Unchained - SBF Trial, Day 17: Closing Arguments Ask: ‘Villain or Good-Faith Actor?’

Episode Date: November 2, 2023

Prosecutors and defense attorneys in the trial of former FTX CEO Sam Bankman-Fried closed their arguments with similar stories to their opening statements more than three weeks ago: a tale of two Sams. On Wednesday morning, day 17 of the trial, the government took jurors on a final grand tour of Bankman-Fried’s alleged lies, evasions and misdirections that they said aimed to hide the ugly truth of a gaping $8 billion hole in the crypto exchange’s balance sheet from investors and regulators, and that reflected his indifference to spending customer assets.  Assistant U.S. Attorney Nicholas Roos said that as the person overseeing FTX and the separate trading entity, Alameda Research, to which FTX funneled customer deposits, Bankman-Fried was the only person who could have been responsible for decisions that led to the deficit – criminally so. “He told a story and he lied to you,” said Roos, who punctuated his more than two-hour presentation with metadata readings and time tables that seemed to devastatingly illustrate SBF’s ongoing awareness of his company’s financial debacle. But in the afternoon, Bankman-Fried’s defense team portrayed him in softer tones, as a math nerd with no ill-intent and guilty only of bad management, particularly his failure to install adequate risk management protections. Attorney Mark Cohen said that the government had failed to prove its case as it sought to create a Hollywood villain responsible for the disappearance of the funds, cartooning his dress and personal habits to make their case. At one point, he seemed to appeal to jurors’ emotions, reminding them that Bankman-Fried had lived a big life and now faces prison. Bankman-Fried faces potentially decades in prison on a total of seven counts of wire fraud and conspiracy. The prosecution will have an opportunity for rebuttal on Thursday, and jurors could begin deliberating his fate before the end of the day..  Often raising his voice for dramatic effect, Roos highlighted earlier testimony from Bankman-Fried’s inner circle and Google metadata indicating his awareness of the balance sheet woes to show his involvement in the company’s oversight. Bankman-Fried testified on Monday that he was unaware of the problems, suggesting others were to blame.  And Roos used the time tables to demonstrate separately that Bankman-Fried had lied to Congress about protecting customer assets even as he paid off loans using them, and that he had spent heavily on investments, political contributions and personal items, even after he knew of the massive balance sheet hole.  “This was a pyramid of deceit built by the defendant on a foundation of lies and false promises, all to get money, and eventually it collapsed, leaving countless victims in its wake,” Roos thundered. Visit UnchainedCrypto.com for prior episodes Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Thanks for tuning in to Day 17 of the Unchain Recap of the ASVF trial. On Wednesday, the government and the defense made starkly contrasting closing arguments in the criminal trial of former FTCS CEO, Sam Pinkman-Fried. Assistant U.S. Attorney Nicholas Rose used new evidence, timelines, and the defendant's own words to paint a picture of SPF as a liar, who stole and whose secretive actions belied his public statements, which Rose asserted was an indication of his guilt. Defense attorney Mark Cohen focused more attention on discrediting the government and the cooperating witnesses while emphasizing the high bar that must be reached for the jury to convict on each of the charges. In a decidedly less frenzied courthouse compared to the crowds that had appeared for Bankman-Fried's testimony, the jury sat late for an extra 90 minutes with court letting out after 6 p.m. when it was dark. Deliberations are set to begin Thursday.

Rose, who was tall and has a robust voice and a slightly patrician way of speaking, began his closing statement using clear, simple language. As he walked back and forth in front of the lectern, he faced the jury directly, with his voice ringing out loud and clear. At times, he was impassioned, almost yelling some of his points in indignation. His main theme was lies, and SPF's knowledge that he was doing something he should not have been doing. A few minutes in, Rose said, quote,

this is not about complicated issues of cryptocurrency. It's not about hedging. It's not about technical jargon. It's about deception. is about lies, it's about stealing, it's about greed. After reminding the jury that the main question is whether SPF knew it was wrong to take the money, he said, quote, and the answer is clear, he took the money, he knew it was wrong, he did it anyway. Because he thought he was smarter and better and that he could figure his way out of it, he could walk his way out of it and talk his way out of it.

And today, with you, that ends. He asked the jury to apply their common sense and look at the evidence. Rose then called out the contrast between SBF's direct testimony on Friday, which he called, quote, smooth, and showed Bankman Fried to have a perfect memory of his college years, Jane Street, and the early years of Alameda. At that time, Rose said, he was also able to explain 50 finance and technical terms. Then Rose noted that Bankman Fried became a different person under questioning by prosecutor Danielle Sassoon. Rose said, quote, suddenly on cross-examination, he couldn't remember a single detail about his company or what he said publicly. He never said he couldn't recall during his direct examination, but it happened over 140 times during his cross-examination. He lied about big things and he lied about little things. He asked for terms to be defined that he used freely on direct examination a day earlier. He approached

every question like up was down and down was up. Rose then said that in order to believe SBF, a juror would have to ignore all the other evidence, such as the testimony of all his deputies, the flow of money, and the documents in secret spreadsheets. Quote, you would have to believe that the defendant, who graduated from MIT, who ran two billion-dollar companies, and who was testifying before Congress, was actually clueless, and he had no idea what was happening at his own company, and he had no idea what he was doing wrong. From there, Rose went methodically into the government's argument. He had PowerPoint slides with pointed titles like, quote, the defendant saw FTC's customers as an unlimited line of credit. He pulled up select quotes from the testimonies of the government's

many witnesses, SPF's congressional testimony, screenshot, of FTC's code, spreadsheets. Because, as he quipped, everyone loves spreadsheets. Plus, he pointed out what he called lies in SVF's testimony versus his actions, doing more of what his colleague Sassoon had done in her cross-examination. Use Bankman-Fried's many words against him. Then Rose told the jury to focus on three things. What happened, where the money went, and who was responsible? The prosecutor explained that Alameda had been founded first, but that it did not have investors. it only traded with its own money, as well as money that it had borrowed. Then Rose posited that after SPF founded FTX with Gary Wong, he thought FTX could be a new

source of capital, pulling up a quote from the testimony of Alameda CEO Caroline Ellison, in which she said, SPF told her, quote, FTX would be a good source of capital, and he set up the system that allowed Alameda to borrow from FTCS. The ways in which the government alleges money was siphoned off from the exchange are familiar to anyone who has been following this story. the $65 billion line of credit, the allow negative flag that only Alameda's accounts had enabled, and these being outside the normal margin trading program since Alameda's main accounts did not opt into that feature. Rose pointed out in numerous instances when Bankman Freed's alleged co-conspirators said SBF had decided to implement those features.

To prove the defendant's guilt, Rose said, quote, if he thought this was legit to just have a giant line of credit and this allow negative feature and to borrow from other customers, why was it so secret? Why not just say, hey, Alameda, by the way, has a $65 billion line of credit? Although earlier in the trial, a Google employee who had testified for the prosecution about metadata seemed pointless, the government, in its closing, used metadata multiple times to show, for instance, that SPF had looked at documents he claimed during his cross-examination to not have knowledge of. They also used it to reveal that on June 14, 2022, he initiated a Google meet that he claimed he didn't recall. during which he, Ellison, Wong, and Director of Engineering, Nishad Singh, went over a spreadsheet. The spreadsheet included mention of the Fiat ad account, plus showed that Alameda owed FTCS over

$13 billion in customer money and had a total negative balance of $11 billion. Rose said that this contradicted SPF's own claims that he didn't know about the Fiat ad account until the fall. Bringing up the balance sheet with seven alternatives, Rose pointed out the fact that Ellison made seven versions of it, indicating that it was a lot of it was. for SBF. Quote, why would Ellison just be doing this solo? In what world is a person making eight alternative balance sheets for themselves and not to be shared?

She makes seven alternatives because she knows someone else is picking an alternative and that person is the defendant. Then he pointed out that having two balance sheets, one for yourself and a totally different one to send the lenders, means, quote, clearly you have won too many balance sheets and was fraud. Rose also repeatedly hammered home that SPF was the main. decision-maker. He noted that there were special systems at both Alameda and FTCS that enabled Alameda to use FTCS customer funds and said that the notion that SPF did not direct those setups

requires one to believe, quote, that two different sets of people come up with two different systems that both happened to give the defendant's company secret access to money. Then he went through specific large transactions that relied on FTAX customer money that Rose showed were sometimes solely executed by SPF and thus not to be blamed on any. anyone else. For instance, SPF was the sole person on an email to Binance executives about the buyout of FTC's equity from its rival. Notre Dame professor Peter Easton, who had previously served as a witness for the government, had shown that more than half of that payment came from FTX customer funds. The prosecution also wrote up a few timelines to show SPF doing things in secret that contradicted

his public statements around that time. On May 13th, 2022, it published new terms of service, saying digital assets in your account are your property. On June 13th, Genesis asked for loans to be repaid. On June 14th, SVF and his deputies saw the spreadsheet with a $13 billion hole, but Bankman Free decided to repay the loans anyway. On June 16th, payments got sent to BlockFi and Genesis, their lenders. Then on June 23rd, Bankman Freed gave congressional testimony saying, quote, whoever is in control of customer assets cannot be misallocating or misusing those assets. Then on June 27th, he tweeted, quote, backstepping customer assets should always be primary. Rose, at this point, almost began yelling about the hypocrisy of SBF's statements and words.

After mentioning that in June, the defendant chose to use FTX customer assets to repay Alameda's loans, Rose said, and then if that wasn't enough, he has the audacity within a week to go before Congress under oath and go on Twitter and tell his customers, his victims, that he's not using their money. that money, protecting their money, is his top priority. Finally, Rose showed that early on November 7th, the day before FTX's insolvency became publicly known, SBF, doing a quick back-of-the-nappin calculation, said in a group chat that the deficit FTCS faced was $8 billion. Then Rose pulled up SPF's most infamous tweet, which was posted four hours later. Quote, FTC is fine, assets are fine. Defense lawyer Mark Cohen was a contrast to Rose, not just in content,

but also in delivery. Sleepy, low energy, and monotonously reading from his script, more than just speaking to the jury, he kept his hands on the lectern and often looked down, and would then occasionally turn his head sideways to face the jury. In the overflow room, some people actually slept while he spoke. Emphasizing to the jury how large the government's burden is to prove, beyond a reasonable doubt, that Sam Pinkin-Fried had fraudulent intent and lacked good faith, Cohen rejected the government's premise that, quote, FTX was a fraudulent enterprise to intentionally steal customer funds

from the very earliest days. Cohen's was a story of innocent, failed entrepreneurship. He said, quote, when Sam testified before you, he told you the truth, the messy truth, that in the real world, miscommunications happen, mistakes happen, delays happen, and the borrowing happening in the case of Alameda here,

in the case of Alameda depositing or withdrawing hundreds of millions of dollars a day, in a process that swept in customer fiat assets, There were mistakes. There were failures of corporate controls and risk management. And there was bad judgment. That does not constitute a crime. He began his closing argument by criticizing the government's depiction of the defendant. According to Cohen, U.S. prosecutors unfairly painted the defendant, in his words, as quote, a villain, some sort of monster. By introducing evidence about Bankman Fried's physical appearance, romantic life, and awkward photos, the government,

Cohen asserted, made the defendant look like the villain for their movie. He said, quote, let's face it, an awkward high school math nerd doesn't look particularly villainous. So what did they do? They wrote him into this movie as a villain, a bad guy, directing others, who apparently had no free will of their own to steal billions of dollars. Cohen argued that U.S. prosecutors did not focus on the Y aspect of the government's movie where Bankman Freed is a villain. And by not focusing on the why, the government did not meet the burden of proof to show the defendant's criminal intent in his actions. For instance, Cohen posed the following questions allowed to the jury. Alluding to SPF's many trips to D.C. to liaise with regulators and lawmakers, he said,

quote, why in the world would he go before Congress and subject himself to public questioning when he doesn't have to, when he could be asked just about anything by members of Congress if the whole idea was that he was running a secret scheme using Alameda to defraud customers? Referencing the September 22 memo in which Bankman-Fried proposed closing down Alameda, Cohen said, quote, if Sam is a criminal mastermind and Alameda is the key to the fraud to stealing customer money, why would he be the one proposing to close it in the first place? Why would he be the one starting this conversation?

Then Cohen said that if SBF had been this criminal mastermind, he wouldn't have done those things. He then went into the story of how FDX was built from scratch, chronicling its rise in the way that had been done in the press until its collapse. He recounted, in a somnolent way, how the exchange allowed cross-margining, which was considered an innovation, and how the exchange grew to the point where they were making, quote, $15 billion in trades and $3 million in revenue per day. He said that FTC had, in the words of government witness and BlockFi CEO, Zach Prince,

become, quote, one of the few exchanges that mattered. To address the prosecution's emphasis of Bankrupt's secrecy about using FDX customer funds, Cohen tried to recast several key moments in the government's case to say that Bankrupt's behavior wasn't secretive. One in particular was the codebase changes. Binkinfried, Wong, and Singh collaborated on together, per Cohen's closing statement. Cohen indicated that the code changes were not secret and anyone with access to FTC's codebase could see them. He cited Singh's testimony in which Singh said the codebase was available to the whole company in Slack. Cohen then said, quote, if these coding rights are actually intended to serve as tools to steal,

it makes no sense that the group of people in a company with hundreds of employees would have access to them. Cohen also reframed Bankman-Fried's behavior as the exchange collapsed, saying SBF's state of mind between November 1st to 11th, 2022, was of someone who was acting in good faith. After noting how SPF's tweet saying, quote, FTCS is fine, assets are fine, might be the government's favorite piece of evidence. He said that at the time the tweet was posted, the defendant believed Alameda had enough assets on and off the exchange to address, from Bankman-Fried's perspective, the, quote, liquidity issue on November 7th. However, overnight, the price of FTT dropped dramatically,

which meant that on November 8th, Alamina no longer had enough assets to cover the shortfall on the exchange. Cohen claimed that SPF then deleted the tweets since the assets were no longer fine. Cohen said, if all he's doing this week is wheeling and dealing like a fraudster, why would he do that?

He wouldn't, because he's reacting in real-time as events are unfolding. And once he sees that because of what's happened to FTT, I can't say this anymore. He takes it down. Moreover, Cohen cited Binkman-Fried's decision during this period to turn off the auto-deletion feature in his signal chats as a prime example of good faith and opposite the actions of a fraudster.

Cohen walked through each of the charges and reminded the jury what hurdle needed to be cleared for them to convict on each of them. For instance, he pointed out, on the investor's charge, the investments were made before many of the alleged incidents. However, he did not mention what the government had pointed out, that allow negative was coded into the FTC's code base in July 2019, which was before these investments. Cohen said that the moving of the mobile coin exploit liability

and the Ecoserom staking revenue being added to the 2021 revenue in late December 2021, were not ways of hoodwinking his investors, but to, quote, help them, since, at least for Mobilecoin, that would mean Bankman Freed would personally take the loss. Cohen said that this showed the government making, quote, another effort to backdoor into some sort of proof for the investor account. For the money laundering charge, he said that the government's theory that SPF and others were trying to conceal

that they took money from FJX customers was by making political donations with those funds. He said, quote, think about that. Why would someone conspire to steal funds and then try to conceal them by making political donations, which are some of the most regulated, publicized, and scrutinized forms of spending there is? Near the end of his closing statement,

Cohen spent time sowing doubt into several witness testimonies, primarily focusing on the top executives of FDX and Alameda. Cohen said he found it surprising that the government's three-and-a-half-hour closing statement didn't mention the various agreements, witnesses, such as Ellison, Wong, Singh, and developer Adam Yudidia, and General Counsel Kan Sun made with the government. Cohen tried to undermine the testimonies of Ellison, Wong, and Singh by saying the motivation for cooperating with the government wouldn't be to tell the truth as it is, but to avoid prison time. Cohen mentioned Wong's testimony were the former FTX CEO, so that ideally his testimony would mean he wouldn't be

sentenced to any time in prison. Cohen said, quote, they are not going to get the kind of cooperation agreement they want, the kind of sentence reduction motion by saying, you know, at the time, we really didn't think anything was wrong. They are not going to get it by saying, you know, we all made business decisions, we made mistakes, we did some dumb things and they turned out wrong. Cohen also criticized the testimony of Peter Easton, an accounting professor at the University of Notre Dame, for not analyzing Alameda's net asset valuation and excluding Alameda's assets held off the exchange. Additionally, Cohen pointed out that Easton said his analysis used, quote, the immediate vicinity of customer funds, which Cohen said was, quote, unscientific and, quote,

not something to rely on. Cohen ended with an emotional appeal to the jury, saying that his client had, quote, gone through more than most student in a lifetime, from being a college student to building two companies worth billions. Quote, then there is a market crash and then this, he said. And here we are, finally, before you, in your hands. Thursday, prosecutor Danielle Sassoon delivers the government's second closing argument and then the jury gets instructions before they begin deliberations, which could go into the evening.

And if they do, the jury will get free pizza. Stay tuned for more updates. It looks like this trial is wrapping up. Thanks again.