United States v. Samuel Bankman-Fried, 22 Cr. 673 (LAK)

[Gunnar Larson]

https://wallstreetonparade.com/wp-content/uploads/2023/02/January-30-2023-Letter-from-Five-Federal-Prosecutors-in-the-Sam-Bankman-Fried-Case.pdf

BY ECF
Honorable Lewis A. Kaplan
United States District Judge
Daniel Patrick Moynihan
United States Courthouse
500 Pearl Street
New York, NY 10007-1312
Re: United States v. Samuel Bankman-Fried, 22 Cr. 673 (LAK)
Dear Judge Kaplan:
The Government writes in reply to the defendant’s opposition to the
Government’s motion
to impose two new conditions of pretrial release, and its request to remove
the existing condition
prohibiting the defendant from accessing or transferring any FTX or Alameda
assets or
cryptocurrency. For the reasons below, and those in the Government’s motion
filed on January
27, 2023 (see Dkt. 50), the Court should impose the Government’s proposed
conditions of pretrial
release and maintain the already-imposed conditions.
1. The Proposed No-Contact Condition Is Warranted
The first proposed condition—that the defendant shall not contact or
communicate with
current or former employees of FTX or Alameda (other than immediate family
members), except
in the presence of counsel or as approved by the Government—is necessary to
prevent witness
tampering and obstruction of justice. See 18 U.S.C. § 3142(c)(1)(B)(iv) &
(v) (providing that a
court may impose conditions of bail that restrict personal association and
avoid contact with
victims and potential witnesses).
The defendant’s messages to Witness-1, attached as Exhibit 1, illustrate
why such a
condition is appropriate. The defense argues that these messages were
merely an “innocuous
attempt to offer assistance in FTX’s bankruptcy process,” similar to the
defendant’s earlier
outreach to John Ray, the CEO of the FTX Debtor entities. Dkt. 51 (“Def.
Letter”) at 5; see also
Ex. 2 (January 2, 2023 email from the defendant to John Ray). Putting aside
that the defendant is
trying to participate in FTX asset recovery despite being charged with
crimes related to the misuse
of FTX customer assets that precipitated FTX’s bankruptcy, the defendant’s
messages to Witness-
1 cannot bear his interpretation The differences between the defendant’s
contacts with Witness-1 and John Ray are
instructive. First, Witness-1, unlike John Ray, is a witness to the charged
crimes and not the
steward of FTX’s bankruptcy. Second, the messages to Witness-1 are not of
the same character as
those to John Ray. In reaching out to John Ray, the defendant copied his
attorneys and was explicit
that he wanted to assist with asset recovery. The defendant’s messages to
Witness-1 omit both
Witness-1’s and the defendant’s attorneys and are comparatively oblique,
making no mention of
asset recovery, and referring instead to a “constructive relationship,”
“us[ing] each other as
resources,” and “vet[ting] things with each other.” Ex. 1. This goes beyond
offering “assistance
to FTX ‘as a resource.’” Def. Letter at 2. The defendant refers to
“resources” plural; he not only
offered himself as a resource, but also asked Witness-1 to be a resource
for him in return. Asking
a potential witness to be a resource to him, and to “vet things” with
him—without any clarification
of a supposedly benign intent—shows an effort to improperly influence
Witness-1. Tellingly, the
defense proffers no permissible or innocuous means by which Witness-1 could
be a “resource” to
the defendant. Although, as the defense points out, Witness-1 did not
respond to the message,
Witness-1’s attorney promptly alerted the Government to the defendant’s
concerning overture.
Regardless, a defendant can engage in improper witness contacts even
without explicitly
seeking to shape the witness’s testimony. Improper tampering with a witness
can be achieved by
both “direct and indirect means,” and whether an “overt threat or implied
intimidation,” the “taint”
of such “improper contacts . . . cannot easily be overcome.” United States
v. Grisanti, No. 91 Cr.
299A, 1992 WL 265932, at *6 (W.D.N.Y. 1992). Because “[w]itness tampering
by its very nature
strikes at the fairness and perverts the integrity of the judicial
process,” id., the bail statute
expressly recognizes that a condition that prohibits “all contact with an
alleged victim of the crime
and with a potential witness who may testify concerning the offense,” is
among the conditions that
may be necessary to protect the safety of the community, 18 U.S.C. §
3142(c)(1)(B)(v). Here, the
defendant’s position of authority with respect to his former employees,
combined with his recent
outreach to a former employee about the case, raises a sufficient specter
of witness tampering to
justify the proposed condition.
The defendant asserts that “many” of the former employees who would fall
under the
proposed bail condition are the defendant’s friends and an “important
source of personal support.”
Def. Letter at 6. While that may be true, it is also true that many of the
defendant’s former
employees are not only potential witnesses, but also his victims. The
defendant perpetrated his
scheme with the assistance of a few high-level executives, but many of his
employees were in the
dark until FTX’s collapse, and themselves lost money as a result of the
defendant’s crimes. These
employees had assets on FTX.com, including compensation the defendant had
paid in the form of
FTT, FTX.com’s cryptocurrency token that collapsed in value in November
2022 as the
defendant’s misconduct was exposed. The defense notes that FTX and Alameda
had
approximately 350 employees. Def. Letter at 6. That merely highlights the
Government’s
informational disadvantage; while the Government has conducted dozens of
interviews, it has not
communicated with every former FTX and Alameda employee, let alone defined
the complete
universe of former employees with information relevant to the charged
crimes. The defendant, on
the other hand, can more readily identify for the Government or the Court
the close friends whose
support he considers critical to his mental health and wellbeing. See Def.
Letter at 5.
The Government does not seek to deprive the defendant of personal
support—it acquiesced
in the defendant’s request to live with his parents in California and has
already indicated no
objection to the defendant communicating with his therapist and several
friends (and former
employees) identified by the defense as continued close friends of the
defendant. In an email on
January 27, 2023, at 11:42 a.m., the Government thanked defense counsel for
their “engagement”
on the proposed bail condition, informed defense counsel of the conditions
it intended to seek from
the Court, and noted the Government’s view that it is “more administrable
to approve proposed
contacts than to give you a potential witness list, particularly because
our investigation is ongoing
and we continue to identify former/current employees with relevant
information.” Notably, while
the defendant’s proposed bail modification includes a category of witnesses
whom the defendant
would be prohibited from contacting, even in the presence of his attorneys,
the Government seeks
no such restriction. Under the Government’s proposal, the defendant would
remain free to contact
and communicate with potential witnesses, as long as his attorneys are
present, thereby preserving
his constitutional right to participate in and prepare his defense.
The defendant’s claims that that the proposed condition would impinge upon
his First
Amendment right of association and ability to participate in his defense
are therefore without merit.
See Def. Letter at 5. As the cases relied upon by the defendant themselves
makes clear, a district
court may impose a bail condition that restricts a defendant’s right to
associate upon a finding that
such a condition is necessary. See United States v. Lillemoe, No. 15 Cr.
25, 2015 WL 9694385, at
*2 (D. Conn. May 28, 2015); United States v. Arzberger, 592 F. Supp. 2d
590, 603-04 (S.D.N.Y.
2008). Indeed, Section 3142 specifically contemplates that judges may make
such a finding. 18
U.S.C. § 3142(c)(1)(B)(iv) (conditions of release may include “that
condition that the person . . .
abide by specified restrictions on personal associations”). The defendant
makes no persuasive
showing that the proposed condition would impede participation in his
defense. If anything, the
proposed condition ensures that to the extent the defendant participates
directly in his own defense,
he does so consistent with the rules that require contact through a
represented person’s attorney
and without improperly influencing or intimidating witnesses.
The defense cites several cases that included a bail condition similar to
that proposed by
the defense. Notably, those cases too imposed restrictions on a defendant’s
association with others.
But to the extent that the defendant advances those cases to support his
proposed restrictions as
opposed to the Government’s, those cases are readily distinguishable. Ruiz,
for example, involved
charges against a drug courier, and the government needed to identify the
“witnesses and alleged
co-conspirators” to which the no-contact restriction applied because there
was not an easily
identifiable category of witnesses, such as employees, investors, or
victims to use in the restriction.
United States v. Ruiz, 21 Cr. 596 (LAK) (S.D.N.Y. Jan. 29, 2021).
Similarly, Ospina involved
charges against an individual who helped to move proceeds of an elder fraud
scheme, and it was
necessary for the government to identify “witnesses and victims” to which
the no-contact
restriction applied because the defendant did not know the identities of
all the witnesses and
victims. United States v. Ospina, 20 Cr. 102 (VEC) (S.D.N.Y. Jan. 10,
2020).
Courts in this District have routinely imposed a condition like that
proposed by the
Government here in cases where the defendant perpetrated a fraud in a
corporate setting and the
defendant’s former employees, co-workers, or investors were among the
potential witnesses or
victims. See, e.g., United States v. Chastain, 22 Cr. 305 (JMF) (S.D.N.Y.
June 1, 2022).(“Defendant to have no contact with present or former
employees of OpenSea except in presence
of counsel”); United States v. Milton, 21 Cr. 478 (ER) (S.D.N.Y. July 29,
2021) (“Defendant is
not to have contact with any investors except individuals the defendant has
an independent
relationship with”); United States v. Wynder, 20 Cr. 470 (PKC) (S.D.N.Y.
July 13, 2020) (“No
contact with past or present employees, agents, board members of LEEBA or
LEEBA funds,
except in presence of counsel”); United States v. Petit and Taylor, 19 Cr.
850 (JSR) (S.D.N.Y.
Dec. 4, 2019) (“absent the advance written approval of the Government, deft
shall have no contact
(direct or indirect) outside of the presence of counsel, with (a) current
or former Mimedx
employees (b) current or former employees/representatives of Mimedx
distributors or auditors; (c)
current or former Mimedx counsel; except for inadvertent/nonsubstantive
social contact”); United
States v. Cole, 19 Cr. 869 (ER) (S.D.N.Y. Dec. 5, 2019) (defendant “to have
no contact, direct or
indirect, outside of the presence of counsel, with current or former
employees of Iconix Brand
Group, GBG, or BDO, except for defendant’s family members”); United States
v. Wong, 18 Cr.
737 (JGK) (S.D.N.Y. May 5, 2018) (“No Contact with Current or Former MCU
Employees or
Board Members”); United States v. Abghari, 14 Cr. 518 (JFK) (S.D.N.Y. Aug.
7, 2014) (defendant
“shall have no contact with any current or former employees or
representative of Vortex Financial
Management, d/b/a Professional Legal Network, Attorneys Legal Network,
Attorneys Alliance
Union, Legal Exchange Group, and Professional Marketing Group; The Rory M.
Alarcon Law
Firm, d/b/a RMA Legal Network, National Legal Associates, and R.A. Legal
Group and the Brian
Butler Law Firm”). The proposed no-contact condition is similarly justified
here.
2. The Proposed Prohibition on Using Encrypted and Ephemeral Messaging Is
Warranted
In opposing the Government’s second proposed condition—that the defendant
not use any
encrypted or ephemeral call or messaging application—the defense asks the
Court to disregard
evidence that the defendant used Slack and Signal, and their autodelete
functions, to obstruct
detection of his underlying crimes, claiming that this is “irrelevant to
the bail analysis.” Def. Letter
at 6. But this evidence is precisely why the Government’s concerns about
the defendant’s
continued use of Signal are not “unfounded,” as the defense insists. Def.
Letter at 6. The Court is
expressly directed when determining bail conditions to consider the “nature
and circumstances of
the offense charged,” 18 U.S.C. § 1342(g)(1), and here that includes the
defendant’s deliberate
destruction of inculpatory communications with his coconspirators using
Signal and Slack’s
autodelete function. While the specific messages to Witness-1 were not set
to autodelete at the
time they were sent, Signal allows either party to unilaterally delete
existing messages. The
defendant’s continued use of Signal to communicate with a former employee
about the case,
combined with his previous use of Signal to obstruct justice, warrants the
proposed condition.
Moreover, the proposed condition does not burden the defendant’s ability to
communicate or to
prepare his defense. The defense identifies no compelling need for the
defendant to use encrypted
and ephemeral messaging applications, as opposed to standard forms of
communication, such as
unencrypted text messages, emails, and phone calls.3. The Existing
Prohibition on Accessing or Transferring any FTX or Alameda Assets
Remains Warranted
In asking the Court to remove the existing bail condition that prohibits
the defendant from
accessing or transferring any FTX or Alameda assets, the defense relies on
a mistaken premise.
Contrary to the defense’s assertion, this condition does not solely depend
on whether the defendant
is responsible for the access and transfer of Alameda funds that occurred
shortly before the initial
conference (a matter that the Government continues to investigate).
Instead, that incident
highlighted that despite the Government’s property seizures and the
extensive assets already
secured by the bankruptcy estate, there remain FTX and Alameda
cryptocurrency assets that are
vulnerable to exploitation and in need of protection from the defendant.
Given the “nature and circumstances of the offense charged,” 18 U.S.C. §
1342(g)(1), the
existing condition is justified because the defendant is charged with
defrauding customers of FTX,
investors in FTX, and Alameda’s lenders—meaning that the very assets that
the defendant seeks
to access are the potential proceeds of his crimes. The Government
continues to identify and trace
assets that are potentially forfeitable in this case but that remain at
risk of diversion. Because
FTX’s and Alameda’s remaining assets may include stolen customer funds,
fraud proceeds, or
assets that are otherwise recoverable by FTX’s creditors, there is no
justifiable basis for the
defendant to access these assets, and he identifies none.
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.
In addition, and as noted at the initial conference, after FTX declared
bankruptcy, the
defendant worked with foreign regulators to transfer FTX assets to foreign
regulators, when he
knew that FTX’s lawyers were seeking to secure those very assets for the
U.S. bankruptcy, and he
told Gary Wang—FTX’s Chief Technology Officer who has pleaded guilty to a
cooperation
agreement with the Government—in substance and in part, that he wanted to
stall with the U.S.
bankruptcy in order to assist the foreign regulators, whom he thought would
be more lenient with him and who might permit him to regain control of FTX.1
 Finally, in December, the defendant
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.
For these reasons, the defendant’s request to remove this bail condition
should be denied.
Respectfully submitted,
 DAMIAN WILLIAMS
 United States Attorney

 by: /s/ Danielle R. Sassoon
 Nicolas Roos
Danielle R. Sassoon
 Samuel Raymond
 Thane Rehn
 Andrew Rohrbach
 Assistant United States Attorneys
 (212) 637-1115
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