia banks' ongoing attempts to convince courts that the Federal Reserve is required to grant them a master account has hit another setback, with an appeals court affirming a lower court's rejection of that argument. And Coinbase's application for a National Trust Bank

charter is meeting resistance from banking groups, who argue it would be dangerous to approve their application. In the courts, SBF, two years after a jury found him guilty on all seven felony charges related to the implosion of his FTX cryptocurrency exchange, Sam Bankman-Fried returned to court, seeking to overturn the conviction and get a new trial with a new judge. Ever since the November 2012 collapse, Bankman Fried has insisted that the company was solvent and that the shortfall was nothing more than a temporary liquidity squeeze caused by a sudden wave of withdrawals. He argues that bankruptcy proceedings, now on track to fully repay customers, validate that claim. Those repayments, however, have been made possible largely by the post-bankruptcy increase in

crypto prices and a fortuitous investment in Anthropic, whose values source. amid the consumer AI chatbot boom. On October 30th, Bankmanfried, who has recently begun posting to Twitter from behind bars via a friend, uploaded a 15-page document, claiming to prove that FtX would be worth $136 billion today had the bankruptcy team not squandered the company's assets, though the document was riddled with claims that contradict other company filings. Bankmanfried has since suggested that his claims that the company was solvent are based on his own definition of solvency. In addition to the solvency argument, Bankmanfried is hoping to convince the panel that Judge Kaplan deprived him of a fair trial by prohibiting him from discussing his reliance on legal advice from FTX's attorneys.

According to his lawyer, Alexandra Shapiro, had Bankman Fried been permitted to discuss FTC's solvency and his conversations. with lawyers, he would have convinced a jury that he never intended to steal customer funds and was merely a man who made some mistakes while on the frontier of a nascent and complex industry. The three-judge panel has not returned a verdict on the appeal and may well take several months to do so. However, questions aimed at Bankman Fried's attorney, suggest they're skeptical of his assertion that he was denied a fair trial, or that any of the arguments he's claimed Judge Kaplan unfairly prohibited him from making would have swayed the jury. Addressing the solvency claims, the judges reminded Bankman Freed's defense team that a crime

is not absolved simply because victims are ultimately made whole. A government prosecutor argued that evidence against Bankman Fried was conclusive and that several of his fellow executives testified that he knowingly misappropriated customer funds to use on investments or political expenditures. And a recent Supreme Court case closed off one of the Bankman Fried's avenues of argument around intent, with an opinion in Cusisysus versus United States earlier this year, ruling that a person who fraudulently induces a victim into a transaction can still be convicted of fraud, even if they didn't intend to cause the victim to lose money.

On the topic of legal advice, the judges questioned why Bankman Fried opted not to bring an advice of counsel defense during the trial if they wished to claim Bankman Fried was operating in good faith, but led astray by bad legal advice. As I wrote shortly before the trial, there was likely a reason he didn't opt to formally advance this defense. Quote, they've stopped short of bringing a formal advice of counsel defense, which would require them to show that Bankman Fried gave his lawyers a full understanding of what he intended to do, then dutifully followed their advice in doing it.

This is typically a tricky defense to pull off, and his team may have decided against pursuing it due to concerns that those lawyers could respond by sharing documents that further implicate him. The judges noted that merely having lawyers on staff doesn't prove Bankman Freed was operating in good faith. Circuit Judge Barrington Parker added, quote, if you had advanced the advice of counsel defense, a lot of this stuff, I agree, would have been much more probative, but you gave that up and you just have this vague, you know, there were attorneys out there somewhere, defense. Samurai Wallet

Privacy advocates in the crypto world have been closely watching the samurai wallet case, with many comparing it to the highly controversial prosecution of Tornado Cash founder Roman Storm. The Samurai Wallet founders, who pleaded guilty to one count of conspiracy to operate an unlicensed money transmitting business in exchange for prosecutors dropping the more severe money laundering conspiracy charge, have maintained that they were merely developing privacy software, and that they were not responsible for criminal use of the software. Prosecutors have argued that the developers actively intended the software to be used for criminal purposes, pointing to marketing aimed at, quote, dark slash gray market participants,

and those engaged in, quote, illicit activity. Prosecutors sought a five-year sentence for the two founders, the statutory maximum for the charge, and Keon Rodriguez received that full sentence, plus a $250,000 fine. Rodriguez has already paid $6.3 million in forfeiture. Judge Coat cited a letter to the court in which Rodriguez continued to say that he was merely motivated by a desire to protect financial privacy and not, quote, a desire to facilitate criminal activity as evidence that Rodriguez, quote, has not come to terms with what he did. The letter indicated to me that you were very much still operating in a world with moral blinders

William Lonergan Hill, Rodriguez's co-founder, will be sentenced later this month. In bankruptcies, Bittrex, a U.S.-based crypto exchange that shut down and filed for bankruptcy in 2023 after paying fines for sanctions violations and breaches of securities laws, has been accused by an outside researcher of fabricating transactions reported in its bankruptcy proceedings. Pasha owner published a report outlining evidence they believe, quote, with 100% confidence constitutes fake and forged transactions, amounting to around $500 million. The report notes large numbers of improbable transactions

for amounts of Bitcoin worth fractions of assent, which is irrational behavior by users who would be paying $25 or more in transaction fees. The withdrawals to bank accounts are also below the platform's withdrawal limits. Other transactions in Bitrex's report claim, withdrawals from blockchains that had shut down years earlier. Owner also noticed that the data claims that many different BitTrek's users all made withdrawals of identical, highly precise amounts of tokens, for example, 0.0022083 Bitcoins on the same day. In the White House. The White House is now trying to walk back President Trump's statements about not knowing who he just pardoned by claiming that Trump

merely meant he doesn't have a personal relationship with Binance founder Chang Peng Zhao. This might be more plausible if Trump had just said, quote, I don't think I ever met him, and not immediately followed it with, quote, I have no idea who he is. In a press conference, White House Press Secretary Caroline Levitt, added that Trump, quote, has officially ended the Biden administration's war on the cryptocurrency industry, and I think that's the message he sent with this pardon. In regulators, Custodia Bank has lost its appeal of a 2024 court ruling that found that the firm was not entitled to a Federal Reserve Master account. In the original decision, Judge Scott Scavdall opined, quote,

If Custodia's position was correct, it would effectively mean that every depository institution chartered under the laws of a state, regardless of how soundly crafted, is entitled to a master account, allowing it direct access. to the federal financial system. This decision was affirmed in a two-to-one opinion in the 10th Circuit, which concluded, quote, the plain language of the relevant statutes grants Federal Reserve Bank's discretion to reject master account access requests from eligible entities, and therefore, we reject custodia's attempt to impair the Fed's ability to safeguard our nation's financial system through the exercise of discretion to reject master account access. Custodian, has nevertheless celebrated that one judge disagreed with the conclusion and has claimed that there

is a circuit split that could qualify them for rehearing. Meanwhile, Coinbase is facing some opposition from banks over its application for a National Trust Bank charter. The independent community bankers of America, the main trade group for community banks, submitted a letter to the office of the comptroller of the currency expressing their position that the Coinbase National Trust company has, quote, demonstrably flawed risk and control functions while operating under a governance structure that prevents independent oversight and, quote, would struggle to achieve and maintain profitability during crypto-bare markets, the very time at which the similarly concentrated coinbase would be the least able to provide support. They also write that, quote, the OCC's

untested receivership framework would struggle to resolve an uninsured institution of CNTC's proposed scale and operational complexity, particularly given the technical challenges of crypto custody and CNTC's likely importance as a dominant crypto-ETF custodian. The letter cites multiple recent enforcement actions by U.S. and UK regulators against Coinbase and the company's May 2025 disclosure of a major cybersecurity breach as evidence of, quote, a continuous pattern of compliance and operational failures. Indeed, over the past five years, Coinbase has never had a year without being subject to an enforcement action, spanning multiple jurisdictions, U.S. and UK, and regulatory domains, BSA-A-ML, licensing, market integrity.

Another enforcement action against Coinbase in Ireland, which I will describe in a moment, was announced several days after this letter, and so was not included. They conclude that, quote, this application fails to meet statutory chartering standards, presents compounding safety and soundness risks, and would set a dangerous precedent for the structure of the U.S. banking system. The Bank Policy Institute also submitted a letter in opposition, writing that, quote, we have deep concerns that approval of the application, whether a loan or in conjunction with the similar applications recently filed, would, one, exceed the scope of the OCC's authority. Two, permit the National Trust Bank Charter to be used in a new and untested manner that could significantly increase risks to the U.S. financial system. And three, create an unlevel playing field that would harm traditional federal and state chartered banks and inhibit their ability to serve the credit needs of their communities. The BPI also recently submitted

letters opposing National Trust Company charter applications by Ripple, Circle, Paxos, National Digital trust company and wise. Warning, quote, endorsing this pathway and allowing firms to choose a lighter regulatory touch while offering bank-like products could blur the statutory boundary of what it means to be a bank, heightened systemic risk, and undermine credibility of the national banking charter itself. Coinbase's chief legal officer, Paul Greywall, was furious at the ICBA submission, writing on Twitter, quote, imagine opposing a regulated trust charter because you prefer crypto to stay unregulated. That's ICBA's position. It's another case of bank lobbyists trying to dig regulatory modes to protect their own.

From undoing a law to go after rewards to blocking charters, protectionism isn't consumer protection. His statement was met with mixed responses, with some agreeing with his claims that traditional banks were seeking to exclude competitors. Others were more skeptical. Quote, imagine approving an application that fails to meet statutory chartering standards so that your latest defy scam coin has some air of legitimacy, replied one commenter. Quote, says the company encouraging clients to take on 10x to 50x leverage,

trust me, bro, wrote another. Outside the U.S. The Central Bank of Ireland has fined Coinbase 21.5 million euros, or around $24.9 million for failures in its anti-money laundering and counterterrorism transaction monitoring programs from 2021 to 2025. Quote, Coinbase Europe has been fine due to faults in the configuration of their transaction monitoring system, which resulted in more than 30 million transactions not being properly monitored over a 12-month period. The value of these transactions amounted to over 176 billion euros and accounted for approximately 31% of all Coinbase Europe

transactions conducted in the period when the faults existed. Furthermore, it took Coinbase Europe almost three years to fully complete the monitoring of the impacted transactions. This subsequent monitoring led to the reporting of 2,708 suspicious transaction reports to the FIU for further analysis and potential investigation. The STRs submitted in respect of the late monitoring of the transactions contained suspicions associated with serious criminal activities, including money laundering, fraud slash scams, drug trafficking, cyber attacks such as malware slash ransomware, and child sexual exploitation.

Coinbase Europe had outsourced its transaction monitoring to Coinbase Inc, its American counterpart. France's National Assembly has passed a tax amendment that would, add cryptocurrency to a, quote, unproductive wealth category, which also includes gold, coins, antique cars, yachts, and artwork. The amendment will impose a 1% tax on these assets for individuals who hold more than 2 million euros or around $2.3 million worth of them. Romania has banned polymarket as an unlicensed gambling website, with the country's gambling regulator stating that they, quote, will not allow the transformation of blockchain into a screen for illegal betting.

Farouk Fatih Azar, the CEO of the collapsed Turkish Todex cryptocurrency exchange, who was sentenced to 11,196 years in prison in 2023, has died in prison of an apparent suicide. Torex was one of the largest crypto exchanges in Turkey, until Azer disappeared, along with around $2 billion in customer and investor funds. After a year in hiding in Albania, Ozzer was arrested and extradited in 2023 and sentenced later that year. The Web 3 is going just great recap. There were five entries between October 28 and November 7, averaging 0.5 entries per day.

$217.16.68 million was added to the grift counter. Elixir shut down DEUSD after the stream fined. finance halt. Moonwell accrued almost $3.7 million of bad debt after an Oracle malfunction. Stream finance halted activity after a $93 million loss. Balancer was exploited for at least $110 million, and Garden was hacked for $11 million. In the news, I helped Reuters with some of the blockchain analysis for this long read about how much Trump and his family members have profited from their crypto businesses. That's titled Inside the Trump Family's Global Crypto Cash Machine.

I also joined an episode of AARP's Scam Awareness podcast to weigh in on an incident in which a coin-based customer lost $180,000 in a fishing scam. I explained that these scams are unfortunately extremely common, detailed the ways that fishing scammers trick customers into handing over control of their account, and explain some of the crypto-specific challenges when it comes to trying to recover funds for scam victims. This episode was titled Thieves Drain Crypto Wallets in Sophisticated Fishing Scam, and that was part of the AARP podcast called The Perfect Scam. That's all for now, folks. Until next time, this has been Molly White.

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