Updated Oct 13, 2023 - Economy

SBF's emerging defense strategy may soon become clear

Photo illustration of Sam Bankman Fried with gavels.

Photo Illustration: Shoshana Gordon/Axios. Photo: Angus Mordant/Bloomberg via Getty Images

The performance of Sam Bankman-Fried's attorneys through the first two weeks of his trial has left many questioning their defense strategy — or whether there is any strategy to speak of.

Driving the news: That answer may come soon. SBF's lawyers filed a letter motion Thursday arguing that "misappropriation" is a subjective term, one that shouldn't necessarily be based on the "expectations and understandings" of customers, investors and the like.

  • In the defense's view, the relationship between FTX and its customers — and the rules for how their exchange deposits could be used — "was governed by the FTX Terms of Service," the motion reads.

Between the lines: The U.S. government has been largely trying to prove SBF committed fraud through the testimonies of FTX insiders — that he lied to FTX customers and misused their funds.

  • Yes, but: If the contract says FTX is allowed to move customer deposits around, it would be hard for the U.S. government to prove beyond a reasonable doubt that he actually lied, the argument laid out in the motion suggests.

What others are saying: "Sounds like they're trying to narrow the grounds for arguing misappropriation," Yesha Yadav, law professor at Vanderbilt University said.

  • "You haven't been stolen from, because the fine print potentially allows customer money to be used."
  • "There is more room for the government to prove fraud, if it includes expectations," she said.

Details: The defense is arguing to the court that it should be permitted to 1) cross-examine government witnesses and offer evidence to rebut the "misappropriation theory" and 2) offer evidence and arguments around the materiality of alleged misrepresentations or omissions.

Meanwhile, SBF's attorneys also ask that the government should not be permitted to offer up "expert opinions" from what it deems lay witnesses.

  • For example, Matt Huang, co-founder of crypto investment firm Paradigm, testified in court to general expectations of crypto customers. SBF's attorneys argue that that testimony relied on his lay experience, and not as an expert witness.

Zoom in: SBF's lawyers want to be able to ask about what factors witnesses considered before entering into arrangements and transactions central to the his alleged crimes.

  • So far the defense has been limited to questions around subjects brought up during the direct examination. The prosecution is still presenting its case.
  • At a pre-trial hearing late last month, the defense said it would need no more than a week and a half to present its own.

The bottom line: This piece of its strategy is a pending matter for Judge Kaplan to rule on.

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