The White Collar Appeal: Second Circuit Affirms Sam Bankman-Fried’s Fraud Convictions in FTX Case

• Sam Bankman-Fried, the co-founder and chief executive of the former cryptocurrency exchange FTX, raised a number of issues in his appeal that arise frequently in white collar cases:  whether corporate counsel was working improperly at the government’s behest, what evidence and argument he could introduce to defend against the fraud charges, and the scope of discovery he had to provide about his reliance on attorneys.
• Yet the Second Circuit found almost nothing that gave it pause in the investigation and prosecution of Bankman-Fried, affirming the convictions and 25-year, $11 billion sentence.
• Nevertheless, the decision provides useful insights about best practices for counsel representing cooperating companies, pitfalls that may block the introduction of favorable defense evidence, and courts’ skepticism of imperfect advice-of-counsel defenses.

Background

FTX and Its Downfall.  Sam Bankman-Fried founded and controlled FTX—the heavily marketed cryptocurrency exchange that counted numerous high-profile celebrities among its paid endorsers—along with a less well-known hedge fund called Alameda Research, which focused on crypto trading and investments.  Alameda was FTX’s largest customer and its primary market maker, providing FTX with liquidity that made FTX an attractive trading platform for users.  FTX, in turn, provided Alameda with a substantial line of credit that Alameda could rely on to take even more aggressive positions in its trades. 

In 2022, the crypto markets—and the value of Alameda's assets—crashed, leading some of Alameda’s lenders to ask for their money back.  According to one high-level Alameda executive, Bankman-Fried directed her repay Alameda's lenders with funds that belonged to FTX customers.  They were able to do this because, according to FTX’s co-founder and Chief Technology Officer, he and Bankman-Fried had implemented “special privileges” in FTX’s code that enabled Alameda to withdraw unlimited amounts of funds from FTX, including FTX customer deposits.

FTX, however, had never disclosed to customers that Alameda had these special privileges.  And as Alameda came under stress in 2022, Bankman-Fried assured FTX customers that their deposits were safe and would be used only for customers’ own trades. 

Ultimately, rumors about Alameda’s financial distress caused FTX customers to lose confidence in the platform and seek to withdraw their assets from the exchange.  As this run on the bank gained steam, FTX did not have sufficient liquidity to return customer funds, and in November 2022, FTX filed for bankruptcy.  Bankman-Fried was indicted a few months later on charges relating to fraud and misuse of customer funds. 

Pretrial Events.  Prior to trial, Bankman-Fried sought expansive discovery from FTX’s bankruptcy counsel on the theory it effectively became a part of the prosecution team by reviewing, analyzing, and presenting to the government on millions of FTX documents; disclosing information obtained from witness interviews counsel had conducted; and even asking questions on behalf of the prosecutors in those interviews.  The district court, however, declined to extend the government’s discovery obligations to FTX counsel.

Trial.  At trial, Bankman-Fried sought to introduce evidence that (1) he always intended to return or repay the FTX customer funds he had directed to Alameda; (2) the investments he made with those funds largely panned out, and he would have been able to return the funds had FTX not collapsed; and (3) FTX attorneys were involved in certain corporate decisions that the government argued were part of (or probative of) Bankman-Fried’s fraud.

The district court prohibited Bankman-Fried from introducing evidence on the first two categories.  As to the third, the district court required Bankman-Fried to preview his testimony outside the presence of the jury before the court would allow Bankman-Fried to introduce the testimony at trial.  The district court ultimately permitted Bankman-Fried to testify about only one of four categories that Bankman-Fried sought to discuss, because it concluded that the probative value of the other three was significantly outweighed by the risk of confusing the jury and unfairly prejudicing the government.

The jury convicted; the district court sentenced Bankman-Fried to 25 years’ imprisonment and roughly $11 billion forfeiture; and Bankman-Fried appealed.

Holdings

The Second Circuit found no fault in any of the district court’s rulings.

Discovery from FTX Bankruptcy Counsel.  The Second Circuit agreed with the district court that FTX’s bankruptcy counsel was not an arm of the prosecution, because it had not “conducted a joint investigation” with the government.  The Second Circuit explained that this question turns on whether counsel:

(1) participated in the prosecution’s witness interviews, 

(2) was involved in presenting the case to the grand jury,

(3) reviewed documents gathered by or shared documents with the prosecution, 

(4) played a role in the development of prosecutorial strategy, or 

(5) accompanied the prosecution to court proceedings.

Here, FTX's outside counsel (1) had no role in presenting the case to the grand jury, (2) did not “directly” participate in witness interviews, (3) played no meaningful part in the government’s strategy, and (4) could not access materials the government obtained by subpoena or warrant.  As a result, it was not a joint investigation and bankruptcy counsel did not become an arm of the prosecution.

Exclusion of Defense Evidence.  The Second Circuit held there was no error in precluding Bankman-Fried from arguing that he (1) intended to return customer funds and (2) would have been able to do so had his investments been permitted to play out.  The court looked to the Supreme Court’s recent fraud decision in Kousisis v. United States, 605 U.S. 114 (2025), which states that “a defendant commits federal fraud whenever he uses a material misstatement to trick a victim into a contract that requires handing over her money or property—regardless of whether the fraudster … seeks to cause the victim net pecuniary loss.”  Under that precedent, the Second Circuit explained, “FTX customers were defrauded as soon as Bankman-Fried transferred their money to Alameda regardless of how strongly he believed he might later return the money.”  As a result, the district court did not abuse its discretion by excluding evidence that related to an invalid defense.

Testimony Preview.  Nor did the Second Circuit take issue with the district court requiring Bankman-Fried to preview his testimony.  Because the district court had to determine the admissibility of the testimony—and specifically here, whether the unfair prejudice from the testimony substantially outweighed its probative value—it had discretion under Rule 104 of Federal Rules of Evidence to “conduct any hearing on” admissibility outside the presence of the jury.  Nor did the Second Circuit disagree with the district court’s exclusion of testimony as to three of the four issues.  Because it was undisputed that FTX lawyers did not have all the relevant facts or receive full disclosure about those issues, the court agreed “that the risk of using counsel to create a misplaced air of legality substantially outweighed the probative value of the testimony.”

Key Takeaways

Bankman-Fried maintains a very high bar for treating corporate counsel as an arm of the government.  Bankman-Fried was able to show that the government worked closely with FTX's outside counsel in investigating and prosecuting him.  Although it is common for corporate counsel to make factual presentations and report on witness interviews, asking questions planted by prosecutors is a material step further toward acting as an arm of the prosecution.  But that hardly moved the needle for the Second Circuit.  Instead, the prosecutors and corporate counsel were sufficiently separate because FTX counsel did not participate in presenting the case to the grand jury, nor have access to documents the government obtained via subpoena or search warrant, nor participate “directly” in witness interviews or “meaningful[ly]” in developing strategy.  But these facts will be true in almost every case.  Grand jury secrecy makes it all but inconceivable that corporate counsel would be involved in that process.  And it would be equally unusual for corporate counsel to have access to the government’s investigative file.  And here, FTX counsel arguably did participate in prosecutors’ interviews by asking questions on their behalf.  Bankman-Fried thus seems to require corporate counsel to be significantly cozier with the government before courts will second-guess the relationship.

Lack of prejudice seemed to play a part too.  The court noted that, “[w]hile [FTX counsel] provided the government with extensive disclosure, meaningful disclosure was also made to Bankman-Fried,” including “the specific items he sought from the FTX.”  By doing so, FTX counsel helped to dispel the potential appearance that it was working unilaterally on behalf of the government and adverse to Bankman-Fried.  The lesson for corporate counsel is that it is possible—and advisable—to maintain a reasonable posture vis-à-vis former executives even as the company seeks to curry favor with the government, and that doing so will help to inoculate counsel against criticism later. 

Under Kousisis, no harm, no foul is not a defense to fraud.  Bankman-Fried makes clear that arguing that victims would have been made whole is not viable in the Second Circuit, and doing so invites exclusion of evidence defendants often desperately want to go before the jury—that the money came back or the investments paid off.  Defense counsel thus should look for other ways to introduce this evidence.  For example, subsequent events arguably could be relevant where a defendant allegedly misrepresented either the value of an investment or the nature of the risk involved.  But even if counsel can find a way to get the evidence in, they should be careful not to allude to a no-loss defense.  Prosecutors will be alert to that insinuation, and courts no doubt will see prejudice to the government and take action to cure it.

Courts remain wary of presence-of-counsel—as distinct from advice-of-counsel—defenses.  As discussed in a prior post, because advice-of-counsel is a difficult defense to assert, defendants often seek to introduce evidence that lawyers were aware of the allegedly wrongful conduct, even if the defendant did not directly seek legal advice about it.  That’s essentially what Bankman-Fried did here, and the Second Circuit saw no abuse of discretion in imposing strict limits on it.  The First Circuit recently left open the possibility for a defendant to do so in SpineFrontier, and in United States v. Scully, 877 F.3d 464 (2d Cir. 2017), the Second Circuit held that a defendant should have been able to introduce a similarly imperfect advice-of-counsel.  Bankman-Fried suggests that courts will not always be so indulgent of such defenses.

The advice-of-counsel testimony preview could become a new standard.  The district court’s insistence on a preview of Bankman-Fried’s testimony was controversial at the time.  Not only did it force Bankman-Fried to forfeit the element of surprise—one of very few advantages a criminal defendant has at trial—it also gave the government reams of additional material with which to impeach Bankman-Fried during his testimony before the jury.  Yet the Second Circuit did not meaningfully acknowledge any unfairness or prejudice from the district court’s procedure.  Defense counsel put in this position should appeal to the district judge's sense of fairness or, failing that, make a robust record of the ways in which it is prejudicial to require a defendant to preview testimony in the manner the district court required here.

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