On May 8, Bankman-Fried filed a motion with U.S. District Judge Lewis Kaplan, requesting the dismissal of most of the charges. He argued that certain charges were based on a theory of fraud that focuses on depriving a victim of economically valuable information rather than tangible property.
Subsequently, the U.S. Supreme Court overturned this theory, known as the "right to control," when it reversed the conviction of a Buffalo construction executive accused of bid-rigging. The Court declared that the theory is not in line with the structure and historical context of federal fraud statutes. Bankman-Fried's lawyers, who have entered a plea of not guilty on his behalf, stated in a letter to Judge Kaplan, dated May 12, that the Supreme Court's decision directly impacts their client's case.
Nevertheless, legal experts argue that in Bankman-Fried's situation, prosecutors can indeed establish the loss of tangible property by the victims. Mark Kasten, counsel at Buchanan Ingersoll & Rooney in Philadelphia, explained that if FTX customers handed over their money based on fraudulent statements made by Bankman-Fried, the government would assert that this constitutes property deprivation.
Bankman-Fried's representatives declined to comment on the matter, and a spokesperson for the U.S. Attorney's office in Manhattan, responsible for overseeing the case, also refrained from providing a statement. Bankman-Fried's case is part of an intensified crackdown on alleged misconduct within digital asset exchanges by U.S. prosecutors and regulators, prompted by the decline in the value of Bitcoin and other tokens last year as central banks increased interest rates. Authorities claim that Bankman-Fried portrayed FTX as a secure and responsible platform in the volatile sector while diverting customer funds. Bankman-Fried is facing multiple charges.
Bankman-Fried, aged 31, capitalized on the rise in bitcoin and other digital assets, accumulating an estimated net worth of $26 billion before FTX filed for bankruptcy in November. The collapse of the exchange occurred following a surge in customer withdrawals due to reports of asset commingling between FTX and Alameda Research, Bankman-Fried's cryptocurrency-focused hedge fund.
According to Paul Tuchmann, a former federal prosecutor and current partner at Wiggin and Dana, Bankman-Fried may have a higher chance of persuading Judge Kaplan to dismiss the bank fraud charge by arguing that it relies on the right to control theory. This charge alleges that Bankman-Fried deceived an undisclosed California bank by stating that he intended to open an account for a trading company but intended to utilize the account for processing deposits and withdrawals for FTX customers. The bank had reportedly informed him earlier that it was unwilling to process such transactions. Tuchmann opined that it is logical to contend that the act of lying to open an account does not constitute an attempt to acquire money or property.
However, even if the bank fraud charge is dismissed, Bankman-Fried will still face 12 other counts during his trial scheduled for October 2. Tim Howard, a former federal prosecutor in Manhattan and current partner at Freshfields, remarked that Bankman-Fried faces an uphill battle and must demonstrate that none of the fraud theories apply to him in order to avoid liability.
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