A Document Implicating Powerful People Is Blocked from Public Viewing in Sam Bankman-Fried Criminal Case

Gunnar Larson g at xny.io
Wed Feb 1 07:40:15 PST 2023


By Pam Martens and Russ Martens: February 1, 2023 ~

Sam Bankman-Fried
Sam Bankman-Fried

Five pages of a deeply sensitive document that is both embarrassing and
potentially a legal threat to people in positions of power vanished
yesterday from public viewing in the criminal case against former
crypto-kingpin Sam Bankman-Fried. The document is a letter written by five
federal prosecutors in the U.S. Attorney’s Office for the Southern District
of New York. The courthouse where the five pages vanished from view is
where the case is being heard: the U.S. District Court for the Southern
District of New York.

According to personnel in the Press Office and Records Management Office of
that District Court that we spoke to yesterday, all six pages of the
document had been filed electronically on Monday, January 30, and all six
pages of the document were able to be viewed in the court’s ECF system
(Electronic Case Files) according to those personnel. ECF is the federal
judiciary’s system that allows case documents, such as pleadings and
motions, to be filed electronically. What’s available for viewing on the
ECF system should also be available for attorneys, the press and the
general public to view through the Public Access to Court Electronic
Records (PACER) system at a cost of ten cents per page.

We’ve been using PACER for many years and our experience yesterday was a
first. We learned of the situation as follows:

On Monday evening, CNN reporter Kara Scannell quoted a portion of one
paragraph from this document. We didn’t come across that CNN story until
Tuesday morning. When we went to PACER to view and download the full
document, only the first page of the six-page document appeared with text.
The other five pages were completely blank except for the case number and
page number at the top of page six. That is, the five blank pages were not
redacted using thick black lines which is the customary technique for
redacting court documents; they were simply blank with no text other than
the header on page six.

We checked the Court Docket to see if a redaction or sealing request had
been made for this document. We could find none. After learning from the
Press Office and Records Management Office that all six pages had been
filed by the federal prosecutors, we were referred to the Courtroom Deputy
for the Presiding Judge in the case, Lewis A. Kaplan. We left a voice mail
explaining the problem, along with our email address and a request to
receive the full document via email. We promptly received via email from
the Courtroom Deputy a complete copy of the document and its two exhibits.
You can view the six-page document and exhibits here.

In a return email, we thanked the Courtroom Deputy for the document and
asked that the problem be corrected so that all six pages could be accessed
and viewed via PACER. As of this morning, the five pages are still blank on

It was immediately obvious to us that multiple powerful persons might have
had an interest in suppressing further press coverage of the material on
those five pages. We’ve broken down the most sensitive areas into two parts
below, along with essential background information.

Information Embarrassing to, and/or a Legal Threat to, Big Law Firm
Sullivan & Cromwell, Which Has Already Been Under a Barrage of Negative
Publicity for Aggressively Pushing to Become Lead Counsel in the FTX
Bankruptcy Case, Despite a Mountain of Conflicts of Interest:

Page Six of the document carries this information:

“…the defendant [Sam Bankman-Fried] moved to take control of approximately
$500 million of Robinhood shares that were purchased using misappropriated
FTX customer funds by a special purpose entity owned primarily by the
defendant. The Government has since seized the shares after demonstrating
probable cause to believe that they are the proceeds of wire fraud and are
property involved in money laundering. Since the Government’s seizure, the
defendant has claimed that he would direct the majority of these funds
toward making customers whole, but the original circumstances of the
purchase of these shares, through a foreign special purpose vehicle with no
public connection to FTX or Alameda, further indicate the steps the
defendant has taken to obscure his criminal misuse of FTX customer
property.” (Italics added.)

On January 17, Sullivan & Cromwell law partner, Andrew Dietderich, filed a
document with the bankruptcy court acknowledging that the law firm had not
only done extensive legal work for FTX but personally represented its CEO,
Sam Bankman-Fried, from April 14, 2022 through August 5, 2022. The
disclosure noted that “This matter was arranged, and paid for, by Alameda.”
That’s Bankman-Fried’s hedge fund which prosecutors have charged he used to
loot FTX customer funds. The specific nature of the work Sullivan &
Cromwell did for Bankman-Fried involved “a position that had been
established in the stock of Robinhood Markets, Inc.” according to the
Dietderich declaration.

So the paragraph above, that has vanished from public viewing, adds the
smoking gun that federal prosecutors believe that some lawyer or law firm
created “a foreign special purpose vehicle” to hide more than half a
billion dollars of looted funds. It also means that it is highly likely
that federal prosecutors know who that lawyer or law firm is.

This information comes at a delicate time for Sullivan & Cromwell. Next
Monday, February 6, the U.S. Trustee in the FTX bankruptcy case, who
represents the U.S. Department of Justice, is scheduled to present its case
at a hearing as to why an independent examiner should be appointed so that
Sullivan & Cromwell is not afforded the ability to investigate its own
conduct in its previous legal dealings with FTX and Sam Bankman-Fried.
Sullivan & Cromwell has aggressively opposed that intervention.

The government’s newly disclosed position that the half billion dollars of
Robinhood shares – on which Sullivan & Cromwell provided legal guidance to
Sam Bankman-Fried – came from “the proceeds of wire fraud” and “money
laundering” isn’t a good look for Sullivan & Cromwell.

The Document Is Deeply Embarrassing and a Potential Legal Threat to the
Government of the Bahamas:

The third paragraph on page three of the document carries this revelation,
backed by an explosive email from Bankman-Fried:

“Moreover, although the Government has not identified the source of the
hack that occurred shortly before the initial conference, the defendant’s
misuse of FTX and Alameda assets during November 2022 independently
justifies the bail condition. As FTX struggled to meet customer withdrawal
requests in early November, Bankman-Fried approved halting customer
withdrawals from the exchange. Shortly thereafter, however, he reopened
withdrawals only for customers in the Bahamas. In an email to Ryan Pinder,
Attorney General of the Bahamas on November 10, 2022, Bankman-Fried wrote
in part, ‘We are deeply grateful for what The Bahamas has done for us, and
deeply committed to it. We are also deeply sorry about this mess. As part
of this: we have segregated funds for all Bahamian customers on FTX. And we
would be more than happy to open up withdrawals for all Bahamian customers
on FTX, so that they can, tomorrow, fully withdraw all of their assets,
making them fully whole. It’s your call whether you want us to do this–but
we are more than happy to and would consider it the very least of our duty
to the country, and could open it up immediately if you reply saying you
want us to. If we don’t hear back from you, we are going to go ahead and do
it tomorrow.’ Opening withdrawals exclusively for Bahamians resulted in
millions of dollars being withdrawn from the exchange, while other
customers of FTX had no ability to access withdrawals.”

This is not the first time that something less than transparent has
occurred in FTX cases. In fact, a dark curtain has been drawn around much
of what is going on in both the FTX bankruptcy case in Delaware and the
criminal case in lower Manhattan.

For starters, the media has been unable to obtain a list of customer names
in the FTX bankruptcy case and had to hire a lawyer to get creditors’ names
released. After the creditors names were finally released, and mega banks
on Wall Street were included on the list of creditors, a clarifying
statement was issued saying that not all of the names on the creditors’
list might actually be creditors. So, almost three months after the FTX
bankruptcy petition was filed, the public has no clarity on who the
creditors or customers are.

In the criminal case against Sam Bankman-Fried, media outlets had to
intervene to ask the court to reveal the names of two unnamed persons who
guaranteed bonds of $500,000 and $200,000 to secure Bankman-Fried’s release
on bail, in addition to his parents who put up their California home as
collateral. Judge Kaplan ruled in favor of the media but has put his
decision on hold pending an appeal.

The criminal court case also suffered an embarrassment when the first judge
assigned to the case, Judge Ronnie Abrams, had to later recuse herself
because her husband, Greg Andres, is a law partner at Davis Polk & Wardwell
LLP, which handled a deal involving crypto exchanges FTX and BlockFi, both
of which are now in bankruptcy. See our report: Sam Bankman-Fried’s
Criminal Trial Judge Is Married to Law Partner of Firm that Arranged the
FTX-BlockFi Deal.

The polling organization, Gallup, reported last September that American
adults’ trust in the federal judicial branch had fallen from a high of 80
percent in 1999 to a new low of just 47 percent last year. If American
democracy is to survive, our federal institutions must do a far better job
at providing transparency to the public and policing conflicts of interest.
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