Axios Pro: Fintech Deals

November 16, 2022

Axios Pro Exclusive Content

Good morning, readers.

Situational awareness: Sam Bankman-Fried, Tom Brady, Gisele Bündchen and several other celebrities have been sued in a class action complaint alleging FTX took advantage of "unsophisticated investors from across the country."

1 big thing: Incompetence as legal strategy

Photo illustration of Sam Bankman-Fried.

Photo illustration: Gabriella Turrisi/Axios. Photo: Tom Williams/CQ-Roll Call, Inc via Getty Images

Incompetence — or the perception of it — has benefits as a legal defense, especially if you might face charges of fraud, Axios' Matt Phillips writes.

Why it matters: The notion casts an interesting light on Sam Bankman-Fried's recent chat with the New York Times, in which he repeatedly describes FTX's sudden collapse into bankruptcy as an outgrowth of his own distraction, over-extension and performance as a CEO.

  • ''Had I been a bit more concentrated on what I was doing, I would have been able to be more thorough,'' he told the NYT. ''That would have allowed me to catch what was going on on the risk side.''

The big picture: Bankman-Fried, who hasn't been charged with a crime, faces the prospect of serious criminal legal exposure stemming from the sudden implosion of FTX, the crypto exchange he founded, and his trading shop Alameda Research, as many news outlets have reported.

  • The big question surrounding the collapse is whether the firms misused perhaps billions of dollars of customer money from FTX trading accounts, according to reporting from Reuters and the Wall Street Journal.
  • The Justice Department, Securities and Exchange Commission, and Commodity Futures Trading Commission are all investigating the collapse, according to multiple reports.

What they're saying: "Bankman-Fried looks like he is at very serious risk of ending up in prison," says Renato Mariotti, a former prosecutor in DOJ's securities and commodities fraud section, now a defense attorney at Bryan Cave Leighton Paisner.

How it works: Lawyers tell Axios the main criminal risk Bankman-Fried faces is a fraud indictment — a common charge in white-collar prosecutions. But to convict, prosecutors must prove beyond a reasonable doubt that the accused had knowledge or intent to commit fraud, which can be tricky, the lawyers say.

  • That’s why the defense against such charges typically centers on something like, "It wasn't fraud; I was just really bad at my job."
  • "Typically, in a fraud case, the person at the top argues that he was inattentive, delegated to others, and wasn’t focused on the details," Mariotti tells Axios. "The point is to argue that he was sloppy or inattentive, not a fraudster."

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