Sam Bankman-Fried, the disgraced founder of the collapsed crypto exchange FTX, was back in court Thursday as a judge extended bail restrictions that prevent him from using messaging apps. Prosecutors had raised concerns about witness tampering.
The FTX co-founder was under house arrest at his parents' Palo Alto, California, home while he awaits trial on eight federal fraud and money laundering charges. He pleaded not guilty in January.
Judge Extends Bail Restrictions on Messaging Apps
The judge extended Sam Bankman-Fried’s bail restrictions on messaging apps, citing concern over his potential ability to delete messages while awaiting trial on fraud charges. In a hearing Thursday, Kaplan said he was concerned about the delete features in certain messaging apps and asked more details from Bankman-Fried’s attorneys on how they plan to preserve his communications while he awaits trial.
Prosecutors have raised the issue of witness tampering in Bankman-Fried’s case after it was revealed that he reached out to the general counsel of FTX, the bankrupt crypto exchange he co-founded, on Signal and email. The message was interpreted by prosecutors as an effort to influence the person they have identified as a likely trial witness, according to court filings.
On February 1, the judge temporarily banned Bankman-Fried from contacting current or former employees at FTX or hedge fund Alameda Research, both of which have pleaded guilty to fraud in connection with Bankman-Fried’s alleged manipulation of their trading platforms. The ban was a condition of his release on a $250 million bond.
In the same order, the judge also restricted Bankman-Fried from using encrypted messaging apps like Signal, which allow users to auto-delete messages. During the bail hearing, prosecutors and Bankman-Fried’s lawyers argued over whether the government could get access to Bankman-Fried’s deleted text messages.
The defense team pointed to news stories about letters written by Mary, Queen of Scots, that were only deciphered recently as an example of incognito messages that might evade detection. But federal prosecutor Danielle Sassoon said she was not worried about handwritten messages and argued that prosecutors would be able to extract Bankman-Fried’s encrypted texts if needed.
But Kaplan was unconvinced that the government had a sufficient amount of information to ensure it could recover Bankman-Fried’s deleted texts, especially those sent on other messaging apps, such as WhatsApp. He also expressed concern about Bankman-Fried encrypting his messages with a secret code that he hasn’t revealed to anyone.
When it came to the encryption part of Bankman-Fried’s messaging, Kaplan ruled against his team’s proposal to limit it to only a specific set of app and to require that any encrypted messages were archived for seven years after he’d received them. He also rejected the idea that Bankman-Fried should only use those apps with monitoring technology and only contact a small group of people.
In the end, Kaplan ruled that the bail restrictions on Bankman-Fried’s communications should remain in place until at least February 21, pending further negotiations between the parties. He said the restrictions were needed to protect the public’s interest and prevent Bankman-Fried from hindering government investigations.
Despite the ruling, Bankman-Fried remains largely confined to his parents’ California home and hasn’t yet been able to see any witnesses in his criminal case. He pleaded not guilty in January to eight charges including wire fraud and conspiracy to commit money laundering.
The government has filed civil cases against Bankman-Fried in connection with his alleged misdeeds and has petitioned the court to stay those cases until after his trial. He is scheduled to go to trial on October.
Judge Rejects Proposal to Relax Restrictions
Disgraced former FTX CEO Sam Bankman-Fried is in court again, this time to fight his lawyers' proposed changes to his bail conditions. He was initially barred from using encrypted messaging apps like Signal, but his attorneys and prosecutors had negotiated a deal that would allow him to send normal texts and use Zoom or Facetime calls as long as he installed monitoring software on his phone that automatically logs and records conversations.
But now the judge has rejected Bankman-Fried's request to withdraw his objection to those restrictions and revert back to the original conditions, according to a report by Reuters. Kaplan said he had received new information about the FTX founder's attempts to influence witnesses in his criminal case.
That new information came to light through leaked communications between FTX general counsel Ryne Miller and FTX US chief executive John Ray, as well as in Bankman-Fried's own letter to the court requesting a more specific set of employees with whom he could not communicate without attorneys present, or using encrypted messaging applications such as Signal.
The prosecution had been asking that Kaplan impose more limitations on Bankman-Fried's use of technology, including the possibility that he might try to tamper with witnesses. The judge ruled last week that Bankman-Fried could not contact staff at FTX or his Alameda Research hedge fund unless attorneys were present, and that he was barred from communicating with certain potential witnesses through encrypted messaging apps.
However, he allowed Bankman-Fried to continue to communicate with his family members and with two other people who he has identified as being willing to guarantee his bond. He also allowed him to communicate with his attorneys, who are preparing to defend him against fraud charges.
But the judge denied a separate request from Bankman-Fried's attorneys that they be allowed to speak to him again through encrypted messaging apps and email, and that he be able to talk with his lawyers through Skype or Google Hangouts, as long as they were on a secure phone call or video chat.
"Sam's request to remove these conditions is a misguided one that is not based on any merits," Kaplan wrote in his rejection of the defense’s proposal. He added that he was "less concerned" about the comfort of Bankman-Fried than about the safety of the community.
In response, Cohen said the parties had reached an agreement that allows Bankman-Fried to communicate with a specific set of former FTX employees who were central to the government's case, as well as his attorneys. Those employees include former Alameda Research CEO Caroline Ellison and former FTX Chief Technology Officer Zixiao "Gary" Wang, who have been found guilty of fraud and are cooperating with prosecutors.
Another condition under the new compromise is that Bankman-Fried would be allowed to use WhatsApp if he installs monitoring technology on his phone that will allow the government to track his communication. The monitoring software will keep a log of all conversations and messages that he sends or receives on the app, which will help prosecutors investigate any possible witness tampering.
The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.