Bankman-Fried hints at defense blaming lawyers in criminal case

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May 31 (Reuters) – Indicted FTX founder Sam Bankman-Fried appears to be preparing to blame the lawyers who helped him establish the crypto exchange.

That’s the subtext of a petition filed Tuesday by his attorneys at Cohen & Gresser, who are defending Bankman-Fried against federal charges of fraud, conspiracy and bribery. They are seeking access to documents from Fenwick & West, the Silicon Valley law firm that represented FTX and sister hedge fund Alameda Research from the companies’ inception until their November 2022 collapse.

Fenwick & West did not respond to my email queries. The company has yet to file a response to a civil suit brought by FTX clients who named Fenwick as a defendant.

Bankman-Fried pleaded not guilty to the charges. The defense motion claims that Fenwick & West advised it, FTX and Alameda on at least four issues at the heart of Manhattan federal court’s indictment against the former crypto billionaire.

The California law firm, for example, allegedly provided advice to FTX on setting up shell companies that opened accounts at Silvergate Bank (SILV.UL) to receive deposits from FTX customers, according to Tuesday’s petition. . These shell company bank accounts are a vital part of the government’s bank fraud conspiracy charge.

Fenwick & West also reportedly informed FTX that it was not required to register with the US government as a money transfer business, according to the new motion. Prosecutors accused Bankman-Fried of conspiring to violate wire transfer laws by failing to register, but his attorneys said in the new motion that Fenwicks’ alleged advice directly contradicts the government’s theory.

The Bankman-Fried filing also alleges that Fenwick & West reviewed internal agreements in which Alameda loaned money to Bankman-Fried and other FTX executives. The government alleges the loans were an unlawful diversion of customer deposits as part of a scheme to violate federal campaign finance laws. Bankman-Fried’s new motion argues that legal advice from Fenwick & West on the tax implications of the loans could refute the government’s claim that the loans were inappropriate.

Finally, the motion claims that it was Fenwick who instructed Bankman-Fried to communicate with other FTX and Alameda executives through Signal and other ephemeral messaging apps. This purported advice would undermine the government’s claim that Bankman-Fried ordered his colleagues to use Signal and other encrypted communication apps to hide evidence of his crimes.

Bankman-Fried’s attorneys acknowledged in the motion that their claims about Fenwick & West are based on a very limited set of documents.

The filing does not specifically invoke the words “counsel of counsel” to refute government claims that Bankman-Fried acted with criminal intent. But Bankman-Frieds’ attorneys appear to be headed in that direction, telling U.S. District Judge Lewis Kaplan of Manhattan that they need to learn more about Fenwicks’ work for FTX and Alameda to determine whether the firms’ paperwork lawyers exonerate their client.

These documents could help Bankman-Fried argue later at trial that he was following the advice of FTX lawyers.

Tuesday’s filing asks Kaplan to order the government to turn over Fenwick & West’s evidence or allow Bankman-Fried to subpoena documents from the law firm.

The company would almost certainly prefer not to hand over customer records to Bankman-Fried. Among other reasons, Fenwick & West has been named a defendant in a massive class action lawsuit by FTX customers. The plaintiffs’ attorney who filed that case, Kerry Miller of Fishman Haygood, told me Wednesday that he plans to monitor the Bankman-Fried criminal case for any Fenwick & West documents that might bolster the group’s claims.

Lawyers for Bankman-Frieds of Cohen & Gresser declined to comment on the new petition through a spokesperson. The Manhattan U.S. Attorney’s Office also declined to comment.

Attorney-client privilege is often a complication for white-collar defendants who want to blame their firm’s attorneys for providing bad advice. Companies rather than individual executives or outside law firms control the right to insist that communications with their attorney remain confidential. Companies are generally reluctant to waive privilege for fear that their lawyers’ documents will be used in other cases.

Bankman-Frieds’ new petition said its attorneys were in negotiations with FTX’s new attorney about whether the company intended to assert solicitor-client privilege over relevant Fenwick & West documents. (The motion didn’t name FTX’s new law firm, but it is Sullivan & Cromwell.) The defense attorney also said Fenwick & West told them he wouldn’t hand over any document without permission from FTX.

The motion offers two theories as to why Bankman-Fried has the right to access certain Fenwick & West communications even though FTX claims the privilege. Bankman-Fried said the law firm represented him personally in addition to acting as counsel for FTX and Alameda. This assertion appears to imply that Bankman-Fried will claim that he can personally waive privilege over certain Fenwick & West communications.

Defense attorneys also argued that FTX, which is in Chapter 11 bankruptcy, has already waived its privilege over certain documents by turning them over to prosecutors. If that’s correct, former federal prosecutor Harry Sandick of Patterson Belknap Webb & Tyler said, it will be easier for Bankman-Fried to get Fenwicks’ communications.

It’s hard to see why the defense should be denied access, Sandick said.

If Bankman-Frieds lawyers think Fenwick’s documents can help them rebut government evidence of criminal intent, Sandick said, they’ll eventually have to make a strategic decision about how to pass the law firms’ communications. lawyers before a jury.

The documents must be presented through a witness, presumably Bankman-Fried himself or a lawyer from Fenwick & West. The strongest defense case, Sandick said, would likely feature the testimony of a witness from Fenwick & West to bolster Bankman-Fried’s testimony about his reliance on the advice of FTX’s attorneys. But contradictory testimony from a law firm witness could undermine Bankman-Frieds counsel’s defense.

That’s a concern for another day. Right now, Sandick said, Bankman-Frieds attorneys just want to know if the Fenwick & Wests records will help their client.

It is an understandable motion, he said. They say: Let’s see what the documents say, then decide how to use them.

Learn more:

Bankman-Fried seeks documents from former FTX law firm in crypto fraud case

Bankman-Fried charges should not be dismissed, prosecutors say

Bankman-Fried faces long chances to file charges despite Supreme Court ruling

Reporting by Alison Frankel

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.

Alison Frankel

Thomson Reuters

Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A graduate of Dartmouth University, she worked as a journalist in New York covering the legal industry and law for more than three decades. Before joining Reuters, she was an editor and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.

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