Intent Is Key to Bankman-Fried Case

"FTX founder Sam Bankman-Fried stuck to a common refrain ahead of his indictment on fraud and conspiracy charges, saying that while bad decisions and lack of oversight led to the collapse of the crypto exchange, he didn't commit or know of any wrongdoing.

If his case goes to trial, his lawyers are likely to make the same argument to the jury. Prosecutors will need to rebut that narrative to win a conviction, proving that Mr. Bankman-Fried knowingly and willfully broke the law, former federal prosecutors and defense attorneys say.

"You can't accidentally commit a crime," said Andrey Spektor, a former prosecutor now at law firm Bryan Cave Leighton Paisner.

The U.S. Attorney's Office for the Southern District of New York, in an indictment unsealed Tuesday, charged Mr. Bankman-Fried with stealing billions of dollars from FTX customers while defrauding lenders and investors before the company's collapse in November. He faces eight counts, including wire fraud and conspiring to commit securities fraud.

Mr. Bankman-Fried, 30 years old, was arrested in the Bahamas at the request of the Justice Department, which is seeking his extradition. He appeared Tuesday in court in Nassau.

He was denied bail and remanded to jail. His next scheduled court appearance is in February.

A spokesman for Mr. Bankman-Fried declined to comment. His lawyer Mark Cohen previously said that Mr. Bankman-Fried was reviewing the charges with his legal team and considering all of his legal options.

Mr. Bankman-Fried has tried to explain the reasons for the demise of FTX in several public appearances and interviews in the past month.

"Clearly I made a lot of mistakes or things I would give anything to be able to do over again," he said in an interview Nov. 30 at the New York Times DealBook Summit. "I didn't ever try to commit fraud on anyone."

It is a familiar explanation from executives facing criminal charges.

At the criminal trial of Theranos Inc. founder Elizabeth Holmes, her lawyers portrayed her as a well-intentioned if inexperienced entrepreneur. Ms. Holmes also testified she never tried to mislead investors about the blood-testing startup.

Federal prosecutors said that she forged reports provided to some investors, and former Theranos employees testified that she dismissed warnings about questionable test results from the company's lab.

She was sentenced last month to more than 11 years in prison after being convicted of fraud.

At the fraud trial of Nikola Corp. founder Trevor Milton, his lawyers argued the former electric-truck executive painted a rosy picture of the company's technology but didn't intend to deceive investors. He was convicted this year after a trial in which prosecutors argued he repeatedly lied about the development of Nikola's trucks and technology. Mr. Milton's lawyers have said they would appeal.

"The classic defense argument is, 'My client is a bad businessman but he's not a criminal. He didn't intend to defraud or cause any harm,'" said Timothy Howard, a former federal prosecutor and partner at law firm Freshfields Bruckhaus Deringer.

Prosecutors have said Mr. Bankman-Fried's deception helped cause the company's downfall.

Their challenge will be taking jurors through Mr. Bankman-Fried's mindset and demonstrating that the FTX founder knew what he was doing was wrong.

Prosecutors often rely on communications, including emails and texts, as evidence to show a defendant's alleged crimes were intentional.

In Mr. Bankman-Fried's case, they may also use his own statements, former prosecutors said.

"So much of what is in the defendant's mind has been shared by the defendant himself," said Justin Danilewitz, a former federal prosecutor now at Saul Ewing LLP. "He hasn't left much a secret."

Prosecutors also can bolster their case by showing the magnitude of the alleged fraud, said Renato Mariotti, a former federal prosecutor.

"The allegation is that essentially the entire enterprise was fraudulent," Mr. Mariotti said. "It makes it much more difficult for the defendant to say he didn't know what was going on."

Mr. Bankman-Fried's lawyers might seek to use the lack of regulatory clarity on crypto to argue he didn't intend to defraud anyone, said Robert Frenchman, a partner at Mukasey Frenchman LLP." [1]

1. Markets & Finance: Intent Is Key to Bankman-Fried Case
Fanelli, James; Ramey, Corinne.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 16 Dec 2022: B.10.